Chris_R - 2:38 am on Aug 18, 2004 (gmt 0)

I have sold short a few times. I have never had any problems, but the issues I sold short were on the market for more than a day :)

It was always easy, but there a couple things to keep in mind:

1) You have to have a margin account. They will give this to almost anyone, but you have to apply/ask for it. It is basically a credit line from the broker based on the amount you have in cash and certain securities. It has nothing to do with actual credit - your credit will most likely never be checked for this. Your credit limit is equal to the amount you have on hand with the broker in cash and marginable securities (most stocks over $5.00).

2) You can't buy as the stock is going down. Here is a quote about this from etrade:

Before you can sell a stock short, your broker must first have access to the shares you want to borrow.... Also, you can't sell short while a stock's price is going down. Over-the-counter stocks (Nasdaq/OTCBB) can be sold short only on an uptick -- the price of the last trade must be higher than that of the previous trade. These rules are designed to keep investors from short-selling a stock that is already falling in price, thereby accelerating the stock's downward price movement.

3) The broker has to be able to borrow the shares. This is the part I don't fully get. I am not sure exactly how they do this. I think they actually either a) have the shares on hand from other people they do business with or b) buy these on the open market (or both), but I am not really sure.

Other than that - I suspect you will be able to short these.

You can always try. Just make sure you select "sell short" when you short and "buy to cover" when you buy back the shares to close out the trade. Other than that it is pretty much like buying and selling other stocks.

Of course - there is the standard warnings and stuff - you can lose more money shorting than you can holding a stock. If you own a stock - the worst thing that can happen is it goes to zero and you lose all your money. If you sell short a stock - you have to:

A) Pay margin interest during the time you hold it
B) Take the risk that the stock will grow to more than what you paid for it - be even more than 100%. A stock you short at $50.00 could go to $150.00 - once it past $100 - you lost all your money - over $100 and you owe money. By this time you most likely would have gotten a margin call anyway if you have most of this on margin.