Have you celebrated Mole Day today? If not, drink a toast to Avogadro at 6:02:21pm. Not any exciting trades today. See the video for some unusual trade analytics (such as a profit margin moving average graph) I conducted on my pre-leader long trades (my profit on which just breached $1,000!).
Daily profit: $137.14
Weekly profit: $1571.43
Disclosure: No positions in any stocks mentioned in this post. I have a disclosure policy.
To sell short, a trader first needs to borrow shares that will be sold short. For the most part, brokers will only lend shares if they have other customers who own the shares. While there is an inter-broker stock loan market, it is not very well developed (LocateStock.com is one company that provides such services to brokers; AQS is another). The method of borrowing shares differs at different brokers. For most normal discount brokers, you need to place a short order and then if no shares are available the broker will reject the order because there are no shares to borrow. Following are instructions for many different brokers on how to borrow shares to short and how to see which stocks are available to short.
E*Trade – There is no way to determine which stocks are shortable. You must enter a short order and if it is rejected then that stock is not shortable at the present time. Shorting stocks priced below $1 per share is prohibited. Etrade has instituted a hard to borrow program that allows for the possibility of shorting hard to borrow stocks. You can read more and enroll here. If a stock is hard to borrow you will be quoted a borrow fee as an annual interest rate and once you accept that fee the order will be sent to the market.
Lightspeed Trading – Lightspeed generally sets up clients to clear through Penson, although they can clear through Goldman Sachs. They tell me that they also obtain borrows that they get from other sources as well. The Lightspeed trading platform will display a symbol if a stock is not readily available to short. According to Lightspeed, “We have a standing request with our clearing firms to locate or pre-borrow a certain quantity of every hard to borrow stock.” If a hard to borrow stock is in inventory through that standing request, it will be marked as available to short in the Lightspeed platform. If a stock is marked as hard to borrow in the trading platform, the user can send a request for the borrow through email or live chat. Lightspeed will then make an additional attempt to secure the requested shares for that specific user.
Scottrade – There is no way to determine which stocks are shortable. You must enter a short order and if it is rejected then that stock is not shortable at the present time. Scottrade generally has poor short stock availability. Shorting stocks below $5 per share is prohibited.
Centerpoint – At the bottom of the level 2 montage there are the letters “ETB”. If the stock is not easy to borrow then those letters are greyed out. In the image below they are in greyed out, meaning that CLNO is not easy to borrow/short. Stocks that are not easy to borrow may be located using the locate monitor in Sterling Trader Pro.
TD Ameritrade – There is no way to determine which stocks are shortable. You must enter a short order and if it is rejected then that stock is not shortable at the present time. TD Ameritrade generally has poor short stock availability (although sometimes they will have shares of hard-to-borrow stocks). Shorting non-marginable stocks (including all OTC stocks) is prohibited.
Tradestation – Tradestation primarily self-clears for stock trades. The Tradestation platform has a “Short Locate” function, which search for hard to borrow securities. About 20-30% of the times when IB does not offer shortable securities they can be found on Tradestation (this is according to a reader)). It takes around 30 seconds up to 15 minutes; usually under 2 minutes) to get the answer from a “locate request” – using their built-in platform locate tool. Tradestation does not allow short selling of OTC stocks or stocks under $2.50 per share.
Other random discount brokers – Most small discount brokers clear through Penson Financial (which has now changed its name to Apex Clearing), so the borrows would be the same, although the method for borrowing shares may be different. Noble Trading, Cobra Trading, and LowTrades.com all clear through Penson.
Interactive Brokers – I like to use the FTP text version of IB’s short stock list: Shortable Stocks FTP (when prompted for a password just hit enter or okay). The FTP link will show a large text file; use your browser’s search function to find a stock by name or ticker. An HTML version of the shortable stocks list is also available. Both show how many shares are available to short and what interest rate a trader must pay to borrow said shares. For example, the FTP link shows each stock on a line that looks like this: “AMEL|USD|Amerilithium Corp|73282418|US03077G1067|03077G106|-2.69|NA|NA|20000|”. The first entry is the ticker, the next the base currency, followed by name, two different identification numbers I’m not familiar with, the stock’s CUSIP, and then the indicative annual interest rate (positive numbers indicate a short sale rebate, in other words you get paid to hold the short position). The right-most entry is the number of shares available. The top line of the file indicates when the data were updated (ie, #BOF|2010.06.07|13:30:03) and the second line shows each column’s headers. So the line above indicates that as of 1:30pm EST on June 7, 2010 there were 20,000 AMEL to short at an annualized interest rate of 2.69%. The interest rate can change from day to day as the stock becomes more or less easily available to short.
If you log in to your account and go to “Tools > Short Stock Availability” you can see more detailed data on how many shares of a stock were available at different times. Interactive Brokers has detailed instructions on how to use this tool. I have also configured my Trader’s Workstation software to show the “Shortable” column. Below is a detailed video of how to do that. IB allows short selling stocks of any price (although short selling stocks under $2.50 requires more capital) and allows short selling of OTC BB and Pink Sheets stocks. Interactive Brokers does not allow for reserving shares to short; the first trader to get a short order filled gets the shares. Because Interactive Brokers’ system automatically searches for stock to borrow from various lenders and then displays how many shares are shortable, if it shows that there are no shares to short, placing an order to short is almost futile. You can place an order, which will cause the system to automatically look for more shares, but I have found that to almost never result in the system finding shares. The one benefit of placing an order is that TWS should notify you if you place a short order for which there are no shares and shares do later become available.
[Update 2017-5-3]: Interactive Brokers allows preborrowing shares to short of any stock. To submit a preborrow order you must have a Portfolio Margin account (this requires approval and a minimum $110,000 equity in your account). Preborrow orders are accepted on all US stocks and the minimum size for a preborrow order is $10,000. Preborrowing shares reduces the likelihood of a forced buy-in and will enable a short seller to sell short stocks that are hard to borrow. Preborrowed shares can be held without shorting the stock for up to 3 days (afterwards they will be automatically returned). There is a $20 per ticket charge for each filled preborrow order.
See the first video below for how to use the shortable column. The quick way to add it is to right-click the column header just to the right of where you want the shortable column, then select “Insert column before XXX column” > “Contract Description” > “Shortable”.
Below is a video about how to use Interactive Brokers’ short stock availability tool. (Direct link to video)
Disclosure: Updated 4-12-2018 to add info on Tradestation. No positions. I use Interactive Brokers (which I love) and Centerpoint Securities (clearing through Vision Financial). I have my IRA accounts at TDA (formerly Scottrade). I have an account at Etrade that I rarely use. I have a disclosure policy.
If a stock is marked as hard to borrow in the trading platform, the user can send a request for the borrow through email or live chat. Lightspeed will then make an additional attempt to secure the requested shares for that specific user.
I am a firm believer in tracking all your stock trades. In fact, you can see how all my trading strategies are performing by visiting my trading profits page. By tracking your trades according to which strategy you are using you can identify how profitable a strategy is and whether you should be using more or less money to trade it. Furthermore, tracking your trades will help you to avoid trades that are based on hunches and not on specific strategies, because it will quickly become clear how quickly you lose money on such trades.
Download below a version of the trade log spreadsheet I use. Use a separate sheet in the spreadsheet for each different trading strategy. Watch the video below if you need guidance in how to use the spreadsheet.
[Edit 2013-12-3]: I created a new version that has separate columns for commissions because some people find this to be simpler (I just use formulas to include them in the trade price) and I saved this in the current Excel format. Download here.
[Edit 2015-3-24]: I finally uploaded a version to Google Docs and improved the formulas. Go to “File” > “Make a copy” to save a copy to your Google Docs so you can edit it.
Disclosure: No positions in any stocks shown in the spreadsheets or in the video.
This is not my video; I just found it on Youtube. Tthe person who made it explains this feature well so I see no point in doing my own video on this feature. See also my video on the simpler feature “alarm” and how to set those up in TWS. The “alert” function allows TWS to automatically make trades based on stock price action, in addition to alerting the trader about price movements.
This tutorial covers the TWS “alarm” function. There is also a more sophisticated “alert” function that allows TWS to automatically make trades based on stock price action. Also, IB has the order types “market if touched (MIT)” and “limit if touched (LIT)” that will submit an order if a stock hits a certain price. I will address these features in future videos.
I often talk about pre-leaders or pre-market gainers. These are stocks that are up in pre-market trading. They often make for good trades. This video shows how to scan for them yourself. As to trading them, I will write about that in the future; I suggest checking out Muddy’s post about pre-leaders in the meantime.