The post Brokers for Short Selling by Jay and Julie Hawk appeared first on Benzinga. Visit Benzinga to get more great content like this.
Benzinga readers often choose CenterPoint Securities or TradeZero as the best brokers for short selling.
Day traders who speculate on an upcoming decline often sell stocks short. But you can also use short sales to balance portfolio allocations and manage risk. That’s one reason why you need the best brokers for short selling.
When you sell stocks short, you borrow the stock from your stockbroker, then sell the borrowed stock in the market and leave an open short position. You close that short position by repurchasing the previously sold stock, hopefully for a profit.
As a short seller, you profit by buying back the sold shares at a lower price and making the difference between the sale price and the purchase price on each share. If the stock goes up, you wind up paying a higher price for the short stock and take a loss. Selling short also has some important rules.
Not all brokers are created equal, so carefully consider your needs before you open an account and start investing. Get started now with our recommended brokers for shorting a stock.
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Best Brokers for Short Selling
Here’s a list of Benzinga’s preferred brokers for short selling. Remember, as a short seller, you should use a brokerage that’s best for you, not one that everyone says you will love.
- Best for Momentum Traders: CenterPoint Securities
- Best for Cost-conscious Traders: moomoo
- Best Overall Brokerage for Short Selling: TradeZero
- Best for Active and Global Traders: Interactive Brokers
- Best for Short Selling Over $25k: Cobra Trading
- Best for Active Traders: Lightspeed Financial Services Group
- Best for Intermediate Traders: TradeStation
- Best for Active Traders: Webull
1. Best for Momentum Traders: CenterPoint Securities
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CenterPoint Securities is ideal for active traders who demand access to advanced tools and services. While investors and casual traders are likely to be content with the basic offerings of traditional online brokerages, active traders will benefit from CenterPoint’s suite of advanced trading tools. If you value execution quality, access to short inventory, advanced trading platforms, and accessible customer service, CenterPoint is an excellent choice.
Best For
- Intermediate to Advanced traders
- High-volume traders
- Momentum traders
- Short sellers
- Unrivaled access to short inventory
- Flexible order routing for improved executions
- Discounts for active traders
- Advanced platform with fast executions
- Reliable customer service
- Not designed for beginner or low-volume traders
CenterPoint Securities is a brokerage firm that offers remarkable tools for intermediate to advanced traders, high-volume traders, momentum traders and short sellers. When you short sell with CenterPoint, you can take advantage of a massive short inventory and advanced order routing so that your orders process as quickly as possible.
There are discounts available to active traders, and the customer support team is very responsive. Try a Pro, Web or Mobile account, use the built-in scanners, custom alerts and short locates tools so that you can make wise decisions and stay on top of your portfolio.
Pros
- There are scanners that allow you to get the alerts and information you need as you make critical decisions
- The short location tool is helpful for those who need to quickly short a stock while they still can
- You can also leverage this platform for momentum and high-volume trading
Cons
- Less-experienced traders may feel as though there are too many choices to make, tools and options that get in the way of trading
2. Best for Cost-Conscious Traders: Moomoo
Moomoo is a commission-free mobile trading app available on Apple, Google and Windows devices. A subsidiary of Futu Holdings Ltd., it’s backed by venture capital affiliates of Matrix, Sequoia, and Tencent (NASDAQ: FUTU).
Pros
- You get more than just $0 commission on many transactions
- Fundamental and technical analysis tools are rather robust
- Beginner and advanced traders can both partake in short selling on this platform
Cons
- Bonuses are much more robust as your account grows in value
3. Best Overall Brokerage for Short Selling: TradeZero
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securely through TradeZero’s
website
TradeZero is an online broker and free stock trading platform that provides everything you need to successfully share and trade, including round-the-clock customer support. TradeZero provides four different trading state-of-the-art software programs with its services, a locator for sourcing shares for shorting, commission-free trades, and real-time streaming, to name a few of the features promoted on their website. The software is a unique and (potentially) affordable option for anyone interested in stock trading.
Best For
- Traders seeking high transparency and mobility in a stock trading program
- Those attracted to commission-free trades
- Those seeking a free version of a high-quality trading program
- 24/7 live customer support
- Uses ZeroWeb technology, a powerful level 2 online platform with direct market access
- Mobile app allows users to access stocks and trade in real-time while on the go
- Enforces Pattern Day Trading restrictions (accounts need to maintain a daily equity balance of at least $25k)
- Mobile app could offer more features
TradeZero won the Benzinga Global Fintech Award for Best Brokerage for Short Selling in 2020, 2021 & 2022. TradeZero offers free limit orders and marketable orders, including market orders and marketable limit orders, only cost $.005 per share.
TradeZero also offers 6:1 intraday leverage on equity. 6:1 day trading leverage allows traders to maximize day trading opportunities in the market. You can get 2:1 leverage on overnight positions.
Pros
- The firm has been lauded many times over for the services it provides to traders, especially short sellers
- Low costs allow you to better reinvest in your portfolio
- The platform has been simplified to ensure that traders can easily navigate and make decisions
Cons
- Leverage options change from day to night, meaning some investors may be confounded by how to enter and exit certain positions
4. Best for Active and Global Traders: Interactive Brokers
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securely through Interactive Broker Primary’s
website
Interactive Brokers is a comprehensive trading platform that gives you access to a massive range of securities at affordable prices. You can buy assets from all around the world from the comfort of your home or office with access to over 150 global markets. Options, futures, forex and fund trading are also available, and most traders won’t pay a commission on any purchase or sale.
IBKR is geared primarily toward experienced traders and investors but now with the availability of free trades with IBKR Lite, casual traders can also acclimate to IBKR’s offerings.
Best For
- Access to international markets
- Active traders
- Sophisticated investors
- Detailed mobile app that makes trading simple
- Wide range of available account types and tradeable assets
- IB SmartRouting provides significant price improvement vs. industry
- Fractional trading allows investing regardless of share price
- Industry’s lowest margin rates
- Earn more by lending your fuly-paid shares
- Beginner investors might prefer a broker that offers a bit more hand-holding and educational resources
Interactive Brokers is the premier broker among active traders who are looking to sell short. Their platform features the IBKR Securities Loan Borrow (SLB) system, which provides short sellers with vital information about the availability of shortable securities such as the quantity available, number of lenders, and both current and historical indicative borrow rates. Advanced traders can even upload a bulk request text file to search for availability of multiple shortable securities at once and download prepared lists of shortable securities grouped by country.
Pros
- There are several unique, branded trading tools on IBKR that make investing that much easier
- You can upload bulk request files if you want to see current availability
- Low trading fees
Cons
- This platform has all the tools you need as an advanced trader, but it may be so massive that certain investors could feel overwhelmed
5. Best for Short Selling Over $25k: Cobra Trading
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securely through Cobra Trading’s
website
Cobra Trading is a direct access broker focused on access to short opportunities and order execution. Cobra has multiple short locate sources, giving traders access to the best short opportunities in the market. Cobra Trading also specializes in offering comprehensive, responsive customer service throughout the trading day. We recommend Cobra Trading to high-volume traders and short sellers.
Best For
- Short Sellers
- Day Traders and Scalpers
- Traders who are tired of using a “Big Broker”
- Affordable commissions
- The DAS Platform
- Excellent customer service
- No trading under 25K
- Not a self-clearing firm
Cobra Trading is the go-to broker for short selling with their exceptional access to borrows and direct access routing. Cobra gives you the ability to take advantage of the best opportunities in the market. The broker has been in business for nearly 20 years and maintains the perks of a small firm.
Cobra Trading exclusively opens and services active trading brokerage accounts above $25K. Cobra allows you to trade in a way that a “free broker” cannot.
Pros
- The broker is nearly 20 years old, giving you far more expertise and know-how than you would have expected
- You can access borrows so that you can make wiser decisions
- While this platform is a little pricier, it gives you what discount brokers cannot
Cons
- You must trade with $25k on this platform, which means many investors may want to save up before they consider opening an account here
6. Best for Active Traders: Lightspeed Financial Services Group
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securely through Lightspeed Trading’s
website
Lightspeed Financial Services Group was first founded in the early 2000s and has since evolved to offer a wide variety of online (trading) opportunities. Lightspeed allows you to access advanced trading platforms such as their Lightspeed Trader platform as well as specialty and futures trading platforms at competitive prices. Lightspeed provides customizable software that focuses on risk management and fast execution speeds while optimizing control.
Best For
- Active traders
- High-Volume traders
- Short-Sellers
- Option traders
- Deep discounts for high-volume traders
- Fast & personal customer service
- Fast execution speeds
- Cutting-edge trading platform in Lightspeed Trader
- Robust inventory of locates on HTB stocks
- High minimum investment ($10,000)
Lightspeed Financial Services Group was first founded in the early 2000’s and has since evolved to offer a wide variety of online trading opportunities. Lightspeed offers a wide variety of advanced trading platforms specifically designed for active traders. Of those advanced trading platforms, their hallmark trading platform, Lightspeed Trader is the pinnacle of them all and stands alone from the rest. The Lightspeed Trader platform lives up to its name by focusing on and delivering on lightning-fast execution speeds. Lightspeed Trader also offers intuitive charting and an easy-to-use short-locate window with a robust inventory of locates on HTB stocks to make short-selling efficient and seamless.
Pros
- Lightspeed is old enough that you know you are dealing with experts who experienced the digital revolution in real-time
- A large inventory of locates for short sellers
- The execution speeds beat the competition
Cons
- Fees could add up on this platform when you’re engaging in high-volume activities
7. Best for Intermediate Traders: TradeStation
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securely through TradeStation’s
website
TradeStation is for advanced traders who need a comprehensive platform. The brokerage offers an impressive range of investable assets as frequent and professional traders appreciate its wide range of analysis tools. TradeStation’s app is also equally effective, offering full platform capabilities.
Best For
- Advanced traders
- Options and futures traders
- Active stock traders
- Comprehensive trading platform and professional-grade tools
- Wide range of tradable securities
- Fully-operational mobile app
- Confusing pricing structure to leave new traders with a weak understanding of what they pay
- Cluttered layout to make navigating TradeStation’s platform more difficult than it should be
TradeStation’s platform used to only be best for professional traders who needed a highly technical platform. Now, with TradeStation’s new TS GO account option, you’ll have access to professional-grade stock screeners and extensive educational and development tools to help them develop as investors.
Pros
- The TS GO account allows you to work like a professional on the trading floor
- The level of technical information is rather high compared to the cost of the platform
- Educational tools make it easier for you to study, learn on the go or map out a new trading strategy
- Low trading fees
Cons
- This platform may not have the tools you prefer, even though it offers quite a bit of technical information
8. Best for Active Traders: Webull
get started
securely through Webull’s
website
Webull, established in 2017, is a brokerage platform that operates through a mobile app and offers free trading of stocks and ETFs. It’s under the oversight of regulatory bodies such as the SEC and FINRA.
Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.
Webull is widely considered one of the best Robinhood alternatives.
Best For
- Active traders
- Intermediate traders
- Advanced traders
- No account maintenance fees or software platform fees
- No charges to open and maintain an account
- Technical and fundamental analysis tools
- Does not support trading in mutual funds, bonds or OTC stocks
Webull is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
Pros
- Because the platform is well-regulated, you know it’s a safe place to invest
- You can invest in a range of assets outside of your normal short selling strategy
- The platform offers quite a lot of information for those who plan to learn short selling while on the site
- No inactivity fees
Cons
- Webull may not work for all professional traders because it has an interface that looks more toward the average investor
Short Selling and its Importance in Day Trading
Short selling plays an important part in the liquidity of the stock market. If a stock becomes overvalued according to the market, then short sellers borrow shares to sell the stock down, thereby aligning stock prices to their fair value.
The practice of short selling combines the opinions of both bulls and bears to arrive at an equitable price for stock. Short selling provides other benefits to the market that include greater liquidity, which increases the opportunities for short term traders like scalpers and day traders.
Remember, the share price that you hone in on is not stable. You’re likely not operating as a market maker, you’re not running a hedge fund but you know that there’s a specific market price at which you’re willing to short.
More liquidity also leads to tighter bid/offer spreads that reduce overall costs to active day traders. In addition, shorting stocks increases capital formation and lowers the likelihood of bubbles and crashes due to the increased efficiency and more accurate pricing in the market.
With respect to large investors, fund managers allocate funds efficiently and hedge against long-term investment strategies. In combination with futures and options, shorting stock could be integrated into numerous highly profitable day trading strategies, including arbitrage and momentum trading.
What to Look for in the Best Brokers for Short Selling
The best brokers for short selling typically either have a large inventory of stock through their pool of customers or access to a stock loaner that could provide the stock for short sellers.
Here are a few more things to look into:
- Most large stockbrokers can obtain considerable amounts of stock through their big institutional clients and have whole departments dedicated to facilitating stock loans.
- Smaller and less capitalized brokers may not be able to provide every stock to short and therefore may put restrictions on short sales.
- If you have limited assets, also consider the broker’s margin account. You need a margin account in order to borrow shares from a broker. Stockholders and traders generally allow the broker to borrow their stocks and other holdings as collateral for existing margin debt balances, and that is one of the main ways brokers borrow stock. For example, Charles Schwab can borrow stock worth as much as 140% of the debit balance amount from a client’s margin account, but can’t borrow securities that are settled and paid in full.
- An interface you understand makes the investment journey that much simpler. If you’re spending your money in a place that confuses you, it’s only a matter of time before you make a mistake or miscalculate your investment.
Start Short Selling Today
Learn the unique rules of short selling and find a trusted broker to help you navigate the market. Our recommended brokers can help you sell short and offer educational support. From eTrade short selling to Moomoo, Interactive, Schwab and more, you can test the market, learn how to short sell and diversify your portfolio.
Reap the benefits of liquidity and start short selling today. You can look through the brokerage firms that Benzinga likes, watch as the price declines on a stock you might be able to short and diversify your portfolio with help from shorting. Remember, there are other types of investments that you can also initiate at the same time.
Frequently Asked Questions
Are there risks of short selling?
The risk of short selling is the stock price goes up and you must cover the position at a higher price (taking a loss).
Answer Link
What is the role of brokers in short selling?
Brokers serve as a middleman that allows you to borrow shares and they charge you interest.
Answer Link
Where can I find credible brokers for short selling?
You can find a list of Benzinga’s recommended brokers for short selling on the list above.
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The post Brokers for Short Selling by Jay and Julie Hawk appeared first on Benzinga. Visit Benzinga to get more great content like this.