Shorting Stocks - Newbie Needs Some Advice

[scrittitrader 10]

I'm curious -- when I set up an order to sell a stock short, what sort of order should I enter - a sell limit, sell stop, etc.

 

I've read that I should place a sell limit order just above the bid - which makes sense in theory, but what if I don't want to risk missing the move down ? Can't I just by at the bid (Market order?) What's the risk here?

 

So - can someone tell me how they execute a short sell trade (both entry and exit(s) and give a clear example of how you set up the actual trade on your stock platform? Thanks!

[SIUYA 11]

a lot depends on the jurisdiction you are in and if you are allowed to short, allowed to short certain stocks, allowed to hit the bid....etc;

When it comes to the platform you are using then the provider should tell you if there are any internal workings you require before shorting.

 

Some places require you to register and report all short sales. Others might just allow you to borrow the stock and then just sell without any extra issues regards the actual trade.

 

You broker should have information on all this, and if they dont - get another broker.

 

Personally when I have shorted stock the real process is in being able to borrow the stock from your broker, ensure its a shortable stock.....and then depending on the urgency of the trade for me, I will decide whether or not to hit the bid and sell, or just sit on the offer with a limit price.

[scrittitrader 10]

Thanks for the great response - so I guess it's a lot like buying a stock - you have to decide how badly you want it and that determines the order type (limit, market, etc...)

 

So getting back to my original question, what would the actual sell short order look like when you place it? For example, if the bid is 20, would I place a sell limit order just ABOVE the bid at 20.05 and wait to see if I get filled on the way up before the stock reverses?

 

And what if I'm pretty sure the stock is already falling and I want in right away? That's where I get confused - do I simply place a sell MARKET order? (I know I need to place a Buy Stop order as well right away to protect myself in case the stock goes back up suddenly)...

 

So can you clarify for me how to place a simple sell order (the format) and what risks I might be taking? Thanks - I'll get it eventually......

[MadMarketScientist 11]

So getting back to my original question, what would the actual sell short order look like when you place it? For example, if the bid is 20, would I place a sell limit order just ABOVE the bid at 20.05 and wait to see if I get filled on the way up before the stock reverses?

 

Yes that is right.

 

And what if I'm pretty sure the stock is already falling and I want in right away? That's where I get confused - do I simply place a sell MARKET order?

 

Generally its not a good idea to place Market orders simply because there is a small chance it shoots quickly out of the range you want. But in practice, if its a very liquid stock you should be ok.

 

what risks I might be taking? Thanks - I'll get it eventually......

 

The biggest risk with shorting is your loss can be 'infinite'. Since you are shorting, a stock can go up 10x and thus you are on the hook for 10x the position. If you were just long a stock, the most you can lose is your original position.

 

MMS

[SIUYA 11]

talk to your broker and platform....each may have different variations on "what it looks like"

A lot will depend on this.

Otherwise.....you need to learn the exact definitions/requirements/method/process for things like LIMIT, MARKET, STOP LIMIT orders.... this we can leave up to you.