Best Broker for Shorting Stocks
TD Ameritrade is one of the largest brokerage houses in the country. It is also one of best online brokers for shorting stocks: great
availability of shortable stocks, no requirements on price of stock to be shorted (though shorting of OTC BB or Pink Sheet type stocks is not allowed),
and no strange account margin calculations.
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Trade Architect Overview
Any trader looking for the best broker for shorting stocks should also consider trading tools the brokerage offers. Trade Architect,
from TD Ameritrade, is a web-based and Java-based trading platform that offers investors a host of features, such as Level II quotes,
streaming news, customizable charts, and much more. Let's check it out.
Upon logging into the regular web site, TD Ameritrade customers will see an icon in the upper-right of the browser that says "Launch Trade Architect". Easy enough. A new window appears with a plethora of very useful features. Investors can watch live streaming of CNBC, including not only the U.S. version, but also Asian and European versions.
In the middle of the screen is useful quote information on individual securities, displaying not only standard trading information, such as streaming bid-ask data, but also valuation metrics, such as P/E ratio and market cap. Investors can place trades quickly and easily using the red sell button or the green buy button.
Underneath the stock's basic information is a selection of important tools to help investors evaluate a potential buy or sell opportunity. There is a charting tool, which includes several technical analysis tools and indices to compare against. The research tab has links to research reports from third-parties such as TheStreet.com, S&P Capital IQ, and Credit Suisse. The news tab displays both market news and news related to the particular stock under evaluation. Also available here are Level II quotes and option chains.
Trade Architect has a nifty new options search tool called Trade Finder. To use this feature, investors simply type in the symbol of the stock they're interested in, and input a few pieces of information, such as time horizon, and whether they're bullish or bearish. Trade Architect returns a selection of potential trades that the investor can analyze. Such a tool reduces the amount of time and work required to research potential options trades.
Under the account tab is general account information such as positions, order history, and transaction history. The data are displayed in an easy-to-understand manner.
Under the Ideas tab there are some really useful tools to help investors find trade possibilities. There is an S&P options screener, heat maps of major indexes, a valuable stock screener, and a very handy event calendar with dates for IPO's, dividends, earnings announcements, and conference calls. There is also important information occurring on the current market day. The wealth of information under this tab can help traders keep track of important happenings in the world of investing.
TD Ameritrade would not want investors to confine their charting to the smaller graph under the Trade tab, so they added a Chart tab to give traders the full monitor to view price action and perform technical analysis studies. The wealth of technical analysis tools include moving averages, RSI, Bollinger bands, Fibonacci tools, MACD, stochastic oscillators, and much more. A stock's price action can be displayed using candlesticks, OHLC bars, line graph, or an area graph.
A stock's chart can range anywhere from 30 minutes to 15 years, with trade data displayed anywhere between 1 minute and 1 month.
At the bottom of the chart is an order entry system. Traders can easily buy or sell the security displayed on the chart, and even add an option to the order. Such an order placement system is convenient for traders because they don't have to switch back to the home screen to place trades.
Traders who prefer a faster method of order entry can simply click on the chart and select buy or sell at the displayed price.
Trade Architect does allow users to compare a stock's price action against indexes and other stocks on the graph. Unfortunately, the chart can only display one index or stock at a time to compare against. Some free charting programs on-line, such as Google Finance, have the ability to compare multiple stocks and indexes at the same time.
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Best ETFs for Shorting: Inverse, Against the Market ETFs
An ETF is an investing vehicle that holds a group of stocks and can be traded on major stock market exchanges like a stock. ETFs, though they may track a
market, commodity or sector like a mutual fund, are nevertheless not the same as mutual funds. They’re more convenient: they can be traded like a single
stock during normal business hours and after-hours trading, and they can be bought on margin and shorted.
This liquidity, coupled with a variety of market, sector and commodity ETFs, make them convenient for trading strategies such as shorting. You can go on
margin and short ETFs in the traditional way, like a stock. However, traders also have the option of buying inverse ETFs, which achieves roughly the same effect as shorting, but is simpler. These products move in the opposite, or inverse, direction of the underlying market or sector – so if the underlying market loses value, you make a profit.
Inverse ETFs are purchased by short-term traders who wish to make a quick profit from a downturn, or as a risk-reducing hedge by those who have long positions in the underlying market. Investment advisors generally counsel against shorting any investment as a long-term strategy, however, since historically the market always moves up. Inverse ETFs have other potential pitfalls: they can sometime be illiquid, meaning it’s harder to make a trade when you need to. Inverse ETFs may lose value in a flat market. And since inverse ETFs require more oversight by fund managers, the fees for them may be more expensive that other ETFs.
Inverse ETFs do have some advantages, though, when used judiciously. The variety of inverse ETFs offers choices: you can short the whole market, a sector of the market, or a selected commodity.
One of the biggest advantages of an inverse ETF is that you can short the market without having to have a margin account. While you still run the risk of losing money if the underlying market or sector goes up, you don’t have to worry about losing more money than you invested – as you would if you were on margin.
Double-and even triple-leveraged inverse ETFs are also available, designed to go up twice or three times the percentage that the underlying market goes down – though some financial advisors warn that they don’t always deliver on that promise. One reason is that market volatility hurts the long term value of a leveraged ETF. You can use leveraged Inverse ETFs to make a lot of money, very quickly, when the market moves your way. But when the market goes against you in a double- or triple-leveraged trade, your investment can simply melt away before your eyes. That’s why advisers emphasize that inverse ETFs, and especially leveraged inverse ETFs, are a short-term play. Holding them for a longer time increases the odds that the market will move against you, and once it does, it’s very hard to recover.
So which ETF sectors are good to short in 2016?
The European debt crisis has economists worried about the possibility of a European recession in 2016 and what that would mean for the U.S. Europe's Saxo Bank made the tongue-in-cheek prediction that the European stock market will implode under its ongoing debt crisis, necessitating an extended “bank holiday” and the formation of a “new Europe.” It foresees many European commercial banks being nationalized. While most economists wouldn’t go that far, worries about Europe are still front and center. Sectors with high exposure to European financials are vulnerable if the crisis is not resolved.
Therefore, the Wall Street Sector Selector website counsels its readers to avoid two ETFs that track Europe, because they have significant exposure to European financials.
Motley Fool Advisor David Meier calls U.S. financials and industrials some of the worst sectors for 2016, if the global economy stays slow. Some companies in the industrial sector also carry high debt, which combined with weak demand, may result in a difficult year.
Bob Doll of the BlackRock investment management firm states that the firm is underweight the financial sector in 2016 due to its concerns about “revenue growth potential, regulatory risks and deteriorating and residual credit concerns.” He also calls the utility sector overvalued, in part due to weak earnings prospects.
And finally, you may want to consider the rumors that 2016 may be the year that the world is attacked by aliens, suffers a massive natural disaster, or collides with Planet X.
Better short the market while you can.
Updated on 8/19/2016.