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Charles Schwab Shorting Requirements, Short Locates, & Cost. How How to Short Sell Stocks on StreetSmart Edge and Schwab Website in 2021



How to Short Stocks at Charles Schwab


If you’ve been watching stock prices go through the floor, you may have fears about losing money in such a bear market. But did you know that you can profit from declines in stock prices? Yes, it’s true; you can make money when stocks fall in price.

You just need to sell the stock first, wait until the price goes down, and then buy to cover. At Schwab, you can do this. Here’s how:


Overview of Shorting


The mechanics of shorting are quite simple: you borrow shares of a stock from someone who already owns them, and then immediately sell them on the open market. When the price comes down, which is what you’re hoping for, you buy the shares back and return them to the original owner. All of this is perfectly legal because the original owner gives you permission to borrow and sell the shares.


Sell Short First


The first thing you need to do is open Schwab’s order ticket and select a sell order. Note that you’re actually selling first, so it’s a little counterintuitive.

Remember when we told you that you would borrow shares and then sell them? The borrowing part is handled by Schwab in the background. You won’t actually see that, but it does occur. Your job is to submit the sell order.


Charles Schwab Sell Short


Schwab’s trade ticket will be found in many places: on its website, on its browser platform StreetSmart Central, on its desktop software StreetSmart Edge, and on its two mobile apps. You can short stocks on any of these platforms.

On Schwab’s website, there’s a trade bar at the bottom of the screen. Enter the ticker symbol (or the company’s name) of the stock you want to take a bearish bet on. Doing so will populate the trade bar with important data. A “Trade” link will also appear. Click on this, and a trade ticket will be generated on a new page.

On the ticket that appears, you’ll want to select “Sell Short” from the drop-down menu (and not “Sell”). This lets Schwab know you want to sell first.


Buy to Cover Second


When you’re ready to submit the second order (hopefully the price has come down), you’ll want to specify buy-to-cover. If that choice isn’t available, then choose buy.


Charles Schwab Buy To Cover


Schwab’s trading platforms have market, limit, stop, stop limit, and trailing buy-stop orders. It’s possible to submit one of these immediately after your sell short order fills. On the browser platform, you can submit both simultaneously.

You don’t want to use a market order for your buy-to-cover order. This would immediately fill. Instead, use a limit order. When the price drops below your limit price, the order will fill, locking in a profit.

To limit a loss, you could also enter a stop or stop limit order above the sell price. Either one of these will trigger when the price rises to the stop price. A regular stop order triggers a market order, limiting losses. The stop-limit order becomes a limit order when the stop price is reached.


Schwab Short Sell Account Requirements


To short stocks, you’ll have to have a margin account. Remember that you’re borrowing something, and that requires margin. Under federal regulations, you’ll also have to have an account equity of at least $2,000 to use margin.


Charles Schwab Shorting Pricing


At Schwab, stock commissions are now $0. This generous policy applies to any type of trade, so shorting won’t cost you anything (other than small fees from the exchanges).

Short positions can incur interest charges, however. Schwab is charging at most 8.325% annually. Many firms charge less for margin than Schwab - see Broker Margin Rates.

If a stock is hard to borrow, Schwab will charge interest. The broker’s desktop platform StreetSmart Edge displays “HTB” on the order ticket if the stock is hard to borrow. The exact interest charged varies by day and by security.


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Margin


Schwab’s initial margin requirement on short positions is 50%. The maintenance figure varies based on the share price of the shorted stock. It ranges from 30% to 100%. The lower the stock price, the higher the requirement.


Selling Call Options


Selling call options is another way to profit from falling stock prices. This is possible in a Schwab margin account, which you’ll need anyway to short stocks.