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Vanguard Shorting Requirements, Short Locates, & Cost. How to Short Sell Stocks on Vanguard in 2021



How to Short a Stock at Vanguard


If recent gyrations in the world’s financial markets have you fretting about losing money, it’s time to take a look at shorting stocks. With this little-used strategy, it’s possible to profit when stocks go down in price.

Wait. Did we say you can make money when stocks go down? We sure did. And you can trade this way at Vanguard. Let’s take a look.


Overview of Shorting


The way shorting works is very simple. You borrow shares of whatever financial instrument you think is going to go down in price and you sell them. When the price goes down, you buy the shares back and return them to the party who lent them to you.

At Vanguard, you can borrow shares of stocks and ETFs from other margin accounts.


Sell Short First


The first step in the process is to find a stock or ETF (you can’t short mutual funds) that you think is ready for a pull back. You can do this with Vanguard’s screeners or a third-party screener.

Once you find a security you’re bearish on, it’s time to short it. You can place a short order on the broker’s mobile app or website. We’ll use the website for the first half of the trade.

To begin, you’ll need to be on the stock’s profile page. You can access this by clicking on the ticker symbol in search results or entering the company name or ticker symbol in the search field on the broker’s website.

Once you’re on the stock’s profile, you must click on “I want to trade this stock” in the right-hand column to get the trade ticket.

On the order form, choose “sell” or “sell short.” Order options will include market and limit. The latter can be used to guarantee a minimum price.


Vanguard Sell Short


Buy to Cover Second


When your order goes through, you can wait and watch how the stock is doing, and enter a buy order whenever you’re ready.

It’s also possible to enter the buy order right after placing the sell order. When the price comes down to the limit you specify in the order, the trade will fill. To do this, you will need to place a limit order.


Vanguard Buy To Cover


On either the mobile app or the website, you can place your second trade. This time, you’ll specify buy and instead of sell. And for order type, you’ll select market or limit. The latter guarantees a price lower than your sell price (assuming you enter your order ticket correctly).

It’s also possible to enter a buy-stop order to prevent excessive losses. In this case, a buy-stop order is placed above the market price. If the stop price is reached, a market order is triggered, preventing further damage.

A buy-stop limit order does the same thing, except a limit order is added to the mix.


Alternative


For short selling a great alternative broker is Webull. It has a number of advantages over Vanguard: $0 commissions on options trades, lower margin rates, virtual (paper) trading, and more advanced trading tools. Learn more...


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Account Requirements


You didn’t think just anyone could do this, did you? Yea, you’ll need a margin account to place short sales. And you’ll need to have at least two grand in assets before submitting your order.


Vanguard Shrting Fees and Commissions


Vanguard now charges nothing for trades of stocks and ETFs. And this rule applies to shorting. Other than very small exchange and regulatory fees, there are no trading fees.

Remember, though, that if the security’s price goes up after you’ve shorted it, you’ll lose money.

Vanguard may charge margin interest if you don’t have enough cash in your account to cover losses in case the stock price moves against you. And if the stock is hard-to-borrow, there will be fees for borrowing it. Many firms charge less for margin - see Broker Margin Rates.

Remember when we said you first borrow the security? If the broker does any work to locate the shares you need, you’ll pay for that.


Margin


For short positions, Vanguard has a 50% initial margin requirement. Maintenance is 35% or $5, whichever is greater. If your maintenance margin slips below 35%, you’ll be subject to a margin call.


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Other Short Strategies at Vanguard


Vanguard customers can trade inverse ETFs, which are funds that go up when stock prices go down. Examples include MYY (ProShares Short MidCap400), DUST (Direxion Daily Gold Miners Bear 3X Shares), and SDS (ProShares UltraShort S&P500).