If you do not already hold a long position and enter a sell order, your order will be treated as a short sale (as accounts cannot simultaneously hold both a long and short position in the same security). A short position will reflect in your portfolio with a negative sign as a negative position. Other items of note regarding short selling are as follows:
- You must maintain a "Margin" type account with net liquidating equity of at least USD 2,000 for a short sale order to be accepted. Short sales are not allowed in "Cash" type accounts.
- Brokers are obligated to make a reasonable determination that shares you are selling can be borrowed in order to make delivery to the purchaser at settlement. This process is referred to as a "locate" and, while it serves as an indication that shares can be borrowed, the borrow does not actually take place until settlement. If shares are not available to borrow at the settlement date, regulations require that the broker close out your short position.
- Selling short stock involves the borrowing of stock (rather than cash) and lenders typically charge a fee to borrow expressed as an interest rate. The fee can vary by stock and change daily as it is a function of supply and demand. In the event a stock is halted from trading, you may not be able to close your short position and will continue to incur borrow costs on your loan for the duration of the halt. For additional details, see: How do I determine whether there is a cost to borrow a stock before entering a short sale order?
- Short selling poses unlimited risk as there is no limit as to how high the stock price may increase when the position is eventually closed.
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