I received a comment on my previous post about how to short a stock through a broker so I will describe it here in case other people are confused.

When you go to enter an order you probably have a few options to choose from. I use Scottrade and I have the following options to choose from: Buy, Sell, Sell Short, and Buy to Cover. When you short a stock you would choose “Sell Short”. You would then enter the rest of the order: number of shares, stock symbol, order type (market or limit), and duration.

When you short a stock you are actually selling the stock. Therefore, if you want to place a limit order you would set your limit price higher than what the current price is. If you place a market order your order would get filled at whatever the bid price is (Unless your market order was for more shares than the bid offered. In that case you would take out more bids until your order got filled.) If you are confused about market and limit orders leave me a comment and I will write a post about them.

When you decide to cover your short position you would enter an order to “Buy to Cover”. You would then enter the rest of the order information as before.

Here are some further things to consider. When you try to sell stocks short you will find that not all stocks have shares available for shorting. This will happen to a lot of stocks that are good short candidates.

The reason for this is there are only a limited number of shares that are available to be borrowed and therefore shorted. This is one thing you have to take into account in your shorting strategy. I will provide shorting tips in a future post.

Another thing to consider is most discount brokers don’t allow you to short stocks under five dollars. This doesn’t mean that you can’t short stocks under five dollars, but your broker may not allow it.