Unlike regular stock trading where you buy stocks at a lower price and sell at a higher price (strike prices); short selling/short sale, means opening a position using borrowed stocks then selling them to another investor, and then buying them back at a lower price.
Shorting selling isn’t just a bearish stock position, it’s also a very risky trading strategy. So, would you give it a chance or prefer investing in any other asset?
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Although, with the right market conditions, the profit to be earned through short selling trade options can be potentially unlimited. It would be best used when the stock price is expected to drop.
So, can you sell stocks/short stocks on Webull?
Unlike Robinhood, you can short a stock on Webull.
Webull short selling gives traders the ability to sell short and engage in margin trading, however short selling on Webull has restrictions.
There are certain requirements traders must adhere to before shorting a stock. Primarily, those who want to short sell on Webull must:
1) Have a margin account with Webull to allow them to borrow Capital.
2) Maintain a net account value of $2,000 or greater as a safety measure.
How To Short A Stock On Webull App?
So, now that we’ve covered some of the short selling basics and requirements, how does one go about short selling on Webull app?
Webull Short Selling
Simple, just follow these instructions:
- Start by going on your Webull app main screen
- Once there, click on “Watchlist”.
- Alternatively, you can search on Webull’s “easy to borrow” list for short sales.
- Check for a little blue downward arrow icon near the upper right corner of the stock page.
- If you see the blue downward arrow icon, click on it.
- You have now successfully short a stock.
- The short selling position will be displayed under the “My Positions” section as a negative quantity.
What is the Margin Rate on Webull short selling?
For the first $25,000 the margin rate is currently 6.99%, although for margin loans of more than $3,000,000 it can go down to as low as 3.99%. If you short 1,000 stocks worth $25,000 on Webull ($25 each), you pay interest of $4.85 interest per day ($25,000*6.99%/360=$4.85). In addition to the loan, you have to pay an extra fee for hard-to-borrow shares. The Hard-to-borrow-rate is currently 6%.
The hardest part about shorting stocks isn’t the actual process though. It’s finding the stocks which will drop to a lower price. There are many stocks on Webull short selling platform that you can choose from, but it wouldn’t be smart to short sell just any stock; rather it would be more profitable to short stocks that you expect will go down in value.
For this purpose, it is best to refer to sites dedicated to the stock market which can help you find the ones that are better than Webull short selling.
These include sites like Trade Ideas, Benzinga, Motley Fool, Cobra Trading, etc. These can help you track daily market value and find stocks whose value is expected to go from the current price to a lower price more easily. Information from these sites allows you to choose more wisely.
Trade Ideas offers a feature known as a stock screener. “Screeners” can be used to filter out and show the specific stocks that the trader chooses to seek out on the open market. Stock screeners provide parameters like price per share, earnings, etc., to find specific securities. Only shares that fulfill requirements are included in the final results.
Stock screeners are powerful tools that help investors find ideas on stocks to buy that can increase or decrease in value. These are uncovered by using measurable tangible factors affecting a stock’s price. Stock screening programs can save time, remove emotional and behavioral biases, and uncover previously undiscovered investments.
Furthermore, it can manage large amounts of data which allows it to watch each trade of every stock in the market and notify you about an asset’s price so you can short sell quickly, making it a necessary tool for short sellers.
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Benzinga Pro is a platform for stock trading and screening. It can help individuals become more familiar with the stock market, financial news, and options trading in general.
As a news platform, Benzinga Pro conveniently provides an accurate depiction of financial news about the important activities which have a large influence on finance and the stock exchange.
The UI can be analyzed by even beginner-level traders who are unsure of certain financial services.
Benzinga Pro has various exciting features that are used by traders such as swing traders and also day traders, making it even more valuable for short sellers. With the alerts feature in Benzinga Pro, subscribers can receive alerts through desktop, email, and sound.
With the Signals feature of Benzinga Pro, you can track all activity based on high and low stock points and block trades.
Squawk provides audio broadcasts regarding financial news. The calendar can securely cover items such as dividends, SEC filings, retail sales, etc. Watchlists allow you to monitor all of the trades that you choose to make as well as your potential trading ideas. The scanner feature allows day traders to make more informed decisions rapidly. There are also online chat rooms to interact with other traders.
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The Motley Fool is an investment and financial advising service that offers a variety of investing newsletters that can be used to enhance your investing services. However, The Motley Fool’s most important offering is its Stock Advisor platform. This includes stock picks, access to research reports, a community forum, and more.
Newsletters and platforms are focussing more on giving guidelines to retired individuals who’ve the potential for improvement.
Other than its free offerings, the company also has a series of investing and retirement newsletters. These provide information from stock pick to model portfolios that may help improve trading and investing.
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Cobra Trading offers elegant tools and customer support to competitive day traders. Best suited for those who want to capitalize on every opportunity by trading faster and more efficiently.
Cobra Trading supports the idea that a highly responsive customer support team can be beneficial for experienced traders who have bold strategies. Its main feature is its customer support.
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It is necessary to mention the risks involved with short selling. This isn’t like regular trading where the liabilities are finite and the stock’s price can only drop to zero.
In short selling, the gains are finite and the liabilities are infinite. To prevent or reduce losses, research is necessary. For expert advice from experienced professionals, the Motley Fool is recommended.
In addition to the advice, it can also allow you to create hypothetical portfolios so you can make better decisions. It has a well-earned reputation as an advising service and seeing the results that its users receive, it’s easy to see why.
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How risky is Shorting?
The main risk of short selling is that investors may ultimately lose more money than invested. If the stock’s price increases, you can actually lose money.
During the Gamestop short squeeze, many short sellers expected the stock price to drop but when the price of the company’s stock exploded they lost money instead.
This was caused by individual investors who decided to buy the company’s stock en masse and resulted in a loss of several million dollars from the hedge fund side.
Suppose you decided to trade 100 stocks long, the buying price is $10, so the maximum risk will be computed as $10 * 100 = $1,000. How?
Reviewing the above example again, Short selling is the complete opposite. Let’s say you short a stock for $10 per share and sell 100 stocks for $10 short. The profit potential is limited to 100*$10=$1,000 while the risk has no limit. Now let’s assume that you start short selling and have an open position of 100 shares shorted for $10 each. If the very next day the company reports a merger or acquisition, the price per share could shoot up to $50 at the open. In this case, you will lose $40 * 100 shares overnight, which means that you will have lost up to $4,000.
The trading stocks on the long side will be unlimited since any price above $10 is a profit. This remains the case even if the price reaches up to $1,000 per share – which means when trading long, the risk is limited, and the profit unlimited.
Should you join a hedge fund for protection?
Absolutely, Short selling stocks overnight without hedge protection is never a good idea – it is known as free stock.
It involves infinite risk, and costs additional fees to maintain such a position overnight. However, short selling stocks can also be a highly profitable strategy when day trading if solid trade management and monitoring are available.
*It’s better to learn the concept of the sell order in the stock trade.
What is the effect of the price of the stock on short selling?
The price of stock definitely affects short selling. The aim of normal trading involves buying cheap stocks and selling expensive stocks.
In short selling, you should buy expensive stocks and sell cheap ones. It is preferable to short stocks that have a high current market price but are expected to experience stock drops in the future.
The best time to take a short position is when the price of the stock is at its highest, like when the company has recently undergone a merger.
The best time to buy them back is when they are at a lower price, like during a depression.
Why is a margin account important in short selling?
Given that in the short selling concept, you practically sell shares that doesn’t belong to you, so there are rigid profit margin requirements that need to be met.
Having margin accounts is essential, as the money on the short selling is used for collateral so there will be better security that the borrowed shares, in the future, will be paid back to the lender.
Another reason is the interest paid on the borrowed stock in the trader’s margin account.
Even in a situation where short sellers may profit from the stock drop, the total profit would still have the cost of margin interest. If the price does not fall to the expected level a margin call is sent.
The purpose of the margin call is to tell short sellers to transfer more money to their margin account. The New York Stock Exchange (NYSE) and Federal Reserve set and monitor minimum values for the amount of funding that must remain in margin accounts.
Failure to maintain balance above the limit can result in being closed out and facing penalties.
Why do you need a high net account value?
The account value is the total book value of all the possessions in the trading account; not just the securities, but the cash as well.
This figure is calculated by combining the total amount of cash in the account with the current market value of all the securities and then removing the market value of any stocks that are shorted. It’s basically the worth of all positions if they were to be liquidated at a particular point in time.
The high net account value of $2000 is important because there is a chance that short sellers may end up losing money when the share price increases.
What do you mean by stock loan fee?
In simple words, a stock loan fee is a payment ordered by a brokerage firm from a client for borrowing shares. The fee is charged as per the Securities Lending Agreement and completed prior to the stock is borrowed by a client. Without it, you cannot take a short position or short sell on Webull.
The cost attributed to a short sale on Webull is the borrowing fee paid for this company’s stock in the margin account. The borrowed stock’s daily margin interest rate shifts regularly depending on the market conditions.
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Author: J Maver
Passionate in tech, software and gadgets. I enjoy reviewing and comparing products & services, uncovering new trends and digging up little known products that deserve an audience.