A:

Short selling can be very risky for both the investor and the broker. Brokers will often tell investors that only stocks above $5 can be sold short. Although this may be true for your particular brokerage firm, it is not a requirement set by the Financial Industry Regulatory Authority or the SEC.

Most brokerage firms will have a "short list," which details all securities the firm allows investors to short sell without any extra requirements. If you are looking to short sell a security that isn't on this list, your broker will have to call into the securities lending department to see if the brokerage has enough of the particular security for you to short sell. This list and the securities available for short selling will vary across different brokerages, and it is completely up to your brokerage to decide whether it will assist you in short selling a security.

For more on short selling, take a look at our Short Selling Tutorial.

RELATED FAQS
  1. How long can a trader keep a short position?

    Learn whether there are any limitations on how long may an investor hold a short position, and explore the costs associated ... Read Answer >>
  2. Why does my broker allow me to enter only day orders for short selling?

    Put simply, brokerage firms restrict short sales to day orders because of the complexity of the short sale transaction and ... Read Answer >>
  3. My broker just sold securities out of my account without my permission. Is this legal?

    Your broker's actions are not legal unless he or she sold the securities under certain conditions. Let's look at the two ... Read Answer >>
  4. When short selling a stock, how long does a short seller have before covering?

    There are no general rules regarding how long a short sale can last before being closed out. A short sale is a transaction ... Read Answer >>
  5. What happens when the lender of the borrowed shares in a short sale transaction wants ...

    In a short sale transaction, shares are borrowed from the lender by the short seller and sold in the market. The lender of ... Read Answer >>
  6. Under what circumstances is short selling advisable?

    Find out when short selling a stock is profitable and what an investor should keep in mind before deciding to pursue a short ... Read Answer >>
Related Articles
  1. Investing

    Short Selling: What Is Short Selling?

    Investopedia Explains: The fundamentals of short selling and the difference between going long or short on an investment.
  2. Managing Wealth

    What's a Brokerage Account?

    A brokerage account is a contractual arrangement between an investor and a licensed securities broker or brokerage.
  3. Managing Wealth

    Picking Your First Broker

    If you're a rookie investor, your first big investment decision should be an informed one.
  4. Investing

    The Basics Of Short Selling

    Short sellers enable the markets to function smoothly by providing liquidity, and also serve as a restraining influence on investors’ over-exuberance.
  5. Trading

    10 Tips For Choosing An Online Broker

    This important investment decision happens before you pick your first stock. Find out how to get it right.
  6. Trading

    Is Your Broker Acting In Your Best Interest?

    Learn the clues you'll need to determine whether you've chosen a reputable professional.
  7. Financial Advisor

    Broker Or Trader: Which Career Is Right For You?

    A day in the life of a broker or trader is an exciting and varied one. Find out how to decide between these two financial professions.
  8. Trading

    Evaluating Your Stock Broker

    Make sure you're getting the best service by staying informed and involved.
  9. Investing

    Guide to Short Selling

    Want to profit on declining stocks? This trading strategy does just that.
  10. Markets

    Why You Should Never Short a Stock

    Short selling a stock means you are betting on the stock decreasing in price. Before taking on this investment, you should fully understand the risks
RELATED TERMS
  1. Short Market Value

    The market value of securities sold short through an individual's ...
  2. Brokerage Account

    An arrangement between an investor and a licensed brokerage firm ...
  3. Firm Order

    1. A market order to buy or sell a security for a brokerage's ...
  4. Selling Away

    When a broker solicits you to purchase securities not held or ...
  5. In Street Name

    A brokerage account where the customer's securities and assets ...
  6. Approved List

    A list of pre-selected securities that are deemed fit for purchase ...
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center