Short-Selling and Capital Rules - Please help

Question

I am relatively new to stocks so I have a question. I have several companies in mind that I would love to short-sell in the coming days. I only have a couple thousand dollars in my online brokerage. So, let's say that I want to short 50 shares of a company selling at $300, so that's $15,000. Can I do this without having $15,000 in my cash position? Essentially, do I have to have capital equal to what I want to short or can I essentially borrow as many shares as I want so long as I understand the risk?

And, if I've shorted, can the $15,000 given on the trade be used to buy other stock....such as shorting another or going long?

Answer 1

You must open a margin account (if you are in the US).

For that you'll have to convince a broker that you have a certain amount of financial wherewithall and perhaps experience.

With any margin account, whether taking a long or short position, every dollar in your account can control two dollars of a stock. So to go long or short ten thousand dollars of AAPL, for instance, all you need is five thousand dollars.

If your position goes against you, you might have to put up more margin money to retain your holding.

And in a margin account, you are basically borrowing half the money from your broker. There will be interest charges on that half, same as if you borrowed money from a bank.

If you are interested in shorting SECTORS of the economy, and not just individual stocks, there are many etf's that do that, so that you can take a LONG position and effectively SHORT a sector. For instance, SDS is a short play on the S&P.  Even oil has a short etf (DUG), and there are short currency etfs and the whole financial sector (SKF).