7 Best Brokers for Short Selling Stocks & Penny Stocks [2022]

During turbulent economic periods, short selling is among the most popular strategies. Traders who anticipate a stock price drop usually love to speculate or hedge risk by placing short sales. Alternatively, they borrow the instrument from the broker, sell it, and then buy it again to close the sort position. However, it is worth noting that it is the short-selling brokers’ terms that are often detrimental to the success of the stock trader. This article deep-dives into the most popular service providers to help you find the 7 best brokers for short selling, tailored to your needs.

Top 7 Brokers for Short Selling

The best broker for short-selling for you depends on your needs, goals, and preferences. There isn’t a go-to solution brokerage, so it is essential to consider several different factors and consider with priority the most relevant to you. These include stock trades terms, commissions, inactivity fees, customer service, trading tools, platform usability, tradable markets, market data, and more.

Your best choice is likely one of the following brokers:

• Cobra Trading
• TradeStation
• Firstrade
• TD Ameritrade
• Charles Schwab
• TradeZero
• Webull

Let’s dive into the list of the best brokers for short selling stocks and the pros and cons of each.

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1. Cobra Trading

Cobra Trading is the best day trading platform with a minimum account size of $27,000. Cobra Trading is a direct access broker was founded in 2003 by Chadd Hessing, president and CEO.

For Cobra Trading, service is very personal. They know that for day traders, even a split second matters, and that’s why they offer instant support instead of phone queues with long hold times and high-end trading tools for fast trade executions.

Being a direct access broker also means that they do not sell client’s order flow and do not receive any payments for order flow. Client orders go by direct access straight to the stock exchange.

The commissions start as low as $0.0015 per share. Besides the inhouse-trading platform Cobra TraderPro, DAS Trader Pro, Sterling Trader Pro, RealTick Express and RealTick PRO are available to clients.

Traders can use Cobra’s platforms to directly locate hard-to-borrow stocks in addition to the extensive list of easy-to-borrow shares. That makes shorting penny stocks more convenient, saving time and costs.

CobraTrading is the best direct access broker on the list and the only one mentioned that does not receive payment for order flow from venues like Citadel. The other brokers on the list are great, but you need to be aware of two main differentiators.

Retail brokers sell your order flow and receive payments from 3rd parties in return. Also, their support lacks, and it often takes 30 minutes, 1 hour or even longer in high-traffic trading times until you reach customer support or the trading desk. The point is, 0 commissions have their downsides, and you simply have to be aware of it. Okay, that’s being said, let’s proceed with some of the best retail brokers for short selling.

Special Offer: Here you get a 33% commission discount with Cobra Trading (for life) (Bonus: 1 month of free access to DAS Trader and Sterling included).

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2. TradeStation

TradeStation is focused mainly on serving active traders and trading system developers. They constantly make progress in catering to the needs of trading beginners and market newbies.

TradeStation offers multiple account types for trading stocks, options, futures, ETFs, and cryptocurrencies. It is tailored to the needs and level of understanding of beginners, giving them access to in-depth educational tools, advanced stock screeners, and more.

In terms of costs, TradeStation also does a pretty good job. The broker charges $0 commission on stocks and the majority of its ETFs. The account minimum requirement is $2,000 if you want to access the high-end TradeStation desktop software. The margin trading rates start at 9.50% for accounts with less than $50,000 and go down to 3.5% for accounts with over $2m. The universe of supported assets is pretty diverse, including everything from stocks, ETFs, and mutual funds, to options, bonds, futures contracts, cryptocurrencies, and more.

Most importantly for short-sellers, the easy-to-borrow list is extensive, and ~3,500 stocks on NYSE, AMEX and Nasdaq are shortable easily with no additional costs.

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3. Firstrade

Firstrade is a less known yet highly-promising brokerage firm. The account minimum and the commissions on stocks, ETFs, mutual funds, and options are set at $0. This makes the platform a good choice for active traders. Margin trading terms are also reasonable.

The downside is that Firstrade is yet to start supporting FX and futures. But you can trade stocks, ETFs, options, fixed income and mutual funds.

Its platform is easy to use and very intuitive, making it an excellent choice for newbies. However, this doesn’t come at the expense of trading tools and functionalities. Just the opposite, the platform is even better suited for professionals and active day traders. Firstrade’s trading dashboard is packed with great research tools, advanced charts, convenient visualization of stock prices, and an abundance of fundamental data and equity ratings. All this is also available within the mobile app.

Firstrade’s users can also enjoy a rich set of educational materials and guides related to trading stocks, options, ETFs, fixed income, and more.

4. TD Ameritrade

TD Ameritrade is among the undisputed best brokers worldwide in many aspects. With short selling, it isn’t any different. Due to the scale and complexity of its offering, the award-winning brokerage is a perfect choice for retail traders specialized in shorting stocks of large-cap companies. TD Ameritrade’s users can take advantage of an extensive trader community to exchange ideas with other traders. If you are a short seller, you will also enjoy one of the most professional mobile and desktop platforms for the purpose. It supports advanced charting tools, market report functionalities, live-streaming news, real-time data, and more.

TD Ameritrade supports a variety of assets and is a great stock trading platform for beginners. Aside from stock trading, you can also buy and sell commission-free ETFs (one of the most extensive offerings in the niche), bonds, FX, CDs, and more. Short sellers can even hedge their positions with options or futures.

While investors can open a TD Ameritrade account with basically zero capital and take advantage of commission-free stocks and ETFs, things are pretty different for short-sellers. The minimum deposit requirement is set at $2,000 as it qualifies as a margin account. The margin rates are set at 2:1, and you will be charged a $6.95 flat rate per stock trade. The margin interest is 9.5%. Keep in mind that you need at least $25,000 in your account to execute more than 3 day trades within 5 successive business days due to the SEC’s pattern day trader rule.

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5. Charles Schwab

As one of the industry leaders, Charles Schwab makes it easily to the list of top stockbrokers, especially since they acquired TD Ameritrade in 2019. Bot brands remain separate and short sellers who decide to go with Charles Schwab will ensure access to one of the most powerful and customizable stock trading platforms worldwide. It is available both for desktop and web.

What makes Schwab’s offering so good are the extensive educational and research resources tailored to the needs of stock traders of all levels of experience.

With Charles Schwab, you can trade all types of instruments, including stocks, mutual funds, ETFs, bonds, options, and more.

With a $0 online commission for stocks and ETFs, Schwab is an excellent broker for those looking for short-selling opportunities. The options trading fee is significantly lower than other brokers’ offerings, although it still isn’t the lowest. The base commission for options is $0 plus $0.65 per options contract.

Those willing to give Charles Schwab a go should bear in mind that the minimum account requirement for a margin trader is set at $5,000. Furthermore, short selling stocks require an initial deposit equivalent to 50% of the instrument’s value. For shares below $2.50, this requirement can go up to 100%.

A drawback that you should keep in mind is that Charles Schwab’s stock offerings might not be as diverse as those of other short selling stocks brokers. If you want to trade a more exotic stock that it doesn’t support, you might have to go to another broker and buy it from there.

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6. TradeZero

While not as popular as TD Ameritrade and TradeStation, TradeZero makes a case for being one of the best brokers for short selling. Its offering is a combination of reasonable stock trading fees, low minimum deposits, and convenient platforms that make it appealing to all types of market participants – from long-term investors to day traders.

TradeZero was founded in 2015 and is one of the newcomers in the brokerage industry. Yet, it quickly managed to make a name for itself and become a preferred choice for many short sellers and intraday stock market traders.

Before we proceed, we should say that TradeZero operates two entities – TradeZero International (based in the Bahamas) and TradeZero America. As their name suggests, the former serves clients worldwide, while the latter is aimed at US traders. Both service providers have similar offerings, with key differences in pricing policies.

The minimum account requirement for global users is set at $500, while for US-based traders, it is $2,500.

US-based users can trade at zero costs considering that the securities they buy and sell are priced over $1 (i.e., aren’t penny stocks) and trade on NASDAQ, NYSE, or AMEX. The same goes for global users, but with the addition that they trade over 200 shares per order.

Should fees apply, they are set between $0.003 and $0.005 per share and a $0.99 flat rate for smaller orders.

TradeZero supports plenty of markets across stocks, ETFs, and options. Margin account holders can take advantage of up to 6:1 intraday equity leverage and 2:1 for overnight positions.

Now here comes the main downside. TradeZero charges a $79 fee for its ZeroPro platform and $59 for the ZeroWeb platform with level 2 market data. Wire transfers are also pretty expensive, going up to $50 or $70 depending on the user’s residence. These fees can be waived if you reach a specific trading volume.

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7. Webull

Webull is another worthy addition to the list with the best broker companies to short a stock. However, it is worth noting that, a while back, it wouldn’t have made this ranking as it lacked a desktop or web version and was available only as a mobile-only broker for short selling.

These days the desktop version made further progress, but the main focus of Webull is still trading via mobile devices.

Webull offers commission-free investing for over 5,000 stocks, ETFs, options, and ADRs. Furthermore, there are no platform fees or minimum account requirements, and traders can use it as a paper trading platform.

Trading on margin through a Webull brokerage account comes at a reasonable margin rate of between 6.99% and 3.99% depending on the debit balance.

Short selling fees are calculated on a daily basis depending on the market condition. Although today, Webull’s features aren’t as diverse as those of other brokers like TD Ameritrade, for example, it still has plenty to offer. These include various technical and fundamental analysis tools, a short stock availability tool, economic calendars, research agency ratings, margin accounts, advanced order entry mechanisms, and various short sell features.

Webull is an excellent choice for the not-so-demanding short-sellers, considering its relatively functional platform and reasonable fees, especially for a standard margin account. Webull is also a great alternative to Robinhood.

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Best Broker for Short Selling Summary

In today’s highly volatile markets, short selling of stocks is a great way to capitalize on market downturns if you know how to apply it properly. Many hedge fund managers make millions betting on bear markets and capitalizing on looming crashes.

However, short selling of stocks isn’t for everyone. It isn’t suitable for you if you are a complete beginner as the downside risk might quickly wipe out your open-market position. Furthermore, shorting stocks can become a dangerous tool if not used with caution when trading naked call or put options or on margin.

Whether you are just starting or already have some experience trading the markets, it is always advisable to test your strategies in a demo account beforehand. If you are satisfied with their performance, you can go live. However, if they fail to deliver when shorting stocks with paper money, they surely won’t start doing so when you get to risk your capital.

To avoid all the pitfalls of short-selling and find a reliable broker for short sell orders, make sure to choose a company that can guide you through the process and that offers reasonable terms. Fortunately, there is an abundance of top brokers that can serve you well, and thanks to the continuously increasing competition, the choices are becoming more and more diverse. From newly established zero-fee Robo-advisors to industry-recognized leaders with advanced platforms, there is a best choice for all types of traders.

Short Selling Guide

If an investor buys shares, then the concept is simple – he has no shares yet and places a buy order to buy shares. The ownership of the shares changes with the transaction. At the end of the transaction, the buyer who previously did not have the shares now has the shares. The seller, who previously owned the shares, now does not have the shares anymore.

How is it about short-selling shares with a broker? Is it possible to simply sell something you don’t have to go short? Actually, not directly. Imagine every investor would short stocks, and no one would buy them. At some point, more shares would have been sold than issued, and it’s impossible to sell something that does not exist. Each transaction, no matter if it is a buying or selling order, needs a counterpart.

The regulators require the broker to ensure that real-existing shares cover each short-selling transaction. The broker who offer short selling stocks to their clients acts as a middle-man. A middle-man, because the broker locates shares and lends them “virtually” to the trader.

That means those borrowed stocks will never be in the portfolio of the investor. Instead, they will be used to secure the short-selling transaction.

So what happens when investors use trading platforms to short stocks is that the online broker checks if the shares are available to borrow from a lending network. Many specialized direct market access brokers have securities lending specialists in their team that locate million of shares from counterparty relationships.

A good short selling broker has an integrated short locate system within the trading platform that enables investors to short sell stocks. An industry-leading short inventory with extensive short locates and borrows lists is the key to successful short selling.

There are two types of shares to borrow, easy-to-borrow shares and hard-to-borrow shares. Easy-to-borrow shares are often all those shares of a stock with millions of daily trades shares, high market cap or listed on the NYSE or Nasdaq 1,000. However, penny stocks or OTC traded stocks, or stocks with low daily tradable volume, are often hard-to-borrow stocks.

Easy-to-borrow stocks typically can be shorted without a fee intraday. It’s like a service from the broker offered to active day traders to enable them to go long and short continuously during a trading day. However, overnight borrow fees still apply for easy-to-borrow shares. So when a trader enters a short position, online brokers borrow the shares from their inventory to secure the short position of the trader. And they charge fees if the trader holds it longer term.

Hard-to-borrow shares are different in terms of the fee structure. Locating such stocks is expensive, and the stock loaner who provides the shares demands a high hard-to-borrow fee. Shorting hard-to-borrow shares works this way: The broker locates the shares and makes an offer to the short-seller regarding the conditions (borrow fees). If the short-seller accepts the fees, the broker lends the shares for the agreed fee, and the trader can now sell shares short.

Investors should always consider the fees if they want to short stocks.

Experienced traders and professional traders know about the benefits of this type of trading, and especially day traders frequently use their margin accounts to short sell stocks by using a short-locate tool provided by the broker. Trading beginners often use momentum trading strategies to short sell shares if the momentum provides a short entry.

The Financial Industry Regulatory Authority (FINRA), Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) keep a close eye on online broker activity to ensure that all short sales are in line with regulations.

FAQ

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