What is the Best Broker for Short Selling?

471 views

Lots of experienced traders look for the best broker for short selling, i.e a broker that has lots of easy-to-borrow stocks and low fees. Shorting stocks, where traders borrow shares and sell them to “open” the trade, is a trading strategy to bet against the market.

Short selling is a profitable strategy when the price of a stock declines, not when it increases. With that said, when it comes to shorting stocks, not every online broker is friendly to short sellers, many don’t allow it at all. For 2018, Ally Invest has the best list of shortable securities and the lowest fees.

Best Broker for Short Selling Overall

For 2018, the choice is clear. Ally Invest offers the lowest fees in the industry, a large number of easily available stocks to short, and the best 24/7 customer service. Summary of Short Selling Brokers

Best Brokers for Short Selling

Stock Broker

Minimum Deposit

# of Easy to Borrow Stocks

Ally Invest

$0.00

4,134

SpeedTrader

$30,000

4,000+

Interactive Brokers

$10,000

4,000+

TD Ameritrade

$2,000

4,000+

tastyworks

$2,000

500+

TradeStation

$500

1,000+

Cost of Short Selling

TradeStation and Zacks Trade are popular choices for shorting stocks because of the large number of easy-to-borrow stocks that both brokers offer. Moreover, both Zacks Trade and TradeStation offer tiered pricing structures for highly active traders, where traders can pay per share instead of per trade. This keeps the cost of short selling down. Ally Invest offers per trade pricing only, but this isn’t necessarily a bad thing.

Zacks Trade’s per-share pricing starts at $0.01 per share and TradeStation’s per-share pricing also starts at $0.01 per share. This is nice for small share trades, but if you’re trading more than 1,000 shares at a time, on a low priced stock, for example, per-share pricing quickly adds up, so you would want to use a flat base rate of $4.95 ($3.95 w/ promo) at Ally Invest.

A 1,000 share order costs $5.00 at TradeStation and $4.95 at Ally Invest (without including automatic discounts for volume or trading activity). Pricing is a major aspect to take into consideration when choosing s broker for short selling. With per-share pricing, it costs more to short a large number of shares with Zacks Trade than with Ally’s base $3.95 rate. Some brokers also charges fees to cancel/modify orders. Ally does not charge fees for cancelling or modifying orders. Neither does TradeStation or Zacks Trade.

Other Brokers for Short Selling in 2018

Out of all of the brokers in the US, these are three of the best options for shorting individual stocks. If we had to only pick one winner, we’d select Ally Invest every time. With Ally, there are no monthly software/data fees, a long list of available stocks to short, and the lowest commissions for an online broker that offers 24/7 customer service.

Having said that, Zacks Trade is the less expensive version of Interactive Brokers (trades are literally a fraction of the cost) and Zacks Trade has excellent borrows available, especially for penny stocks and international stocks.

Hard-to-Borrow Fee

If a particular stock does not have a lot of available shares to short, it will be classified as “hard-to-borrow.” If it’s hard-to-borrow, your broker will charge you a small fee. The more easy-to-borrow stocks that a broker has, the less likely you will be charged a hard to borrow fee.

Note: a particular stock may be hard-to-borrow at one broker and easy-to-borrow at another. Stocks are not universally hard-to-borrow, this characteristic is entirely set by the broker.

As such, this is a reason why Ally Invest is the best broker for short selling. When Ally acquired MB Trading, they acquired their entire list of easy-to-borrow stocks. Essentially, Ally has a ton of available stocks to short without passing along a hard-t0-borrow fee to clients.

Which Brokers Have the Best Shorts?

In order to short a stock, your online broker first has to borrow shares from someone who owns them. This seems complicated, but

Margin Requirements

A hard-to-borrow fee is not the only number you should look at when selecting a broker for short selling.

You need to look at the minimum requirements to open a margin account, because a margin account is required for short selling. For some reason, SpeedTrader’s required initial deposit for a margin account is a steep $30,000.

We’re not exactly sure why this is the case, but it is definitely a big requirement for so-so pricing and an easy-to-borrow list that’s not dramatically better than its competition. Similarly, Interactive Brokers offers a lot of shortable stocks, especially internationally, but they also require at least $10,000.

Because Zacks Trade provides different order routing functionality and advanced order types, they charge a small fee for real-time level II market data, whereas Ally Invest and Trade Station do not.

Final Thoughts

At the end of the day, it’s impossible to go awry with a broker that doesn’t charge any fees, has the lowest pricing in the industry, and has one of the largest selections of stocks to short.

Although it seems many traders still prefer Zacks Trade for their “direct market access,” Ally offers a better service for a fraction of the cost, and Ally is therefore the best broker for short selling.

We aren’t jazzed about the fact that, from the moment we fund a Zacks Trade account, our account will be debited for level II market data software fees. Given that there is a free alternative, we don’t see the need to pay for trading data and/or software. Nonetheless, the fee is still nominal at $10 per month.

Here are the best brokers for short selling stocks

Stock BrokerBest For
Ally InvestShort selling for cheap
TradeStationTrading platforms
Zacks TradeInternational & discounted trading

Updated: December 1, 2018

cool good eh love2 cute confused notgood numb disgusting fail