How to Short Stocks

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Shorting stocks (betting that the price will fall) is not for the weak-stomached. When you short a stock, you could theoretically lose more than the total value of your brokerage account.

However, since 99% of the market is long, shorting stocks offers way to make money when markets turn south. When markets crash or decline day after day, the only people making money are the shorts. Here’s a quick guide that explains how to get started short selling without getting crushed.

Quick Summary

  • Shorting stocks is profitable when stocks go down, not up
  • Always chooser the broker with the lowest trading fees when short selling, because you never know when you will have to cover your short
  • Covering your short means buying the shares back, hopefully at a lower price
  • Ally Invest is the best broker for short selling because they have the most easy-to-borrow stocks
  • If you have any questions, Ally Invest has 24/7 investing support via phone & live chat
  • Consider diversifying your portfolio by purchasing multiple stocks
  • Keep it simple: invest in public companies you know and love
START INVESTINGopen an account on Ally Invest’s site

Why Invest in Stocks?

To put it simply, stocks offer a way to earn income without working. This concept sounds strange at first, but, when you think about it, money is a tool. At a certain point, when you accumulate enough money, you no longer have to trade your time for money. You can trade your money for more money.

This is the “secret” to building serious wealth. Don’t believe me? Just ask Warren Buffett, a man who has made $89 billion from investing his money over the course of his life. If you have a long-term time horizon, and aren’t worried about short-term price fluctuations, investing enables you to grow your assets…sometimes exponentially. For example, if you buy $10,000 worth of Starbucks stock, and Starbucks moves 30% higher, you’ll make $3,000 by doing nothing.

Step #2: Doing the Research

Once your account is opened (takes 5 mins), the next step is to navigate to the “Trade” tab on Ally’s online trading platform.

For this example, I’m going to use Starbucks (ticker symbol: SBUX). Starbucks is the most popular retail coffee shop franchise in the world, and a lot of customers and veteran investment bankers see serious value in the company.

When you sign into your Ally Invest account, the page will look like this:

Enter the name of the stock you want to buy in the box on the left.

Step #3: Making the Trades

Once you’ve entered the company name into Ally’s platform, real-time prices and buttons to buy and sell the stock will appear.

Once you’ve selected a stock to invest in, the next decision to make is how many shares to purchase. The exact number of shares to purchase is entirely up to you. You can buy 1 share or 1,000,000 shares. You’re only limited by the funds you have available. Ally’s system, thankfully, won’t let you accidentally purchase too many shares relative to your account value. As a general rule of thumb, most investors never put more than 10% of their available funds into a single stock. So if you have $1,000 and a stock is $50 per share, you might want to only buy a few shares.

When it comes to placing orders, we always prefer to use limit orders, because you get to decide what price you want to buy or sell at. A market order will execute your order at the current market price. This is sort of like buying a house without looking at the offering price; for stocks, market orders are only useful if you don’t care about the short-term price movements and just want to own the stock. After submitting your order, you’ll receive a confirmation of your investment and you’ll officially be an investor!

If you want to sell your investment and close out your position, all you have to do is click on your position in your Ally Invest account and click “sell”. Of course, if you need help with anything in this process, customer service is ready to help you 24/7.

9 Popular Stocks to Invest In

Starbucks is a very well-known stock to invest in, but here are 9 other companies that you might have heard of that are also popular investments. All of these stocks are great for beginners, since these are well established, name-brand companies that have been around for decades.

Company Stock Ticker
Snap, Inc. SNAP
Alphabet, Inc. GOOG
Netflix, Inc. NFLX
The Home Depot, Inc. HD
American Airlines, Inc. AA
McDonald’s, Corp. MCD
Ferrari, NV RACE
Ford Motor Company F
Johnson & Johnson, Inc. JNJ

Final Thoughts

In the world of finance, investing is always considered somewhat risky, but it’s also highly lucrative. As the old saying goes, “fortunes favor the bold.”

At the end of the day, buying stocks and investing is planning for your financial future. Regardless of the amount of cash you have in your bank account, if it’s just sitting there, it’s not doing anything for you. However, it’s definitely doing something for the bank, because banks jump at the chance to invest client balances and earn a return.

START INVESTINGon Ally Invest’s secure site

What You’ll Need to Open a Brokerage Account

Opening an Account

It takes about 5 minutes to open an account with Ally Invest. There is no fee to open or maintain.

Verifying Yourself

You’ll probably have to answer questions about your current income and employment status.

What You’ll Need

US licensed stock brokers are required to have each client’s Social Security Number for tax purposes.

What is Options Bro?

OptionsBro.com is an online financial information site dedicated to providing simple tutorials, reviews, and comparisons on all things finance.

Collectively, we’ve spent thousands of hours examining the most popular financial products and tools. Bottom line, we simplify and explain the myriad of consumer financial options available today, so you can make decisions with ease.

Updated: October 26, 2018

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