Are you looking to get in on the stock market action and make a quick buck? Shorting a stock might be the fastest way to make a significant profit with little investment. It sounds too good to be true, right?
That’s because it is! Short selling is the riskiest form of investment, with the possibility of losses being far greater than your investment.
However, if you’re a savvy investor who likes to live on the edge and can take a hit or two, short selling might be a profitable strategy.
Apps like Webull are helping traders such as yourself jump into the action. Short selling and the conventional selling and buying stock on Webull is super easy and can be done on the go.
Read on to learn how to short a stock on Webull.
What is Short Selling?
Short selling is a bet that an investor makes that a particular stock will decline in price. You don’t even need to own the stock to make a bet. You can borrow the shares from your brokerage firm and sell them immediately.
Investors seek to make a quick profit by using this bearish strategy because only a little investment is required up front to make a profit. However, there is an asymmetry here as the potential gains are finite, and the potential losses are theoretically infinite.
How Does Shorting Work?
Here’s a simple example of how short selling works:
An investor believes that new policies regarding cleaner fuel usage will negatively impact the fossil fuel industry. He carefully researches energy firms and decides to take a short position on the stock of an oil giant.
Currently, the shares are traded at $500 a share; he borrows 1000 shares and then sells them to another investor. The price then drops to $400 a share, and the investor buys 1000 shares and returns them to the original owner.
In the end, the investor makes a profit of $100,000. ($500-$400=$100. $100 x 1000 shares=$100,000) excluding fees owed to the broker.
As the example illustrates, short selling can net a tidy profit when successful.
What is Webull?
Webull is a stock trading platform that democratizes stock trading. It has come as a boon for retail investors, with over 2.7 million active traders on the platform. It is available both on PC and mobile.
Webull is commission-free and provides many advanced tools absent in similar free platforms. They are bringing in new investors by allowing them the ability to short sell straight from their platform.
All you require is to open a margin account with them and have the necessary margin amount needed to make the trade.
How Do You Short a Stock on Webull?
Before you can begin short a stock, you need to follow a few Webull short selling restrictions and meet the requirements.
You must open a margin account with Webull and maintain a $2000 or greater net account value.
Like the example earlier, Webull acts as an intermediary, borrows the shares you want to short from another investor, and immediately sells them at the market price. Once sold, you are in what is called a short position.
Later on, when you think you are ready to close your short position or are forced to do so because of a margin call. Webull buys back the shares at the new price and then returns them to the person you borrowed from earlier.
If the share price was lower than what you originally sold them for, you make a profit. If the price increases, however, you will have suffered a loss.
Below is a step by step guide on how to short a stock on Webull:
- Open the Webull app
- Go to the watchlist section on the Main Screen
- Find a stock
- Look for a blue downward arrow on the top right
- Press the Trade button on the bottom left
- Select Sell as the option
- Fill in the rest of the fields
- Submit the order and wait
- If the order is filled, go to Home Page and then Assets tab
- The short position will be shown as negative in your My Positions section
How Much Does It Cost to Short a Stock on Webull?
The cost of shorting a stock on Webull is based on the Margin Rate that Webull is currently offering. It is currently 6.99% for the first $25,000, and it goes down to 3.99% for margin loans greater than $3,000,000.
If you short 100 stocks worth $25000 ($250 each), you end up paying:
$25000 x 6.99%/360=$4.85 per day
However, for hard-to-borrow shares, there is an additional fee. The rate is currently 6% and is calculated slightly differently.
If you short 100 stocks worth $25000 ($250 each), you end up paying:
$25000 x 1.02(industry convention) x 6%/360=$4.25 per day
Since Webull doesn’t charge any commissions, the only costs you will incur in the daily margin rate when short selling.
If your position is doing well, more costs won’t be incurred. However, if your position is losing value, you may be subject to a margin call, where the broker requires you to add additional cash into your account. If you fail to do so, the broker will close your position, and you may be required to pay for any losses incurred.
What are the Risks of Short Selling?
Short selling is riskier than regular trading due to the potential for unlimited losses. Although little capital investment is required to make a profit, as there is no ceiling for stock prices, you can theoretically incur losses much more than your initial investment.
There is also the risk of there being a short squeeze. A short squeeze is when too many short sellers simultaneously close their positions. This causes a rapid increase in the stock price, which can last weeks. It was the case in 2021 when the GameStop short squeeze took place.
A $440 spike in price in 7 days caused multiple hedge funds with a short position against GameStop to incur losses in the hundreds of millions of dollars.
The GameStop short squeeze was only one of many ‘meme’ short squeezes that took place in January 2021
Should You Short a Stock on Webull?
Although short selling is an advanced, high-risk, high-reward strategy, it doesn’t mean that you cannot join in on the action yourself and grab a piece of the pie.
Suppose you do your due diligence with solid research. In that case, fundamental and technical analysis of the stock and keeping a close eye on news that can affect the stock price, you can try to take advantage of the one-of-kind opportunity.
However, short selling for retail traders should be used as a way of hedging, which is taking an inverse position to cancel out losses instead of earning pure profit. This is an excellent way to decrease the volatility of your stock portfolio during a bear market.
Is Shorting a Stock Unethical?
Many consider short selling as immoral because you benefit from the failure of a company. Also, short sellers may exacerbate the increase or decrease of stock prices as they speculate on a company’s fortunes.
It’s also common for short sellers to spread misinformation regarding a company to drive down stock prices. This practice is illegal and may result in prosecution if enough evidence is available.
Short selling is a highly advanced trading strategy that is difficult even for professionals. You need to be an incredibly well-disciplined trader who backs all their trades with proper research and careful curation of the stock.
It provides the opportunity to make a large profit with minimal investment and thus has come as a great strategy for savvy retail investors in a bearish market.
However, you should only decide to short a stock when you have enough evidence the trade will go your way, or else you may end up losing more money than you would’ve gained in the first place.
Also, shorting is bad for the market as a whole as it can cause price volatility.
Thus, many experts recommend using short selling as a hedging strategy instead of a profit-making strategy.
Webull has made it much easier for retail investors to short sell, and with help from their advanced tools and insights, you can look for the right opportunity to join in with the big boys of the stock market and make a nice profit.
Here are a few more answers to the most asked questions.
How Does Shorting Work on WeBull?
If you meet their requirements, Webull will let you borrow the shares you want from one of their investors and instantly sell them at market price. Later, when you want to close your position, they will repurchase it for you and return them to the lender.
Can I Short Crypto on Webull?
No, cryptocurrencies are not currently shortable.
Do You Need a Margin Account to Short?
Yes, you need a margin account, and your net account balance needs to be at least $2000 to start shorting.
Why Can't I Short Stocks on WeBull?
You may not have a margin account set up yet, or are lacking enough funds in your account to make the trade. Also, some stocks are inherently not shortable yet on the platform.
What is HTB on Webull?
HTB stands for Hard-To-Borrow stocks. These are stocks whose supply for short selling is limited, and you have to pay an extra daily fee to short these stocks.