How to Short a Stock on E*TRADE

Shorting a stock on E*TRADE means borrowing shares, selling them at today's price, and hoping to buy them back cheaper later

To short a stock on E*TRADE, you open a margin account (not a cash account), locate the stock you want to short in the platform, and place a sell order marked as "sell short." E*TRADE then borrows the shares on your behalf from its inventory or from other sources, sells them at the current market price, and deposits the cash into your account. You owe E*TRADE those shares back at some point in the future. If the stock price falls, you can buy the shares back at a lower price, return them, and keep the difference as profit. If the stock price rises, you lose money — and your losses can theoretically be unlimited, since a stock price has no ceiling.

The mechanics are straightforward in the platform itself, but shorting carries real costs and risks that many new traders underestimate. E*TRADE charges you a borrow fee (interest) for holding the short position, may charge a locate fee if shares are hard to find, and requires you to maintain a minimum margin balance or face a forced buyback. You also receive no dividends while short — in fact, you owe E*TRADE any dividends paid to the stock's owner during your short period.

Key Takeaways

You must have a margin account with E*TRADE to short; a standard cash account does not allow short sales.
When you place a sell short order, E*TRADE borrows shares and sells them immediately; you must buy them back later to close the position.
E*TRADE charges a borrow fee (interest rate) for every day you hold a short position, and may charge a locate fee if shares are scarce.
Your potential loss on a short sale is unlimited, because there is no upper limit to how high a stock price can rise.
If your account balance falls below the maintenance requirement, E*TRADE can force-liquidate your short position without your permission.

Opening a Margin Account on E*TRADE

Shorting requires a margin account, not a cash account. If you have only a cash account with E*TRADE, you cannot short stocks. You can upgrade to a margin account by logging into your account, going to Account Settings, and selecting the option to convert to margin or opening a new margin account. E*TRADE will ask you to agree to the margin agreement and will review your account to confirm you meet their requirements.

E*TRADE's margin requirements vary, but generally you need a minimum account balance (often $2,000 or more) and must maintain a certain percentage of your position value in cash or securities at all times. This is called the maintenance requirement. If your account falls below this level — for example, because the stock you shorted went up and you lost money — E*TRADE will issue a margin call and may force-sell your positions to bring you back into compliance.

How to Place a Sell Short Order in the Platform

Once you have a margin account, shorting a stock in E*TRADE is a matter of changing one setting on your order. Search for the stock ticker in the E*TRADE platform, click on it, and select "Trade." In the order entry window, you will see an option that says "Buy" or "Sell." Click on "Sell," then look for a dropdown or checkbox that says "Sell Short" or "Short Sale." Select that option.

Enter the number of shares you want to short and the price at a which you want to sell (or select "Market" to sell immediately at the current price). Review the order carefully — shorting is a leveraged bet, and mistakes are expensive. Click "Preview Order," confirm the details, and submit. E*TRADE will attempt to locate and borrow the shares. If shares are available, the order will execute and you will see the short position appear in your holdings as a negative number (for example, -100 shares).

If E*TRADE cannot locate shares to borrow, your order will be rejected or placed on a locate list. Some stocks are hard to borrow, especially smaller companies or stocks that are already heavily shorted. You can check E*TRADE's short locate list or call their trading desk to ask whether a specific stock is available to short before you place the order.

Understanding Borrow Fees and Other Costs

Every day you hold a short position, E*TRADE charges you a borrow fee — an interest rate applied to the value of the shares you borrowed. This fee is deducted from your account automatically and varies depending on the stock. Stocks that are easy to borrow (large, liquid companies) typically have low fees, sometimes under 0.5% per year. Stocks that are hard to borrow can have fees of 5%, 10%, or higher per year, calculated daily.

E*TRADE may also charge a locate fee if the shares you want to short are in high demand or scarce. This is a one-time fee charged when the order executes. Additionally, if the company pays a dividend while you hold a short position, you owe that dividend to E*TRADE — you do not receive it. These costs add up quickly on large positions or long-held shorts, and they work against you even if the stock price stays flat.

Closing Your Short Position

To close a short position and end your obligation to return the shares, you place a buy order for the same number of shares you shorted. If you shorted 100 shares of XYZ at $50, and the price falls to $40, you can buy 100 shares at $40, return them to E*TRADE, and pocket the $1,000 difference (minus borrow fees and commissions). The buy order works like any other buy order in the platform — search the stock, click Trade, select Buy, enter the quantity, and submit.

You can close your short at any time, as long as shares are available to buy. There is no deadline, but remember that borrow fees continue to accrue every day you hold the position. If the stock price rises instead of falls, your losses grow, and you may face a margin call if your account balance drops too low. Many traders set a stop-loss order on a short position — an automatic buy order that triggers if the stock price rises to a certain level — to limit their losses.

Margin Calls and Forced Liquidation

When you short a stock, you are borrowing money (in the form of shares) from E*TRADE, and E*TRADE requires you to maintain a minimum balance in your account to cover potential losses. This is the maintenance requirement, usually around 30% of the value of your short position. If the stock price rises and your account balance falls below this threshold, E*TRADE will issue a margin call.

A margin call means you must deposit cash or securities into your account within a set timeframe (often the same day or the next business day) to bring your balance back above the maintenance level. If you do not meet the margin call, E*TRADE has the right to force-liquidate your short position — meaning they will automatically buy back the shares at whatever price they are trading at and close your position without your permission. This can lock in large losses if the stock has risen sharply.

Risks and Limitations of Shorting

Shorting is one of the highest-risk trading strategies available. When you buy a stock, your maximum loss is the amount you invested — if you buy 100 shares at $50, you can lose at most $5,000. When you short a stock, your maximum loss is theoretically unlimited, because there is no ceiling on how high a stock price can rise. A stock that you shorted at $50 could rise to $100, $500, or higher, and you would owe E*TRADE the difference.

Additionally, E*TRADE can force you to buy back your short position at any time if shares become unavailable to borrow or if they recall the borrow. This is rare but does happen, especially with small-cap stocks or stocks involved in corporate actions like mergers. You also cannot hold a short position indefinitely in certain situations — for example, if a company is delisted or goes bankrupt, your short position may be closed by force.

Short selling is also subject to Regulation SHO, a Securities and Exchange Commission rule that restricts naked short selling (shorting without locating shares first) and requires brokers to close out certain short positions. E*TRADE complies with these rules, which means some stocks may not be available to short, or your short position may be closed if shares cannot be located.

Frequently Asked Questions

Can I short a stock if I do not have a margin account?

No. Short selling requires a margin account. If you have a cash account, you must convert it to a margin account or open a new margin account with E*TRADE before you can place a sell short order. The conversion usually takes one business day.

What happens if E*TRADE cannot find shares to borrow?

If shares are unavailable, your short order will be rejected or placed on a locate list. You can call E*TRADE's trading desk to ask about the availability of a specific stock before placing the order. Some stocks, especially smaller companies, are frequently unavailable to short.

Do I have to pay dividends on a shorted stock?

Yes. If the company pays a dividend while you hold a short position, you owe that dividend amount to E*TRADE. This is one of the hidden costs of shorting that many new traders overlook. The dividend is deducted from your account automatically.

What is the difference between a margin call and forced liquidation?

A margin call is a notice that your account balance has fallen below the maintenance requirement and you must deposit cash or securities to bring it back up. Forced liquidation happens if you do not meet the margin call — E*TRADE automatically buys back your short position and closes it, locking in your losses.

Can I set a stop-loss order on a short position?

Yes. A stop-loss order on a short position is a buy order that triggers automatically if the stock price rises to a certain level. This limits your losses by forcing a buyback at a predetermined price. You can set this up in E*TRADE's order entry window when you place your short order.

This guide is for general information only and is not medical, financial, legal, or other professional advice. For decisions specific to your situation, consult a qualified professional. See our Editorial Policy.