How to Short a Stock on E*TRADE

Shorting on E*TRADE requires a margin account, not a cash account

To short a stock on E*TRADE, you must have a margin account — a cash account will not let you borrow shares. Once your margin account is open, you place a short order through the platform the same way you would place a buy order, but you select "sell short" instead of "buy". E*TRADE then borrows the shares on your behalf, sells them at the current price, and holds the proceeds. You owe the shares back later, ideally after the price drops so you can buy them back cheaper and pocket the difference.

The mechanics sound simple, but shorting carries real costs and risks that buying does not. You pay interest on the borrowed shares, you can lose money if the price rises instead of falls, and E*TRADE can force you to close the position if the shares become hard to borrow or if your account balance drops too far. Understanding these mechanics before you place your first short order matters.

Key Takeaways

You need a margin account to short on E*TRADE; a cash account cannot borrow shares.
You place a short order by selecting "sell short" instead of "buy" in the order ticket, and E*TRADE borrows the shares and sells them for you.
You pay interest on borrowed shares and must eventually buy them back to close the position, ideally at a lower price than you sold them.
E*TRADE can force you to close a short position if the stock becomes hard to borrow, if your margin balance falls below the maintenance requirement, or if the borrow is recalled.

Opening a margin account on E*TRADE

A margin account is different from a standard cash account. With a margin account, E*TRADE lends you money or shares to trade with, and you pay interest on what you borrow. To open one, log into your E*TRADE account, go to Account Settings, and look for the option to upgrade to margin. E*TRADE will ask you to agree to the margin agreement, which spells out the interest rates, maintenance requirements, and rules for forced liquidation.

E*TRADE has minimum requirements for margin accounts. You must deposit at least $2,000 in cash or securities to open margin, and you must maintain a minimum account balance (called the maintenance requirement) of 25 percent of the total value of your short positions. If your account balance drops below that threshold, E*TRADE will issue a margin call and may force you to close positions or deposit more cash to bring the account back into compliance.

The approval process is usually fast — often the same day or the next business day — but E*TRADE may deny the request if your account history or trading pattern raises concerns. Once approved, you can place short orders immediately.

How to place a short order in the E*TRADE platform

To short a stock, open the order ticket for the stock you want to short. In the order type section, you will see options like "Buy" and "Sell". Look for "Sell Short" or "Short" — the exact label depends on whether you are using E*TRADE's web platform or the mobile app, but the option is always there. Select it, enter the number of shares you want to short, choose your order type (market, limit, stop, or stop-limit), and review the order before you submit.

E*TRADE will show you the current bid-ask spread and any borrow availability information before you confirm. Some stocks are easy to borrow and some are hard to borrow or impossible to borrow; E*TRADE will tell you if the shares are available. If the stock is hard to borrow, you may see a higher interest rate or a note that the borrow is not may provide. Once you submit the order and it fills, E*TRADE has borrowed the shares, sold them at the price you received, and credited the proceeds to your account.

Understanding borrow rates and short fees

When you short a stock on E*TRADE, you pay interest on the borrowed shares. The rate varies depending on how easy or hard the stock is to borrow. Stocks that are widely held and trade in high volume usually have low borrow rates — sometimes less than 1 percent per year. Stocks that are hard to find in the lending market can have rates of 5, 10, 20 percent or higher, charged daily and deducted from your account.

E*TRADE also charges a short stock fee on certain stocks, typically $0.05 to $0.20 per share per day, though this varies. You can see the current borrow rate and any fees for a specific stock by looking at the stock's details page or by contacting E*TRADE support. The longer you hold a short position, the more interest and fees accumulate, so a stock that drops slowly may still lose money if the borrow cost eats into your gains.

Closing a short position and buying to cover

To close a short position, you buy back the shares you borrowed — this is called "buying to cover". You do this by placing a regular buy order for the same number of shares you shorted. When the order fills, E*TRADE returns the borrowed shares to the lender, and the difference between what you sold them for and what you paid to buy them back is your profit or loss (minus interest and fees).

You can buy to cover at any time while the market is open. If the stock price has dropped since you shorted it, you make money. If it has risen, you lose money. There is no time limit on how long you can hold a short position, but the longer you hold it, the more interest you pay, so most traders close positions within days or weeks rather than months.

When E*TRADE can force you to close a short position

E*TRADE can force you to close a short position in three main situations. First, if your account balance falls below the maintenance requirement (usually 25 percent of your short position value), E*TRADE will issue a margin call. If you do not deposit cash or close positions within the timeframe E*TRADE gives you, they will liquidate positions automatically to bring your account back into compliance.

Second, if the stock becomes very hard to borrow or the lender recalls the shares, E*TRADE may force you to buy to cover. This can happen suddenly and without much notice, especially with small-cap or thinly traded stocks. Third, if E*TRADE's risk management systems flag your account as high-risk — for example, if you are holding a very large short position or if the stock is about to announce earnings — they may close the position to protect themselves.

You can reduce the risk of forced liquidation by keeping your account balance well above the maintenance requirement and by monitoring your short positions regularly. If you see a margin call warning, act immediately rather than waiting.

Risks specific to shorting that you should know

Shorting is riskier than buying. When you buy a stock, the most you can lose is what you paid — if the stock goes to zero, you lose 100 percent. When you short a stock, there is no upper limit on how much you can lose. If a stock you shorted rises from $50 to $500, you lose $450 per share, and you still owe the shares back. Margin calls can force you to close at the worst time, locking in losses.

Stocks can also gap up overnight — jump sharply higher at the open — leaving you unable to close your position at a reasonable price. Borrow recalls can force you to cover immediately, even if the stock is rising. And short squeezes — when a heavily shorted stock rallies sharply and forces short sellers to buy back at any price — can wipe out a short position in minutes.

E*TRADE publishes information about short interest and borrow availability, but you have to check it yourself. The platform does not warn you automatically if a stock you are shorting becomes a squeeze candidate or if the borrow rate spikes. Experienced traders monitor their positions constantly; beginners often do not, and that is when losses accelerate.

Frequently Asked Questions

Do I need a certain account balance to short on E*TRADE?

Yes. You must have at least $2,000 in your margin account to open it, and you must maintain a balance equal to at least 25 percent of your short position value. If your balance falls below that, E*TRADE will issue a margin call and may force you to close positions.

What happens if I cannot afford to buy back the shares I shorted?

E*TRADE will force you to buy back the shares by liquidating other positions in your account or by closing the short position at market price. You cannot simply hold a short position indefinitely without the cash to cover it. If your account is severely underwater, E*TRADE may close the position without asking your permission.

Can I short penny stocks or very small companies on E*TRADE?

You can try, but most penny stocks and very small stocks are hard or impossible to borrow. E*TRADE will tell you at the time you place the order whether the shares are available. If they are not, your short order will not fill. Even if they are available, the borrow rate may be very high, making the trade uneconomical.

What is the difference between a short sale and a short squeeze?

A short sale is when you borrow and sell a stock expecting the price to fall. A short squeeze is when a heavily shorted stock rallies sharply, forcing short sellers to buy back at higher prices, which pushes the price even higher. If you are caught in a squeeze, you may face a margin call and be forced to close at a loss.

Can I place a short order after hours on E*TRADE?

E*TRADE allows short orders during extended hours (4 a.m. to 8 p.m. ET), but liquidity is much lower and spreads are wider. Most short orders are placed during regular market hours (9:30 a.m. to 4 p.m. ET) when you can see the real-time borrow availability and fill your order at a predictable price.

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.