If you want to short a stock on Webull, this step-by-step guide will take you through everything you need to know.
From leveraging margin, to the risks associated with shorting stocks, you will be better prepared to this shorting strategy.
CAN You Short Stocks on Webull?
The strategy of shorting stocks used to be reserved to just a few elite specialists.
Nowadays, even beginner traders are becoming well versed with this method of trading stocks.
Let’s explore what shorting stocks consist of ?
Basics of Shorting
In contrast to buying a stock to open a position, shorting a stock is all about selling the stock to open the position.
However, the obvious question is why would someone want to sell a stock to they own to open a position?
The answer is: short sellers do not own the stocks they are shorting.
The adjective “short” needs to be translated into “do not have it”.
Like in the sentence “I am short 5 dollars” which means I am $5 dollars short of what is needed, or I am lacking $5.
How Does Shorting a Stock on Webull Work?
So, the scenario for shorting a stock on Webull is the following.
You want to sell 100 shares of stock “XYZ” on the open market but you do not own those shares.
Luckily for you, Webull owns plenty of shares of company “XYZ”.
Webull is willing to lend you borrow those 100 shares of XYZ.
Why is Webull (or any other broker doing this ?) ?
Because, in return they will charge you interest until you return the 100 shares you borrowed.
Therefore, Webull and other brokers actions on shorting stocks are strictly business motivated.
From this description, you can see that initiating a short sell of a stock is simply a loan origination from your broker.
Sometimes, if may be transparent to you but your broker itself can be borrowing these shares from other brokers !
Should this be the case, the characterization “Hard to borrow” is added to such shares.
How do you Make Money Short-Selling Stocks
After you get the shares from a loan from your broker, you immediately sell them in the open market at the current market price.
Let’s say Company XYZ in our example is trading at $90.
Your account will immediately be credited for 100 multiplied by the current price of company XYZ stock ($90) so you get $9000.
Great for you.
You will start making money as soon as the stock price of company XYZ stays below you shorting price of $90.
This is the illustration on the chart above with the stock going all the way to $80 in just 4 days.
How To Close your Short position on Webull
To close a short position, you need to buy the shares of company XYZ and return them to you broker who loaned them to you initially when you opened the position.
In our example, at the current price of $80, you will use $8000 from the $9000 you receive to buy 100 shares of XYZ in the open market.
Hence, you broker will get the 100 shares you borrowed.
You will also pay your broker interest for this short-term loan (it took 4 days on our graph for the stock to go from $90 to $80).
We will reveal in the next paragraph how much is the interest rate on that loan but you will stand to cash over $950 from this transaction.
How Much Money Can You Make shorting a stock?
Short selling is a bearish strategy as you can derive meaning that you make money when the price of the stock goes down.
The maximum amount you can make on a short sell of a stock is when /if that stock goes to $0.
Therefore, if we take our previous example, the maximum potential gain is $90 per share. This equates to the initial money in your account $9000 non withstanding the fees.
It is great when a trader short a stock and it all work out beautifully as depicted above.
However, the outcome is not always that rosy.
Can You lose money shorting stocks?
Yes, you can lose a great deal of money when you short a stock.
Why and how
If the stock starts going up instead of down, every dollar XYZ stock goes upby equates $100 of loss for you assuming you shorted the 100 shares.
You can decide to limit your losses by buying back at your predefined stop loss.
But often, short sellers tend to play mind games since time is often in their favor.
The rational is just to wait it out until the stock comes back down.
Should you decide to go with this method, you need to be aware of two things:
- Every day that passes by you are paying interest on the borrowed shares
- A short Squeeze may kick in anytime
What Is a Short Squeeze?
A short squeeze is when too many short sellers of a stock try to close their short positions at once.
This creates a buying frenzy of that stock and thus a rapid spike in its price that can last several days or weeks.
Such was the case in 2021 with stocks such as GME, AMC and the meme stocks frenzy that ensued.
My best recommendation is to respect your stoploss in order to avoid losing more money than you have in your account.
Yes, trading horror stories often come from short selling when a stock goes out of control.
GME stock (see chart below) went from $40 to $483 in just 7 days between January 20 20221 and January 28, 2021.
GME managed to come back down after 3 weeks to 40’s again.
I do not know about you but what an emotional Rollo coaster for those involved in this trade during those 3 weeks.
When Should You short a Stock on Webull
Technical analysis is the most reliable source from trading.
May that be shorting stocks on buying them.
You can use reliable scanners and screeners to indicate when a stock is in a bearish pattern.
E*TRADE scanners and screeners can help you with your short strategy..
Otherwise, you can leverage this step-by-step tutorial on Webull Screeners to achieve great results.
Can You Short on Webull with a Cash Account
In order to short a stock on Webull, you will need a margin account that has a net value higher than $2,000.
Webull will then give you up to 4 times level on your current balance hence your buying power will become $10,000.
What can you short with $10,000 ?
You cand short of to 100 shares of stocks that are worth up to $100.
100 shares of a stock XYZ worth $90 with qualify because that represent $9,000 which is much lower than your buying power= Net account +Margin.
Webull Short Selling Fees
You will pay for margin on a daily basis on Webull.
For long positions, Webull is kind enough to give us the daily interest rate = Borrowed Cash x Margin rate/360.
The margin rate varies as a function of how much money you borrow (leverage).
Here is the most recent table as a guide showing Margin rate between 3.99% and 6.99%.
|Margin Loan in $USD||Annual Margin Rate|
|$0 to $25k||6.99%|
|$25k to $100k||6.49%|
|$100k to $250k||5.99%|
|$250k to $500k||5.49%|
|$500k to $1 Million||4.99%|
|$1Millin to $3 Million||4.49%|
|Over $3 Million||3.99%|
How To Short Stocks on Webull?
On the Webull App, there is an indicator to let you know which stocks you can short sell.
In the image above, I circled the green arrow icon that lets you know if you can short a stock.
QQQ is a shortable stock with 50% leverage.
In case you are wondering, you cannot short GME or AMC stocks on Webull.
That is one issue I have with Webull. In their attempt to curb the risk for traders, any stock that displays the slightest increased volatility is removed from trading.
How to short the Market with an ETF
Several ETFs have inverse ETFs associated with them.
This means that when the main ETFs such as QQQ or SPY go up, their inverse SQQQ goes down and vice versa.
Consequently, a clever way to short the market with these ETFs in to buy their inverses.
How To Short Sell on Webull in 2022
Before you can cab short sell on Webull, you first must find shortable stocks.
- Find Shortable stocks on Finviz
- Use Finviz Powerful Screener to find Stocks to trade on the short side
Alternatives to Shorting Stocks on Webull
I show you how it is possible to lose more money than you have with the short sell strategy.
How about using options to mirror a bearish strategy?
If I am bearish on a stock, I would rather buy puts because the maximum I can lose should the position goes against me is my initial investment.
In the video below, I teach you how I take a very small, limited risk on Options on QQQ and make big profit consistently.
I could even argue that I can structure my bearish position with some hedge (calls) so that I am always in a great position to make money even if the bearish thesis is negated.
Check out how I trade Puts vs Calls in 2022 and beyond.
FINAL THOUGHTS On How to Short Stocks on Webull
We answered the question on how to short stocks on Webull by leveraging the margin.
You can use this technique as a day trading strategy and a swing trade depending on your Risk profile.
NEXT READ: LEARN HOW TO TRADE OTIONS ON WEBULL