TD Ameritrade is basically a broker that offers an online platform for trading financial assets like different types of stocks, cryptocurrencies, forex, mutual funds, etc. Another notable thing about this online broker is, it is an excellent place to short your stocks.
You can potentially make a huge amount of money by doing it. Do you know how to do it? No worries. This article will give you the best guide on how to short a stock on TD Ameritrade. Hopefully, this article will help you out and make the process very easy for you. So, follow the article to do it like a pro.
By the way, if you are new in this sector, you can check out stock trading for beginners before starting any process.
What is Short Selling?
We all know stocks’ prices move in two directions which are up and down. When the price of a stock increases, the seller can make money by selling stocks. In general, stockholders always want their stock’s price to be increased in the future.
Actually, they buy the stocks only when they anticipate that the stock price will increase so that they can sell it at a higher price. Short selling is basically the exact opposite of this. It means you are betting that the stock price will surely decrease after a specific period of time.
In this method, people borrow stocks from the agent and sell them when the price is higher. After a specific period of time, when the price of the stock falls, they buyback. Here the difference between buying and selling price is mainly the profit.
An example can make you clear about this topic. Think that you believe that the stock price of ABC Co. will decrease after few months. Currently, they are trading $10 per stock. Now you issue a sell order through your broker for 100 stocks of ABC Co.
After that, your broker will locate the stocks and sell those putting $1000 in your account. Then when the price drops and reaches $5, you will repurchase it at $500. By doing, you can easily earn (Selling Price-Buying Price) $500. In a nutshell, here you have borrowed the stocks and sold them. Now you will bring the stocks back with the required fees.
How to Short a Stock on TD Ameritrade
Many people think that the short-selling process is very complex. But the real picture is slightly different. It’s not that tough as we think. Though the various brokers vary the complexity of short selling, overall, the process is easy to understand.
Especially, short selling on TD Ameritrade is very easy. Here is the complete step by step process of shorting a stock on TD Ameritrade:
Create an Account
If you want to start short selling, the first thing you have to do is, create an account on TD Ameritrade. For creating an account, you need to go to their website and select the type of account you want to create there. Here you will get different types of accounts to create. Choose your preferred option and then complete the account creation process by giving the required information.
Enable Your Account for Short Selling
Creating an account on TD Ameritrade doesn’t mean you will simply be able to start short selling. For doing that, you need to enable your account for short selling. In that case, you have to go to the options in your account to enable this feature.
There, TD Ameritrade authority will provide you with some documents where you will have to acknowledge that you are intentionally taking the risk of short selling. They will ask you few questions regarding your short selling process, like your investment strategies, goals, liquidity, and so on.
Here, most of the questions will be according to your types of accounts and the trading history on TD Ameritrade. After completing the documentation and acknowledgment, your account will be enabled for short selling.
In the next step, you have to find out some stocks to short. As we have mentioned before, you know well that you need to find out the stocks whose price will surely decrease after a specific period of time. So, try to find out some stocks whichs’ price will drop and which’s selling and buying price difference is most.
Make Sure the Stocks are Eligible for Short Trade
All the stocks are not eligible for short selling. That is why, before planning for order placement, you have to make sure that the stocks you have selected are eligible for a short trade. For instance, in TD Ameritrade, penny stocks do not qualify for short selling. So, if you have selected this stock, you will not be able to short it.
Place Your Order
After that, make an order to short sell on the TD Ameritrade website. When you enable your account for short selling, the option of order placement will be open by which you can easily place your order. You just need to specify the particular stocks that you want to short. On TD Ameritrade, all the processes are almost the same as other broker platforms.
Place Minimum Amount in Your Account
You must have a specific amount of money in your account for short selling, whichever broker you choose. Their authority protects this requirement. This rule is also the same on TD Ameritrade. You must place a minimum amount which is $2000, in your account to short stocks. If your short sales go wrong, you have to cover the losses also.
In the last step, you have to clear all the payments of TD Ameritrade. Here the margin fees rate is 6.75% to 9% with the base rate of 7.75%, and the stock commission is flat at $9.99. After the payment, you are now ready to short stocks and make money.
This was mainly the step-by-step process and ultimate guide on how to short a stock on TD Ameritrade. If you follow the process in your trading exactly the same way that we have given here, you don’t need anything else to short your stocks. Happy trading.