{"id":843658,"date":"2020-04-02T16:56:03","date_gmt":"2020-04-02T20:56:03","guid":{"rendered":"https:\/\/www.finder.com\/ca\/?p=843658"},"modified":"2025-09-22T14:54:40","modified_gmt":"2025-09-22T18:54:40","slug":"how-to-short-a-stock","status":"publish","type":"post","link":"https:\/\/www.finder.com\/ca\/stock-trading\/how-to-short-a-stock","title":{"rendered":"How to short a stock"},"content":{"rendered":"

Buy low, sell high\u2014that sums up the approach to stocks for most investors. But if the price of a stock falls, there are still ways you can make a profit. This is known as short selling.<\/p>

In this guide, we\u2019ll show you how to short a stock, the benefits of short selling, and why shorting also comes with a high level of risk.<\/p>

What is short selling?<\/h3>

Short selling is an advanced trading strategy that aims to benefit from falling prices. Short selling works by borrowing shares from your broker and immediately selling them on the market. Once the share price drops, you buy back the shares cheaper and return them to the broker. You then pocket the price difference.<\/p>

You need to have a margin account\u2014an account where you can borrow money from your broker\u2014to short a stock directly. Short selling is also considered high risk. That\u2019s because you lose money if the stock price rises, and theoretically, there\u2019s no limit to how high a stock price can go.<\/p>

Margin requirements when short selling<\/h4>

When you short a stock, you\u2019ll need to have enough equity in your trading account to use as collateral for the amount you borrow from your broker. The amount of collateral you need is known as the minimum margin requirement.<\/p>

So if you\u2019re short selling 10 shares of Company XYZ at $50 per share ($500 in total) and the minimum margin requirement is 30%, you\u2019d need at least $150 in your trading account.<\/p>

The Canadian Investment Regulatory Organization (CIRO) sets minimum margin requirements, but these vary depending on the type of security being traded. Brokers can also set higher requirements if they wish. Check with your broker for details of margin requirements that apply to your account and your specific trades.<\/p>

A short selling example<\/h3>

Let\u2019s say you have your eyes on Company XYZ. You think its current stock price is overvalued and is set to fall in price in the near future.<\/p>

Here\u2019s how you could benefit from it by short selling its stock.<\/h4>
  1. You borrow 10 Company XYZ shares from your broker.<\/li>
  2. Sell them at the current market price, $100 each, for a total of $1,000.<\/li>
  3. You keep the $1,000 in your account and wait for the stock price to drop.<\/li>
  4. The price of Company XYZ\u2019s stock drops to $50.<\/li>
  5. You purchase 10 Company XYZ stocks at $50 each, a total of $500, and return them to your broker.<\/li>
  6. You keep the $500 profit ($1,000 \u2013 $500) minus any fees that apply.<\/li><\/ol>

    Note:<\/strong> This is an ideal scenario where the price drops. If you\u2019re wrong and the price goes to $150 per stock, you would have to pay $1,500 to buy back 10 stocks. In this case, you would lose $500 ($1,000 \u2013 $1,500 = -$500).<\/p>

    How to short a stock<\/h3>

    Online brokerage accounts make it easy to short a stock. Here\u2019s a step-by-step guide to the process of short selling.<\/p>

    1. Find a broker that offers short selling<\/h4>

    Not all brokers will facilitate short selling and not all stocks are available to borrow, so shop around for the right trading platform. Make sure the broker also offers low trading commissions, an easy-to-use trading platform and access to the stocks you want to trade.

    \n
    \nDive deeper: <\/span>Best stock trading apps in Canada<\/a>\n<\/div>\n<\/article><\/p>

    2. Open a margin account<\/h4>

    You\u2019ll need to trade with a margin account to short a stock. You can create an account with the broker of your choice by providing:<\/p>