Whether you’re a long-term or short-term investor, there may come a time when you want to sell a stock, either because you think it is overvalued or because you need some cash. It’s easy to do on a platform such as Trading 212, which charges no commission for trades. However, there are a few key points to bear in mind, including fees and order types. Find out more

Step 1 – Open a margin account: Traders must first open a margin account so that they can borrow shares. They must also maintain a minimum balance, called the maintenance margin, in their account to cover potential losses from short sales. Brokerage firms often facilitate this process behind the scenes, finding borrowable shares in the market or from other traders’ accounts. They will also charge interest on the borrowed shares while the position remains open.

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Step 2 – Identify a stock to short: Traders typically identify stocks that they expect to decline in price, such as by analyzing financial reports or technical indicators like a bearish moving average crossover (also known as the death cross). They then short the shares, anticipating that the company’s share price will drop and that they can buy the shares back at a lower price.

Traders must monitor their short positions closely, as shares that are sold can quickly rise in value, potentially leading to a “short squeeze” where they are unable to buy back the shares they have borrowed. They must also be careful not to short a stock on the ex-dividend date, as they will be responsible for paying any dividends that the company pays out.