This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Not as Easy to Short ETFs as You May Think

One of the major selling points for exchange-traded funds is that they can be sold short. Given the recent tenor of the stock market, that should be a big plus -- after all, it's much easier to bet on a decline in a portfolio of stocks than to make separate bets against each individual holding.

But the truth is, it's not as easy to sell an ETF short as the industry would have you believe.

Unlike mutual funds, which are issued and redeemed once a day by their sponsors, ETFs are bought and sold on an exchange, like stocks. In theory, that means you can short them as easily as stocks, borrowing the shares and selling them in the hopes of buying them back at a cheaper price when its time to repay the loan.

Say, for example, you borrow and resell 100 shares at $30 for a total of $3,000 and they subsequently fall in price to $20; you can then buy them back for $2,000, repay the loan and pocket the $1,000 difference, minus transaction fees. (By the same token, if the stock subsequently rises to $40 a share, you'll be out the additional $1,000 needed to repay the loan.)

Of course, some stocks are easier to borrow than others. Investors typically rely on brokerages to lend them shares held by other clients, such as mutual funds or other big institutions. If a stock has a small market capitalization or is already heavily shorted, it can be hard to find someone willing to lend it.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
SRS $51.27 -2.00%
SH $21.40 0.71%
SKF $48.48 1.80%
SDS $21.20 1.40%
PSQ $56.62 1.20%

Markets

DOW 17,548.12 -135.46 -0.77%
S&P 500 2,056.20 -12.56 -0.61%
NASDAQ 4,931.92 -60.02 -1.20%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs