To sell short, a trader first needs to borrow shares that will be sold short. For the most part, brokers will only lend shares if they have other customers who own the shares. While there is an inter-broker stock loan market, it is not very well developed (LocateStock.com is one company that provides such services to brokers; AQS is another). The method of borrowing shares differs at different brokers. For most normal discount brokers, you need to place a short order and then if no shares are available the broker will reject the order because there are no shares to borrow. Following are instructions for many different brokers on how to borrow shares to short and how to see which stocks are available to short.

Common Brokers

E*Trade -  There is no way to determine which stocks are shortable. You must enter a short order and if it is rejected then that stock is not shortable at the present time. E*Trade generally has poor short stock availability. Shorting stocks priced below $5 per share is prohibited.

Lightspeed Trading – Lightspeed generally sets up clients to clear through Penson, although they can clear through Goldman Sachs. They tell me that they also obtain borrows that they get from other sources as well. The Lightspeed trading platform will display a symbol if a stock is not readily available to short. According to Lightspeed, “We have a standing request with our clearing firms to locate or pre-borrow a certain quantity of every hard to borrow stock.” If a hard to borrow stock is in inventory through that standing request, it will be marked as available to short in the Lightspeed platform. If a stock is marked as hard to borrow in the trading platform, the user can send a request for the borrow through email or live chat. Lightspeed will then make an additional attempt to secure the requested shares for that specific user.

Scottrade -  There is no way to determine which stocks are shortable. You must enter a short order and if it is rejected then that stock is not shortable at the present time. Scottrade generally has poor short stock availability. Shorting stocks below $5 per share is prohibited.

SogoTrade -  Sogotrade’s parent company is Genesis Securities. You can see their short list at this url: http://www.gndt.com/support/shortlist.htm. Use your browser’s search function (Ctrl+F on many browsers) to search the list for a particular stock. This list does not update during the day so it is possible a stock on the list will not be shortable later in the day. Shorting OTC BB stocks is allowed (Pink Sheet stocks cannot be traded long or short) but SogoTrade rarely has borrows on OTC BB stocks. Stocks that open the day under $3 cannot be shorted using Sogotrade but can be shorted at SogoElite. It is possible to borrow and short stocks not on the short list by calling the SogoTrade trade desk.

TD Ameritrade – There is no way to determine which stocks are shortable. You must enter a short order and if it is rejected then that stock is not shortable at the present time. TD Ameritrade generally has poor short stock availability (although sometimes they will have shares of hard-to-borrow stocks). Shorting non-marginable stocks (including all OTC stocks) is prohibited.

ThinkorSwim – The TOS platform will say whether a stock is easy to borrow or hard to borrow when you bring up a quote. For hard to borrow stocks, bring up the integrated instant messenger to chat with the TOS help desk. Tell them which stocks you want to borrow and how many shares of each stock. They will then ask you at what price to place your order. I recommend having them place a short order way above the market price so that you can then choose when exactly to execute the order (by lowering the limit price). It is also possible to have them just post a notation in your account that you have shares reserved. That is cumbersome, does not always work, and requires going back to chat to have them place the short order later. TOS is the only broker on this page that allows for reserving shares to short. For all other brokers on this page whomever executes the first short sale gets the shares. Generally, shorting stocks under $3 is prohibited, although enforcement has been lax in the past.

Tradestation – Tradestation primarily self-clears for stock trades. The trading platform does not indicate whether a stock is easy or hard to borrow. A trader can call the trade desk to obtain a borrow on a hard to borrow stock; the trade desk will then place an order in the traders account for that stock at an above-market price that the trader can then adjust to execute the trade when he wishes. Trades for OTC and Pink Sheets stocks need to be phone in (whether long or short).

Other random discount brokers – Most small discount brokers clear through Penson Financial (like ThinkorSwim and Speedtrader), so the borrows would be the same, although the method for borrowing shares may be different. Noble Trading, Cobra Trading, and LowTrades.com all clear through Penson.

Recommended Broker

Interactive Brokers -  I like to use the FTP text version of IB’s short stock list: Shortable Stocks FTP (when prompted for a password just hit enter or okay). An HTML version of the shortable stocks list is also available. Both show how many shares are available to short and what interest rate a trader must pay to borrow said shares. If you log in to your account and go to “Tools > Short Stock Availability” you can see more detailed data on how many shares of a stock were available at different times. Interactive Brokers has detailed instructions on how to use this tool. I have also configured my Trader’s Workstation software to show the “Shortable” column. Below is a detailed video of how to do that. IB allows short selling stocks of any price (although short selling stocks under $2.50 requires more capital) and allows short selling of OTC BB and Pink Sheets stocks. Interactive Brokers does not allow for reserving shares to short; the first trader to get a short order filled gets the shares.

[Update 10/31/2009 - IB now allows for borrowing / lending stock through the AQS stock loan marketplace. See my post on that new feature.]

Disclosure: Updated 1-28-2010 to add info on Lightspeed. No positions. I use SogoElite (which I hate) and Interactive Brokers which I love). I have my IRA accounts at Scottrade. I use ThinkorSwim occasionally. I have used Ameritrade and E*trade in the past and am glad I left. I have a disclosure policy.

If a stock is marked as hard to borrow in the trading platform, the user can send a request for the borrow through email or live chat. Lightspeed will then make an additional attempt to secure the requested shares for that specific user.