So you want to get into shorting stocks, huh? You’ve come to the right place. This post will give you a crash course on the basics of shorting stocks, and short locates: what they are, how to get them, and why they’re essential. Let’s get started!
What is a Short Locate?
A short locate is simply an order to borrow shares of a stock that you hope to sell (or “short”) at a higher price and then buy back at a lower price so you can profit from the difference. When you sell a stock “short,” you’re essentially betting the stock price will go down.
Why do you need to borrow the shares in the first place?
Well, to sell a stock, you need to own it. But if you think the stock price is going down, you don’t want to own it—you want to bet against it. Borrowing the shares will let you do just that.
How Do I Get a Short Locate?
To submit a short sell order, your broker must confirm that the shares are available for borrowing—and that’s where the short locate comes in. Your broker will contact the party who owns the shares (usually another broker) and request to borrow them. If everything checks out and the shares are available for borrowing, your broker will give you the green light to proceed with your short sale.
Why Are Short Locates Important For Shorting Stocks?
Aside from being a necessary step in short selling, short locates can also provide helpful information about the supply and demand for a particular stock. If many locates are already out for a stock, there’s high demand for it. That could mean the stock price is about to go up (more on that later). On the other hand, if very few locates are outstanding, it could indicate that there’s not much interest in the stock, which could mean the price is about to go down.
In conclusion, short locates are vital because they
- Let you borrow shares so you can sell them without owning them.
- Provide helpful information about supply and demand for a particular stock. Now that you know all this, what are you waiting for?
Watch this free 1-hour webinar with Alex and learn how he makes millions yearly shorting stocks.