There are a few rules regarding short selling that are important:
- In order to sell short, you must have margin privileges on your brokerage account.
- You cannot short a stock as it is falling in price. For exchange-traded securities, short sales can only be placed if the most recent trade is higher than the previous one (known as an “up-tick”) or equal to the previous trade (known as a “zero-tick”). Over-the-counter securities can only be shorted on up-ticks.
- You must maintain enough purchasing power in your account to place a buy to cover order on your short sale. If the stock price increases on your shorted security, you may face a margin call to ensure you have to capital necessary to repurchase the stock and return it to your broker.
