Not all stocks can be sold on margin and securities. Click on the list of margin and securities to view the stocks that can be mortgaged or sold short.
1. Financing transactions
( 1 ) In financing transactions, investors use funds or securities in their securities accounts as pledges to borrow more funds from securities firms for securities purchases and repay the principal and interest within the agreed period.
( 2 ) After opening or upgrading to a margin account, investors can conduct financing transactions in Tiger Securities and enjoy up to 4 times leverage in a day, and up to 2 times the next day .
2. Securities lending transactions
( 1 ) In securities lending transactions, investors use funds or securities in their securities accounts as pledges, borrow securities from a brokerage firm and sell them, and at a later time, buy the same amount and variety of securities back to the brokerage firm and pay the corresponding Securities lending interest.
( 2 ) After opening or upgrading to a margin account, investors can conduct securities trading in Tiger Securities and enjoy up to 4 times leverage in the day and 2 times the next day .
( 3 ) The cost of short-selling securities is more complicated. Generally, the cost of short-selling securities is related to the degree of risk of the stock, the liquidity of the stock and the short-selling ratio (the number of stocks available for lending). The cost of securities lending is not fixed. .
( 4 ) Securities lending transactions may face the risk of short stocks being covered due to insufficient stocks available for lending or stock lenders recalling stocks.
Reminder: After the securities lending transaction, if the current number of stocks available for lending is insufficient, the broker may close the stock without notifying the client.
3. Short selling
(1) What is short selling
Short selling in securities is the most basic way of short selling in US stocks, which is the opposite of doing long. When an investor does not hold a certain stock, but believes that its price will fall in the future, a certain amount of funds in the investor’s securities account can be used as a guarantee to borrow the stock from the brokerage firm and sell it; when the price drops, the price will be lowered Buy the same amount of the stock and return it to the broker, thereby earning the difference between selling high and buying low.
(2) How to operate
If you want to short a certain US stock, you can directly select "Sell" when placing an order for the individual stock. In the Tiger Trade APP , you can click Trade > Sell at the bottom of the individual stock details page to perform operations, and the order transaction is a successful short.
( 3) Securities lending interest
Since the stocks sold by investors are borrowed from brokers, they need to pay a certain amount of interest to the brokers (the interest is calculated from the T+2 day of shorting ).
The industry rule for collecting securities lending interest is " mark-to-market ", that is, first multiplying the closing price of the securities by 102% , then rounding to U.S. dollars, and then multiplying the whole number of securities prices by the securities lending The quantity, the mortgage amount (the multiplier of the mortgage amount should be at least 100% , which may be higher according to applicable laws or market practices).
For example, if you short 100 shares and the closing price on T+2 is 59.24 dollars, the corresponding cash mortgage amount is calculated as follows: 59.24*102%=60.4248 , rounded to 61 dollars; multiplied by the number of shares to get the final amount 61* 100=6100 USD. If you hold a short position for multiple days, the daily mortgage amount will change accordingly, and so on.
The short interest rate of individual stocks in US stocks is dynamic, that is, the short interest rate of individual stocks will be adjusted according to the degree of risk of the stock, the liquidity of the stock and the difficulty of borrowing (the number of stocks available for lending). When stocks fluctuate greatly and there are too many short sellers, it will cause the interest rate of securities lending to rise, and sometimes the interest rate may exceed 100% . Under normal circumstances, if the stock price trend is stable and the short-selling pool is abundant, the interest rate will be relatively stable and cheap.
( 4) Reference interest rate of individual stocks
On the individual stock quotation page of Tiger Trade APP , click on the "financing" symbol on the right side of the stock price to view the current day's securities lending interest rate of the stock as a reference for estimating the actual lending interest rate. If the specific number is not shown here, it means that there are currently no coupons, no fixed interest rates, or interest rates are changing.
4. The risk of shorting
( 1 ) Risk and return are not equal
The disparity between risk and return is the inherent risk of shorting. Theoretically speaking, when an investor is long a stock, the maximum loss is when the stock price drops to 0 , that is, the loss ratio is 100% ; but when an investor shorts a stock, the stock price subsequently rises relative to its short price There is no limit to space, so its potential loss is unlimited, which may be 200% , 300% or even higher.
( 2 ) Time cost
Short selling must consider the time factor. On the one hand, because short-selling operations generate interest every day, the cumulative cost increases over time; on the other hand, the biggest uncertainty in short-selling also comes from time. If investors hold short positions for a long time, they may face rising stock prices. risk.
( 3 ) Interest rate risk
It should be noted that after the short order is placed, the short interest rate still changes. The final interest paid by the investor will be calculated based on the actual daily interest rate starting from T+2 , and will be aggregated and settled on the third trading day of each month. No one can pre-determine the short interest rate. If the short-selling congestion of individual stocks increases significantly during the period of holding a short position, resulting in a substantial increase in interest rates, investors need to bear the increased short-selling costs; in some cases, this may lead to a loss of short positions.
( 4 ) Recall and liquidation
In short operations, the relationship between short investors and lenders is not equal. The stock lender reserves the right to request the stock recall at any time. If a recall occurs, the brokerage firm will try to replace the previously borrowed stock with the stock borrowed from another lender. If the stock cannot be borrowed, a formal recall will be initiated. Recalls usually use volume weighted average price ( VWAP ) orders to close customers' short positions.
In addition, if the stock price continues to rise after the stock is borrowed, the margin requirement for the stock will also continue to increase. In the event of insufficient margin, a liquidation will be triggered. If a stock with a high proportion of short positions rises sharply, it is likely to cause many short investors to rush to close their positions within the same period of time, leading to further stock price increases.
( 5 ) Corporate actions
Certain corporate actions (such as mergers and acquisitions, acquisitions, dividends, etc.) may cause short-selling rates to increase.
For example, when a company announces dividends, it usually results in a decrease in the supply of stocks on the market, which may lead to an increase in interest rates on securities lending.
( 6 ) Delisting and suspension
When a stock is delisted or suspended, investors may not be able to fill their short positions because the stock cannot be traded, and it will be terminated until the stock is delisted or the stock resumes trading. This process may last for days, months or even longer, especially when the company goes bankrupt and liquidates the longest. During this period, investors have to continue to pay securities lending fees based on the stock’s delisting price or the closing price of the stock on the most recent trading day, which may be very high.
If you need to know more about the risk disclosure of margin trading, please visit https://www.itiger.com/agreement/CHN-bzjfxpl?skin=2 .
5. Short selling restrictions
( 1 ) Not all US stocks can sell short
Not all US stocks can be shorted, and not all US stocks can be shorted every moment. Some stocks with very low prices or very poor liquidity are not allowed to go short. As for those stocks with poor liquidity, there may be situations in which bonds cannot be borrowed, and such stock shorting functions are intermittent.
( 2 ) The same stock cannot be long and short at the same time
It should be noted that the same securities account cannot be long and short the same stock at the same time. When you hold a stock and sell a short position at the same time, the stocks you hold will be sold first; if the sold quantity exceeds the quantity held, the excess will trigger a short operation.
( 3 ) Pay close attention to the account balance and risk control value
Short trading is margin trading. When conducting margin trading, the brokerage firm will calculate the risk control value of the account in a certain way. When the overall risk control value of the account is lower than 0 , some or all of your positions may be liquidated.
( 4 ) Stock dividends need to be paid
Although short sellers sell stocks in the market, the owner of the stock still belongs to the lender, and the corresponding dividends belong to the lender. Due to stock lending, the lender cannot enjoy the dividends of the part of the loaned stock, so the short seller should pay the dividend for this part of the stock (the actual equity of the short seller has not changed, because the stock price drops after the ex-dividend, the short position will increase by the same amount Fuying). If short sellers do not want to pay dividends, they can choose to close their positions before the ex-right and ex-dividend date.
( 5 ) The minimum number of short trades
When shorting some stocks, there may be a minimum transaction quantity requirement, such as 100 shares.
6. Other short selling methods
( 1 ) Stock options
Many stocks in the U.S. stocks have corresponding options ( Options ), with one-month expiration, two-month expiration, one-year expiration, etc. There are also differences in prices. Options are divided into long options ( Call ) and short options ( Put ). For investors, buying short options ( Put ) or selling long options ( Call ) is also a way of shorting. Compared with short selling, this operation requires less capital.
( 2 ) Index options
The Dow Jones and S&P 500 indexes in the U.S. stocks also have corresponding options. The trading method of index options is similar to that of stock options. You can short the corresponding index by buying short options.
( 3 ) Short ETF , ETN
There are also many short ETFs and ETNs in the US stock market . ETF stands for trading open-end index fund, similar to mutual funds. US stock ETFs generally track indexes, industries, a certain commodity or a combination of a series of assets, etc., and promise to provide investors with returns similar to those of the tracking target. ETF trading operations are basically the same as stocks.
ETN is also a financial instrument that tracks the corresponding asset portfolio, but it is essentially a debt and does not guarantee capital. Most US stock ETNs track investment targets other than stocks.