How To Short Stocks On Robinhood

If you are interested in the stock market, then chances are you have had to short sell at some point in your career. 

Short selling is when investors sell a stock or asset that they believe will decline in price, as this makes it easier to repurchase the asset at a lower price and claim the difference as a profit.

Because of this, short selling has become a common tactic in the stock market, as it can benefit investors and their initial shares. 

But can you short stock on Robinhood? Unfortunately, the answer to this question is no, as Robinhood has yet to offer this form of trade. However, it is possible to short stock using ETFs and other methods. 

In the following article, we will teach you how to short stocks on Robinhood and how it can be done with ETFs and other options. 

How To Short Stocks On Robinhood

Despite its notoriety with investors, Robinhood is not perfect, as it remains unable to short stocks. 

Because of this, you will need to use inverse ETFs or put options to short the stocks, which can be a slow and complicated process. 

Both methods can be used to achieve the same results as short selling, however, they differ from the tactic in several ways…

Put Options 

Since short selling isn’t available on Robinhood, it is possible to use put options to achieve a similar result. 

While put options bear some similarities with short selling, the two methods are different, as put options allow investors to short sell security at a predetermined price. This is in contrast to short selling that doesn’t. 

Because of this, put options remain a valid alternative to short selling when using Robinhood and other brokers. 

Inverse ETFs 

Another option is to invest in inverse ETFs, which can also achieve the same result as shorting stocks. 

However, the main difference between this option and short selling is that you are investing in the decline of an exchange-traded fund. Because of this, inverse ETFs have more in common with put options, as both tactics have been designed as long-term investment options. 

This contrasts with short selling techniques, which are now considered tactics for short-term investment decisions. 

How To Use Put Options & ETFs 

When it comes to short selling, you will need to open a margin account to manage the funds and shares. 

It is possible to open a margin account on Robinhood, however, this is not necessary as the service is not compatible with this form of trade. Instead, you will need to use ETFs and put options to sell the stocks. 

However, we do recommend starting a margin account, as this will make things easier for future transactions. 

Step One: Open Margin Account 

Since this guide was written to explain short selling, we will have to pretend that we live in a world where Robinhood accepts this trade, as this will make it easier to define the process and its parts. 

As we mentioned earlier, short selling is often used by investors to sell stocks that they believe will decline. However, the tactic can also be used on stocks that are overperforming with no financial explanations. 

When determining short-sale stocks, investors will often watch out for three unique signs, which include rising numbers, overperformance, and stock increase. If the stock begins to rise despite a decline in the market, then this could be suitable for short selling. The same can be said for stock that continues to outperform its one-year record or increase at an unprecedented speed. 

These signs can be used to determine short-sale stock, which can then be purchased using the tactics below. 

Step Three: Open Short Position

Once you have located the short-sale stock, you will need to open a short position, which is an easy process. 

In most cases, a short position refers to the exact time that you intend to sell the borrowed stocks. If you don’t own the shares, then you will need to borrow them from the broker and sell them at their current price. 

However, if you do own the stock, then you can utilize a method called ‘shorting against the box’ which protects your shares from an expected decline. 

Because of this, you will be able to profit from the decline instead of losing value. However, the method will only work if the decline is temporary (see also our article on pullback). Otherwise, you will need to invest the cash somewhere else. 

Step Four: Cover Short Position 

The final step is to cover the short position, which means purchasing back the same number of shares you borrowed after the price decreases. 

Once you purchase the shares, the broker will take them and any fees you have acquired through the transaction. 

The stock will then be returned but at a different price, which can help to calculate the exact profit gains and losses.

Final Thoughts 

While it remains impossible to short stock on Robinhood, it is possible to achieve similar results through the use of ETFs and put options. 

However, we have still provided a detailed explanation of the short-sale process, which can be implemented on other broker sites.

Short selling stock is a delicate procedure that requires research on the stock market and previous experience, as the investor needs to understand how the financial climate can change and how they can use this to their advantage. 

Good luck short selling!