How Long Can a Trader Keep a Short Position? (2024)

There is no mandated limit to how long a short position may be held. Short selling involves having a broker who is willing to loan stock with the understanding that they are going to be sold on the open market and replaced at a later date.

Key Takeaways

  • There is no set time that an investor can hold a short position.
  • The key requirement, however, is that the broker is willing to loan the stock for shorting.
  • Investors can hold short positions as long as they are able to honor the margin requirements.

Shorting Requirements

A short position may be maintained as long as the investor can honor the margin requirements and pay the required interest and the broker lending the shares allows them to be borrowed.

While both those statements seem obvious, they are in fact the greatest limitations to an investor's ability to hand on to their short positions. Looking at them one at a time makes this a little more transparent:

  1. Honoring the margin requirements: A rapid rise in the value of the shorted security can easily wipe out the available cash an investor has elsewhere, especially if they've been caught in a short squeeze.
  2. Paying the interest: This assumes that a short, which goes nowhere, can quickly become unprofitable in a rising interest rate environment.
  3. The broker allows borrowing: This can become problematic if companies try to limit the amount of the underlying in circulation.

Why Short Stocks

Investors short stocks anticipating that the market price will fall, allowing them to buy shares to replace them at a lower price. Stocks are shorted by many investors every day. Some specialize either largely or exclusively in short selling.

A stock that doesn't decrease in value quickly enough ends up costing the investor interest. The proceeds of the initial sale go into the investor's account and they pay the broker a percentage, which is usually around the U.S. prime rate plus 2%. At any point in time, the investor may buy replacement shares on the open market and return them to the brokerage.

If they can buy them at a lower price, the investor keeps the difference as a profit. If the price is higher, the investor suffers a loss.

Brokers and Shorting

For skilled investors, the terms offered by brokers for short selling can be quite favorable. Making stock available to be shorted at an interest rate just a few percentage points above prime appears to be a very good deal.

The price of the shares can be much lower at the time of purchase, and the broker will have only received a small percentage of their original value. This suggests that brokers regularly suffer significant losses in the share-lending business. Nevertheless, share lending is very profitable for brokerages.

The Bottom Line

Investors may find that the best candidates for short selling are unavailable to be shorted. The availability of stocks for shorting changes regularly. Many stocks offered by smaller companies may not be available for shorting at all.

How Long Can a Trader Keep a Short Position? (2024)


How Long Can a Trader Keep a Short Position? ›

Key Takeaways. There is no set time that an investor can hold a short position. The key requirement, however, is that the broker is willing to loan the stock for shorting. Investors can hold short positions as long

A long—or a long position—refers to the purchase of an asset with the expectation it will increase in value—a bullish attitude. A long position in options contracts indicates the holder owns the underlying asset. A long position is the opposite of a short position. › terms › long
as they are able to honor the margin requirements.

How long can you hold onto a short sale? ›

There's no specific time limit on how long you can hold a short position. In theory, you can keep a short position open as long as you continue to meet your margin requirements. However, in practice, your short position can only remain open as long as your broker doesn't call back the shares.

How long are short-term trades? ›

Short-term trading involves taking a position that can last from seconds to several days. It is used as an alternative to the more traditional buy-and-hold strategy, in which you'd hold a position for weeks, months or even years.

Is there a time limit on a short position? ›

You can maintain the short position (meaning hold on to the borrowed shares) for as long as you need, whether that's a few hours or a few weeks. Just remember you're paying interest on those borrowed shares for as long as you hold them, and you'll need to maintain the margin requirements throughout the period, too.

How long do short squeezes last? ›

The higher the days to cover, the more volatile a stock during a squeeze. For example, if a stock has a short interest of 100 million shares and trades 2 million shares a day, then it would take 50 days to close the short position. In contrast, a normal stock might have days to cover of less than 10.

What is the short sale rule? ›

Under the short-sale rule, shorts could only be placed at a price above the most recent trade, i.e., an uptick in the share's price. With only limited exceptions, the rule forbade trading shorts on a downtick in share price. The rule was also known as the uptick rule, "plus tick rule," and tick-test rule."

What is the short seller rule? ›

Short sellers aren't entitled to dividend payments from the shares they've borrowed. In fact, the value of any dividends paid will be deducted from short-seller's account on the pay date and delivered to the stock's owner.

What percentage of short-term traders make money? ›

The average individual investor underperforms a market index by 1.5% per year. Active traders underperform by 6.5% annually. Day traders with strong past performance go on to earn strong returns in the future. Though only about 1% of all day traders are able to predictably profit net of fees.

What type of trading is most profitable? ›

Conclusion. The most profitable form of trading varies based on individual preferences, risk tolerance, and market conditions. Day trading offers rapid profits but demands quick decision-making, while position trading requires patience for long-term gains.

Is it better to trade long or short? ›

If you believe that a stock's price will rise, go for a long trade. If you think it will fall, a short trade will let you profit from that price movement. However, for most investors, long trades will generally be the better way to go. They're less risky, and shorting stocks can be complicated.

What happens if you Cannot close a short position? ›

If you don't close a short position, you will continue to pay interest or a commission for borrowing the security. The longer this goes on, the longer it eats into your potential returns.

Can you be forced to close short position? ›

A short squeeze occurs when the stock rises rapidly, forcing short sellers to close their position. Short sellers may be rushing to avoid a soaring stock or they may be forced to buy back stock as their losses mount and the equity for a margin loan in their account dwindles.

How to tell if a stock is being shorted? ›

Search for the stock, click on the Statistics tab, and scroll down to Share Statistics, where you'll find the key information about shorting, including the number of short shares for the company as well as the short ratio.

What's the biggest short squeeze ever? ›

One of the most famous, significant and big short squeezes of the 21 century is the sharp rise in the stock price of German car maker Volkswagen AG (XETR: VOW) in 2008. Between 24 and 28 October in that year, the company's share price recorded a 376.65% growth, up from 210.85 to 1005.01 EUR.

How do you know when a short squeeze is over? ›

It takes a lot of short sellers buying shares to push the price of a stock strongly upward. Short squeezes are usually short-lived and end when short sellers have fully exited their positions or stop buying shares to cut their losses.

Can you walk away from a short sale? ›

After Short Sale Approval

Buyers may back out based on due diligence, appraisal, or financing at this point, just like any other contract. If it's within the guidelines of the contract, they're free to do so.

Do you owe money after a short sale? ›

In California, lender's approval of a short sale is a release of the remaining amount of the loan. California is one of only a few states that prohibits deficiency judgments on an approved short sale, including junior lienholders who agreed to the sale.

Can you have a long term gain on a short sale? ›

So even if you go short, leave that position open for two years, then buy to cover, the gain or loss is short term. However, if you deliver stock held more than one year to cover a short position, that is long term regardless of how long the short position is open.

Is a short sale risky for a buyer? ›

Buyer: Buyers of short sales might get the home at a reduced price — but the property, in all likelihood, has its share of problems. The deal also comes with more red tape than your standard real estate transaction.


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