Short Strategy

 

A Short Strategy is a strategy to sell and then buy a borrowed security with the hope that the asset will fall in price. The process used to create a "Short" strategy is very similar to that of a "Long" strategy. However, you must think in reverse, since selling is the opposite of buying. The Trade Strategies tool can help you create a plan to:

 

1) enter a stock only if certain conditions are met and

2) exit the stock to either maximize profit or minimize loss.

Create and Execute a Short Strategy

  1. Select Trade Strategies from the Features drop-down menu.
  2. The Trade Strategies window will appear. Click the "Add" button to create a new trading strategy.



  3. The Wizard-Select Strategy window will appear. Three strategy options are available: New Long Strategy (buy), New Short Strategy (sell short), and Existing Position (sell all or part of a position you already hold). .

    Select New Short Strategy. Indicate the stock symbol and quantity you wish to trade, and click "Next."

    The Down-Tick Rule

    "Short Selling" is not permitted on a downtick. If the stock you wish to short is going down in price, you must submit your order for 1¢ above the current trade price.

  4. The Wizard-Entry Trade window will appear. Specify the price you want to receive for the stock ("Ref Px"), the action the market must take before the strategy is activated ("Reference Type"), the "Order Type," and the "Discretion" amount if desired.

    Remember that in a "Sell Short" strategy, discretion works in the reverse direction of a "Long" strategy.

    For example, if you set a strategy to "Sell" 100 shares of CSCO if the price rises to $19.85--indicating that it is a "Limit" order with a "Discretion" of 0.1 (10¢)--when the market price for CSCO rises to $19.85, an order will be sent to the market for $19.75 (the "Ref Px" price minus "Discretion") when your strategy is triggered.

  5. Check any "Abandon Conditions" that you wish to apply, and click "Next" to proceed.
  6. The Wizard-Exit Trade window will appear. This window helps you form a strategy to sell the stock once you own it. Set two "Exit" strategies: one to sell for a profit, and one to minimize loss should the stock move against you.

    "Profit Trade" is a strategy to sell the stock if the stock moves in a favorable direction. In the case of a "Buy," the price will be higher than the price at which you bought.

    "Protective Trades" is a strategy to sell the stock if the stock moves against you. This strategy helps minimize losses. In the case of a "Buy," the price will be lower than the price at which you bought.

    The strategy shown below can be read as follows:

    "If the stock rises to $20.05, sell the stock as a market order; OR if the stock falls to $19.75, sell the stock as a market order." Both strategies expire at the end of the trading day (3 p.m. EST).
  7. After you complete your exit strategy, click "Finish."
  8. After you complete your exit strategy, click "Finish".
  9. The Wizard returns you to the Trade Strategies window.
  10. To submit your strategy for execution, select the strategy's name, and click " Submit Selected ." "[Ready]" will appear next to the strategy's name, indicating that your plan will go into effect the moment market conditions match your specifications.

Monitor Your Strategy

Your strategy can be monitored from the Trade Strategies window.

A Status indicator is provided next to the strategy name. If the strategy has been submitted, " [Ready] " appears next to the strategy name. Otherwise "[Not Submitted]" (strategy not sent to the Trade Strategies server and made active), "[Entering]" (initial order has been placed), "[Entered]" (initial order has been completed), or "[Completed]" (exit order has been placed) is listed. Errors such as "[Entry Failed]" and "[Exit Failed]" are usually followed by an explanatory message.

 

Strategy details (including the Entry Order, Exit Order for Profit, Exit Order for Loss, and any Abandon strategies) are listed in green. Executed Elements (parts of the trade that have been executed on the market) appear in bold print as they are completed. A unique Trade Order Number appears next to buy and sell orders as they occur.

View Positions and Trade Details

As with all other trades, information about orders executed through the Trade Strategies window can be found in the Portfolio. To access this information select Portfolio from the Feature drop-down menu, and click the Positions, Open Orders, Activity, or Trade Journal tab.