Short selling plays a vital role in financial markets, but it is often viewed negatively because it involves profiting from the losses of others, which can be seen as unethical.
This notion may come from a lack of understanding and an emotional reaction to a decline in asset values. Short selling remains one of the most misunderstood aspects of financial markets today. Find out what short selling is, why it is essential for functional markets, and how you can benefit from it, even if you have never engaged in short selling before.
- FP Markets, ECN trading with leverage up to 1:500.
- Eightcap, Competitive pricing + excellent daily videos.
- Octa, A commission-free broker with a proprietary copy trading service.
- XM, Exception range of assets + negative balance protection.
- BlackBull Markets, Best ECN trading environment, with scalping and hedging.
Best Short Trading Brokers Comparison
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Regulators | ASIC, CMA, CySEC, FSCA | ASIC, CySEC, FCA, SCB | CySEC, FSCA, MWALI International Services Authority | ASIC, CySEC, DFSA, FSC Belize | FMA, FSA |
Year Established | 2005 | 2009 | 2011 | 2009 | 2014 |
Execution Type(s) | ECN/STP | ECN/STP, Market Maker | Market Maker | Market Maker | ECN/STP, No Dealing Desk |
Minimum Deposit | |||||
Average Trading Cost EUR/USD | 1.2 pips | 1.0 pips | 0.9 pips | 0.1 pips | 1.3 pips |
Average Trading Cost GBP/USD | 1.4 pips | 1.2 pips | 1.3 pips | 0.2 pips | 2.0 pips |
Average Trading Cost Gold | $0.16 | $0.12 | $0.30 | $0.19 | $0.90 |
Trading Platform(s) | MetaTrader 4, MetaTrader 5, cTrader, Proprietary platform, Web-based | MetaTrader 4, MetaTrader 5, Trading View | MetaTrader 4, MetaTrader 5, Proprietary platform | MetaTrader 4, MetaTrader 5, Proprietary platform | MetaTrader 4, MetaTrader 5, cTrader, Trading View |
Islamic Account | |||||
Negative Balance Protection | N/A | ||||
| Visit Website | Visit Website | Visit Website | Visit Website | Visit Website |
FP Markets
In Summary ECN trading with leverage up to 1:500fpmarkets is an ASIC-regulated Australian brokerage which launched in 2005. For most traders, the unique selling point of this broker is in the extremely wide range of tradable assets offered, providing the opportunity to trade over ten thousand individual stocks and shares including publicly quoted Hong Kong and Australian companies. Ffpmarkets also offers 60 Forex pairs and crosses, 11 equity indices, the major commodities, and 5 cryptocurrencies including Bitcoin. fpmarkets offers an unusual hybrid ECN/STP execution model, meaning their clients can choose between ECN style of execution giving a very high level of speed, and a “straight through processing” execution style which allows for more “natural” spreads.
Pros & Cons
- Choice of trading platforms and auxiliary trading tools
- Very competitive cost structure and excellent asset selection
- Low minimum deposit requirement and leverage of up to 1:500
- Well-regulated and trustworthy
- Availability of Iress geographically restricted
Eightcap
In Summary Competitive pricing + excellent daily videosPremium liquidity and excellent order execution, due to the collocation of trading servers with leading global financial firms, make Eightcap one of the best short-selling brokers. The MT4/MT5 platforms fully support algorithmic trading, and free VPS hosting for low-latency 24/5 market access only requires a monthly trading volume of 5.0 lots.
Eightcap trading fees in the commission-based account are highly competitive, with average spreads on the EUR/USD of 0.06 pips or $0.60 per lot for a commission of $7.00. Adding to the competitive advantage is the third-party tool Capitalise AI. It enables algorithmic trading without the need to code.
Pros & Cons
- Low minimum deposit and high leverage of up to 1:500
- Competitive cost structure
- Excellent technology infrastructure and seasoned management team
- Daily research and quality educational content
- Limited leverage in some areas
Octa
In Summary A commission-free broker with a proprietary copy trading serviceFounded in 2011, Octa is a “Straight Through Processing” (STP) broker, which means they do not have an internal dealing desk. They simply connect buyers and sellers directly. With this model, Octa aims to be more cost-effective than anyone else in the market. They offer low spreads and claim 97.5% of trades are executed without slippage.
Octa offers their clients a choice of three Forex trading platforms: the world’s most popular MetaTrader 4 (MT4) and MetaTrader 5 (MT5). All of these can be traded as a desktop application, and on Android and iOS devices.
Octa is an unregulated broker but continues to earn the trust of traders around the globe, with more than 1,500,000 accounts opened. One reason for the ongoing success of this market maker is appealing bonus campaigns. This broker paid out almost $3,000,000 in bonus funds. Octa offers traders the MT4 and MT5 platforms, and a proprietary mobile trading platform. Octa additionally grants their clients Autochartist, but traders require a Silver Level in the Status Program. Traders have a choice between fixed and floating spreads, and the overall cost structure remains competitive.
Asset selection remains the distinct weakness at Octa, making it most suitable for new retail traders. A series of short educational articles offers a basic Forex introduction, and this broker maintains an excellent arsenal of research and analytics tools.
Pros & Cons
- Quick withdrawals and deposits
- 0% commission and no overnight charges
- Space with personalised trading ideas
- Customer Support 24/7
- Mobile copy trading services available only for Android
XM
In Summary Exception range of assets + negative balance protectionI rank XM among the best Forex brokers for beginners as it provides exceptional education, with the live education room available Monday through Friday between 06:00 and 15:00 GMT at its core. Beginners also receive actionable trading recommendations, and the $5 minimum deposit ensures accessibility to all traders, boosted by deposit bonuses.
XM rewards active traders with a four-tier loyalty program and supports algorithmic traders with VPS hosting. The well-balanced asset selection exceeds 1,000 assets, and the proprietary copy trading service pays signal providers up to 50% profit share. Swap-free trading and low trading fees ensure a competitive edge.
Pros & Cons
- Outstanding trading tools and loyalty program
- Low minimum deposit, high leverage*, and competitive trading cost
- Excellent research and education
- Trustworthy and transparent with generous bonuses and incentives
- Inactivity fee
BlackBull Markets
In Summary Best ECN trading environment, with scalping and hedgingBlackBull Markets was founded in 2014 in New Zealand. Like many antipodean Forex brokers, BlackBull Markets is an ECN broker, offering raw spreads and commissions. They are regulated in New Zealand by the Financial Services Providers Register (FSPR) and offer a maximum leverage on some Forex currency pairs as high as 500 to 1. In addition to their global headquarters in New Zealand, BlackBull Markets also has presences in the form of branch offices in New York and Malaysia. BlackBull Markets offers a relatively tight range of tradable assets: 27 Forex currency pairs and crosses, gold, silver, crude oil, natural gas, and 6 major equity indices. That should be sufficient for those traders with more focused strategies not requiring wide diversification.
Pros & Cons
- ECN/NDD execution model with deep liquidity
- Institution-grade pricing for retail traders via proprietary price aggregation
- ZuluTrade and Myfxbook for social trading
- Leverage of up to 1:500
- Limited deposit options
Every broker can offer short selling to their clients, but not everyone has the appropriate infrastructure to enable traders to do so efficiently. Therefore, traders must carefully evaluate the available trading conditions of the broker, know what to look for, and ensure their short-selling brokers offer the necessary functionality.
Short trading brokers often facilitate short sales by ‘lending shares’ to traders commonly using instruments like CFDs (contract for difference) to allow regulatory-compliant short selling. Brokers charge a fee for the service and daily financing for the duration of the trade.
In the retail Forex / CFD industry, every trading platform is also a short selling platform, because there isn’t any real difference in going long or short on a CFD, which is effectively a derivate bet on price movements whether up or down.
What is Short Selling?
Short selling refers to traders borrowing shares, usually from brokers lending them at the current market price, in the hope of buying them back at a lower price before returning them to the broker. For example, a trader borrows 1,000 shares in Company ABC at $75 per share, the trader then agrees to sell the shares at this price. The price of the shares then falls to $60, and the trader buys them back at this price, returning the 1,000 borrowed shares to the lender. The gross profit is $15 per share and $15,000 on the deal.
Contrary to widely held belief, the lender has not lost money, as the share price drop is irrelevant to a counterparty initiating a short sale. Brokers often pay long-term investors for borrowing their shares. It does not apply to derivative contracts, where brokers offset positions from their internal order book, which suffices to meet demand. Only about 10% of daily trading volume consists of short selling, but it adds necessary liquidity to markets to enable more trades to be conducted at reduced cost to all participants.
What Is Naked Short Selling?
Traders entering short positions without borrowing the shares initiate a naked short sale. It is often an illegal transaction, as it creates artificial demand. Each publicly listed company has a set number of shares in circulation, which it can amend, but the total amount cannot exceed the registered shares. Since short sellers borrow shares, the transaction is legal and approved by regulators.
Naked short selling would artificially add shares, as the trader never borrows the shares. It was more common before the turn of the millennium and before technology replaced manual record keeping. OTC shares were often the victim of naked short selling, usually in pump-and-dump or boiler room schemes, both illegal practices.
What Is Short Selling in the Stock Market?
Short selling in the stock market is where traders borrow shares from their short-selling brokers if they believe a price movement to the downside is imminent. Institutional traders and hedge funds also use short selling to hedge risk, protect long-term investments, and generate short-term income.
Short Selling and its Importance in Day Trading
Short selling is paramount to day trading and benefits everyone, including those opposed to the practice, due to an uninformed opinion.
The primary reasons short selling is essential in day trading are:
- Short-selling brokers add liquidity to markets.
- Short sellers, or bears, ensure appropriate market pricing of assets.
- Short selling lowers the potential for bubbles and market crashes.
- The added liquidity of short selling decreases spreads, which compress trading fees for all traders.
- Short selling increases the trading opportunities for other day traders, notably for scalpers. the ability to short is essential.
- Traders can hedge their portfolio exposure from short term risk and adjust their overall risk profile via short selling.
- Short selling assists capital formation and increases market efficiency.
- Short selling Forex as a day trading strategy does not incur swap rates if you close the position before 5pm EST.
What to Look for in the Best Brokers for Short Selling
Short-selling requires a few core components that all competitive short-selling brokers should offer:
- Low trading fees, ideally with a volume-based rebate program
- Competitive overnight financing rates
- Liquid trading instruments
- An innovative trading platform with clear order placing technology and support for algorithmic trading solutions.
- Phone-assisted trading is a bonus.
Bottom Line
Short-selling brokers only account for approximately 10% of daily trading volume, but they benefit the entire financial ecosystem, despite their unjustified negative reputation. Short-selling brokers add liquidity and decrease trading fees for all market participants. They also ensure an efficient and well-functioning market.
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