Shorting a stock on Fidelity requires a margin account and a borrow arrangement with Fidelity's lending desk

To short a stock on Fidelity, you need a margin account — not a standard cash account. A margin account lets you borrow securities from Fidelity's inventory or from other clients' holdings, sell them at the current price, and profit if the price falls. You then buy the shares back at a lower price to return them to Fidelity. The difference between your sale price and your buyback price is your profit or loss.

The process is not automatic. You must request the short sale through Fidelity's trading platform, and Fidelity's lending desk must confirm that the shares are available to borrow. If the shares are hard to borrow — meaning few are available in the lending pool — Fidelity may refuse the order or charge a borrow fee. Some stocks cannot be shorted at all because they are too illiquid or because of regulatory restrictions.

Shorting carries real costs and real risks. You pay interest on the borrowed shares, you must cover any dividends paid while you hold the short position, and your losses are theoretically unlimited if the stock price rises instead of falls. You also face the risk of a forced buyback if Fidelity recalls the shares because they are no longer available to lend.

Key Takeaways

  • You must open or convert to a margin account with Fidelity before you can short any stock.
  • Fidelity's lending desk must confirm the shares are available to borrow; not all stocks can be shorted, and some carry a daily borrow fee.
  • You pay interest on the borrowed shares and must cover any dividends paid while the short position is open.
  • Your losses on a short sale are unlimited if the stock price rises, and Fidelity can force you to buy back the shares at any time.

Opening or converting to a margin account

If you have a standard cash account at Fidelity, you cannot short. You must open a new margin account or convert your existing account. Fidelity requires you to have at least $2,000 in the account to open a margin account, though some account types have higher minimums.

To convert an existing account, log into Fidelity.com, go to Account Settings, and look for the option to upgrade to margin. You will answer questions about your investment experience and risk tolerance. Fidelity will then review your answers and either approve or deny the conversion. Approval is not may provide, especially if you are a new customer or have little trading history.

If you are opening a new account, you can select "margin account" during the account creation process. You will still need to pass Fidelity's review, and the account will not be active for short selling until the review is complete — usually one to two business days.

How to place a short sale order on Fidelity's platform

Once your margin account is active, you can place a short sale order through Fidelity's trading platform — either the website or the Active Trader Pro desktop process. In the order entry screen, select "Sell Short" instead of "Sell." Enter the stock symbol, the number of shares, and your price limit or market order type.

When you submit the order, Fidelity's system checks whether the shares are available to borrow. If they are, the order will execute like a normal sale. If they are not, the order will be rejected with a message saying the shares are not available. You cannot force a short sale if Fidelity does not have the shares to lend.

Some stocks show a borrow fee on the order confirmation screen. This fee is charged daily and is deducted from your account. High-fee stocks are often hard to borrow, which means few shares are available and demand is high. You can see the current borrow fee for a stock before you place the order by checking the stock's details page on Fidelity.com.

Understanding margin requirements and maintenance calls

When you short a stock, Fidelity requires you to maintain a minimum amount of cash or securities in your account — called the maintenance requirement. The maintenance requirement is typically 30% of the current market value of the short position. If your account balance falls below this level, Fidelity will issue a margin call and require you to deposit cash or securities within a set time frame, usually one to two business days.

If you do not meet the margin call, Fidelity will force you to buy back shares to bring your account back into compliance. This forced buyback happens at market prices, which may be higher than the price at which you shorted the stock. You have no control over which positions are closed or at what price.

Your maintenance requirement changes every day as the stock price moves. If the stock rises, your requirement increases and your account equity decreases. If the stock falls, your requirement decreases and your account equity increases. Monitoring your account balance is critical when you hold short positions.

Costs and fees associated with shorting

The main cost of shorting is the borrow fee, charged daily based on the number of shares you have borrowed and the current borrow rate. Fidelity calculates the fee as a percentage of the stock's market value and deducts it from your account each day. For stocks that are straightforward to borrow, the fee may be less than 0.1% per year. For hard-to-borrow stocks, the fee can be 5% or higher per year.

You are also responsible for any dividends paid on the stock while you hold the short position. If the company pays a dividend, you must pay that amount to Fidelity, which passes it to the shareholder who lent you the shares. This cost is deducted from your account on the dividend payment date.

If you hold the short position for a long time, these costs can add up significantly. A stock with a 2% annual borrow fee plus a 3% dividend yield costs you 5% per year just to hold the position, before any price movement.

How to close a short position

To close a short position, you place a buy order for the same number of shares you shorted. This is called covering the short. You can cover at any time — you do not have to wait for the stock to fall. If you cover at a price lower than your short sale price, you keep the difference as profit. If you cover at a higher price, you take a loss.

On Fidelity's platform, a buy order automatically covers an open short position if you have one. You do not need to select a special order type. The order will execute like a normal buy, and your short position will be closed when the order fills.

Fidelity can also force you to cover if the shares are recalled by the lender, if you fail to meet a margin call, or if you violate Fidelity's short sale policies. A forced cover happens at market prices and may result in a loss if the stock has risen since you shorted it.

Restrictions on short selling

The Securities and Exchange Commission (SEC) has rules that restrict short selling in certain situations. The uptick rule (SEC Rule 10a-1) requires that a short sale can only be executed at a price higher than the last trade, or at the same price if the last trade was higher than the trade before it. This rule prevents traders from driving a stock's price down through aggressive short selling.

Some stocks are on the SEC's threshold list, which means they have failed to settle a large number of trades. Fidelity may restrict or prohibit short sales of threshold stocks. You can check whether a stock is on the threshold list on the SEC's website.

Fidelity also has its own restrictions. Penny stocks (stocks trading below $5) are often hard or impossible to short. Stocks with very low trading volume may not be available to borrow. Fidelity may also restrict short sales of stocks during certain corporate events, such as mergers or bankruptcies.

Frequently Asked Questions

What is the minimum account balance to short a stock on Fidelity?

Fidelity requires a minimum of $2,000 to open a margin account. However, once you open the account, you must also maintain the maintenance requirement on any short position you hold — typically 30% of the market value of the short. This means you need more than $2,000 if you want to hold a meaningful short position.

Can I short a stock if Fidelity says it is not available to borrow?

No. If Fidelity's lending desk does not have the shares available, your short sale order will be rejected. You cannot short a stock that Fidelity cannot lend to you. You can check the borrow availability and fee for a stock before you place the order on Fidelity.com.

What happens if the stock I shorted pays a dividend?

You must pay the dividend amount to Fidelity, which passes it to the person who lent you the shares. This payment is deducted from your account on the dividend payment date. The dividend payment is in addition to any borrow fees you owe.

Can Fidelity force me to cover my short position?

Yes. Fidelity can force you to cover if you fail to meet a margin call, if the shares are recalled by the lender, or if you violate Fidelity's policies. A forced cover happens at market prices and may result in a loss. You have no control over when or at what price the cover occurs.

How long can I hold a short position on Fidelity?

You can hold a short position indefinitely, as long as you maintain your margin requirement and pay the daily borrow fees. However, Fidelity can recall the shares at any time if they are no longer available to lend, forcing you to cover. There is no time limit set by Fidelity, but the longer you hold the position, the more you pay in fees and dividends.