Shorting Low-Priced ETFs

I recently started a new trading system which takes short positions in a handful of ETFs. One of those ETFs (UGAZ) happens to be priced around $2.35/share. Unfortunately, C2 rejected the trade due to the fact that it is priced under $5. I can understand trying to protect subscribers from getting burned by shorting a penny stock that goes straight up on news, but ETFs don’t have the same single-stock risk. My suggestion would be to exclude ETFs from this restriction. Until then, I’ll just have to wait for UGAZ to have a reverse-split.


More generally, I’m not even sure at this point how valid is the no-shorting-stocks-under-$5 rule. I implemented it maybe ten years ago at C2, based on my own personal experiences at brokers at that time… but is it even a common restriction for online brokers at this point? Does anyone have any feedback regarding how their current brokers restrict this, if at all?

I can only tell you that IB does allow me to carry a short position in UGAZ.

A quick Google search found this blog post:

“There is no single broker that will allow you to short sell every penny stock. If you setup accounts with the top 4 brokers this will allow you to short roughly 80% of your penny stock plays. But remember each broker has different account minimums so short selling is not ideal for people with small account sizes. Some of the best brokers for short selling penny stocks are Interactive Brokers, Speedtrader, TradeStation and Suretrader.”




Instead of trying to short UGAZ, you could just go long DGAZ, which is its inverse.

Hope that helps!

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Hey Jim,

Actually, my strategy is to short both of them. Thanks anyways!


Shorting is simply selling the stock borrowed from the broker. The feasibility of any shorting, therefore, ultimately depends of whether the specific broker maintains an inventory of the specific stock (or ETF, as the case may be). Normally, a broker would have an easy-to-borrow list (meaning, customers can short those securities any time they want) and a hard-to-borrow list (shorting must be pre-cleared with the broker). Whatever is not on either list, is not shortable with that specific broker…

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