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The Best Brokerages For Short Selling Penny Stocks
This post is a follow up to my previous blog about the Best Penny Stock Brokerages.
Oftentimes when penny stock traders enter the game of short selling penny stocks they assume just any old brokerage they use to buy penny stocks will be sufficient enough to short sell them too. Yet that assumption is WRONG. It has to do with 2 things:
1Some brokerages won’t let you short penny stocks
2The issue of share availability (borrows) comes into play
Your typical mainstream brokerages like Etrade, Scottrade, and TD-Ameritrade will not be tolerable when short selling penny stocks. I’ve heard horror stories of penny stock traders trying to short with these brokerages, specifically with these brokerages not having shares available to short a desired penny stock. When you’re short selling penny stocks down here in the gutter, they typically are coined “hard to borrow” stocks, i.e. shares available to short are limited.
So what does Etrade, Scottrade, and TD-Ameritrade all have in common? They all use the clearing firm Penson Financial. A clearing firm is an organization that works with brokers and exchanges for your trading transactions. They are the ones that control the shares available to short, etc.
The problem is that there are so many brokerages and accounts tied up with this specific clearing firm (Penson Financial) that shares are very very very limited because different brokerages are asking for shares left and right. Getting shares for these penny stocks is already hard enough, but this compounds the problem making it nearly impossible at times to find shares to borrow with these brokerages.
And yes this does include the Thinkorswim brokerage. They clear through Penson Financial aswell. So now you know why you can never get those shares…at 7 in the morning! While I do love Thinkorswim (customer service is fantastic) they just don’t cut it from a shorting penny stocks standpoint. Especially now that they were bought by TD-Ameritrade.
By now I’m sure you’re asking yourself “what ARE the best brokerages for short selling penny stocks?” The answer is easy – find a brokerage that is self clearing i.e does not work with a third party clearing firm. But I made it easy for you and list the 2 best brokerages that self-clear!
Interactive Brokers is a top-notch penny stocking self-clearing brokerage. It’s one of the best for short selling penny stocks as they usually have shares available for any penny stock, including pink sheets & otcbb’s. The 2 reasons I don’t use this brokerage – #1: They have a $10,000 minimum to open an account there, and since I’m poor, that automatically knocks me out.#2: They require you to be 21 years or older to open a margin account. (You have to have a margin account to short sell penny stocks). So since I’m only 18 that excludes me from opening an account there for..umm…3 more years. If it tells you anything about the quality of the brokerage 2 of the best pennystockers around Timothy Sykes and Muddy use this brokerage for short selling penny stocks.
SogoTrade is who I use to short sell my penny stocks with. They clear through Genesis Securities which is their parent company. Shares are almost always available to short any penny stock with an exception being below $1…but I don’t do that anyways. They even had shares of GOE, you know, this one. It was only allowed to trade 50,000 shares a day and somehow SogoTrade had some of those shares available to short. That tells you how good they really are with their borrows. I highly reccomend this brokerage to anyone who wants to profit from short selling penny stocks, especially if you have less than $10,000 as this brokerage seems to be the only feasible option in town. If you sign up with Sogotrade within the next few days make sure to use my referral code: 340190.
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32 comments - add yours
» Best Brokerages For Short Selling Penny Stocks | PennyStocker » Penny Stocks Investing
April 13, 2009
Michael Goode
April 14, 2009
Ameritrade and Etrade are self-clearing and DO NOT use Penson. Every random small broker (Cobra, TOS, speedtrader, plus many others) use Penson.
“Currently, TD AMERITRADE, Inc. is an introducing broker and uses TD AMERITRADE Clearing, Inc. as a clearing broker.”
http://www.tdameritrade.com/history.html
https://us.etrade.com/e/t/welcome/welstatic?gxml=financialcondition.html#__highlight
The reason that IB is so good is all the idiots who buy pennystocks are attracted to them for the cheap commish, so they have shares there that short sellers like us can borrow.
Jakob
April 15, 2009
I have thought about opening an account for some time now. I think my choice will fall on Sogotrade. How about their platform. Is that good?
PennyStocker
April 15, 2009
Jakob,
Yes their web-based platform is all you need to trade stocks with. They have charts, news headlines, market movers, etc. I haven’t had any problems with them so far. I think you’ll be happy at SogoTrade. Plus you can’t beat the cheap $3 commissions Let me know if there is anymore questions that I can answer for you. When registering enter my referral code: 340190.
joe
April 17, 2009
i been trying to get a hold of their live chat but so far the support sucks. tried 3x on 3 different days but put on hold soo long that i just leave.
PennyStocker
April 17, 2009
Joe,
Which broker are you referring to? Sogotrade?
joe
April 17, 2009
yea
PennyStocker
April 17, 2009
Yea their support is pretty bad. Try calling them and maybe it would be better. What broker are you currently using?
KC
May 1, 2009
Have you used interactive brokers or seen it in action? I finally meet the criteria…just trying to compare Sogo against it…Any pros and cons that you are aware of systematically or nuiances?
B.K.
February 23, 2010
Is it that shares of stocks under $1.00 are just not as available, (can they be obtained) or do they flat out prohibit shorting stocks under a buck?
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March 30, 2010
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gurvinder@stock chat
April 11, 2010
Penny stock short sellers must also worry about execution risk with their trades. Short selling involves borrowing shares from someone else and selling their shares, so even if an investor finds a great short selling candidate, they may be out of luck if the broker has no shares to lend. Similarly, the pricing for these short trades may not be favorable due to the often-large disparity between the bid and ask price. As a result, investors must watch these prices carefully before initiating a short position.
BrokerageReview.net
July 7, 2010
Check out my site for complete online brokerage reviews of all the best online brokers.
Mike @ Penny stock picks
July 16, 2010
I am with sogotrade to buy and short penny stocks, Timmy sykes says thay are ok so i went on his recomendation, i have had no problems with sogo so far. But some times its hard to take to a person but if your happy with a broker that is web based thats fine they do the job and have short shares where etrade or schwab do not have them .
Great blog
Ps: i see you Michael mr reaper , don’t tell Timmy i was hear 
Narar
May 22, 2011
Here’s an update on the best brokerages for short selling penny stocks: Top 3 are Interactive Brokers, Tradestation and Optionsxpress. Top prop firm is Broad St. Trading.
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August 19, 2011
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TheBullTwit
August 22, 2011
From Sykes: “I used to use Sogotrade for shorting stocks like IFLG and I made $100,000+ within a few months until they changed their rules and now the firm has split into two, something called Wang….weirddddddd…anyway, the borrows went away and I’m still trying to get $50k out, but I can’t seem to get through on the telephone….sketchyyyyy…I could never recommend them now.”
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September 16, 2011
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April 8, 2012
If a blog contains bad information, does it really matter how “well written” it is? First off, Scottrade does not use Penson, NOR do they clear their own trades. They use DTC. Scottrade OptionsFirst uses Penson, which is different altogether and is for advanced options strategies and listed equities ONLY.
Second, the limited supply has absolutely nothing to do with “different brokerages asking for shares left and right”. What is has to do with is the fact that 99% of firms are not going to allow margining of penny stocks and therefore said penny stocks are not available for hypothecation.
A well written post is all fine and dandy, but for you “fans” of this blog, remember this is an 18 year old kid who obviously feels no obligation to ensure accuracy in his information before spraying all over the web.
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