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Can You Short Sell on Robinhood?

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Shorting the market or stock bets that the stock price will fall. Different methods are available to build short positions with different advantages. This article will discuss these different ways of achieving short exposure and which are sponsored on Robinhood.

Brief overview of what short selling means

Perhaps the most direct way to short a stock is to sell it short. To make this possible, your broker will actually allow you to borrow stock shares you want to shorten (for a small fee), and then you’ll simply sell those borrowed stocks on the market. You actually buy back the shares you sold (hopefully at a lower price), and the price difference is your gain / loss.

Can you short using Robinhood?

However, Robinhood actually does not promote short selling. Currently, shortening Robinhood stocks is not feasible, even with a Robinhood Gold membership, the premium subscriptions that allow Robinhood investors to maximize profit margin.

So, what are my options to go against the stock market with Robinhood?

Actually, the only strategy for shorting stocks on Robinhood comes by using Robinhood’s inverse ETFs or by option trading. Shorting on Robinhood would enable these two trading strategies to benefit from declining asset prices.

Some popular Robinhood inverse ETF options include:

  • ProShares UltraPro Short QQQ (SQQQ) – 3x inverse
  • ProShares Short S&P 500 (SH) – 1x inverse

Note that these two reverse index funds Robinhood has come with higher average associated expense ratios and also invest with the intention of making the market indices accompanied by decreasing value. The UltraPro Short QQQ index shifts to the equivalent index (Nasdaq or the standard index fund QQQ) three times in magnitude

In other words, this reverse ETF would return 3% (not including the underlying cost ratio or tax consequences) if the Nasdaq composite dropped by 1%. It will also decrease by 3% if Nasdaq Composite increased by 1%. Be aware of this possibility of Robinhood short-trading on reverse ETFs.

Another strategy is by selling options, discussed in more depth. In short, you can sell call options or buy put options while betting on a stock price drop. More complex methods exist and beyond this article.

What is Robinhood?

Robinhood is a creative, groundbreaking online brokerage site. The company, launched in 2014, has a mobile app allowing customers to buy and sell stocks, ETFs, crypto currencies, and other assets without paying a commission.