Investors can hold onto long positions for years or even decades without running into problems. But most short positions are much shorter in duration – a few months to a few years at most.
There are several practical limitations that limit how much time traders can short a stock for. In this article, we’ll explain how long you can hold a short position.
What is Short Selling?
Short selling is a type of trading in which traders bet that the price of a stock will go down. When traders short sell a stock, they make money if the price of the stock drops and lose money if the price of the stock goes up.
How Short Selling Works
Short selling works somewhat differently from buying shares of a stock. When a trader wants to short a stock, they first borrow shares from their brokerage firm. The broker typically charges a fee (short interest) each day the shares are borrowed.
The trader sells the borrowed shares at the current market price, then waits for the price to go down. When it does, they can repurchase shares at a lower price and return the shares they borrowed to their broker. This is called covering a short and it closes the trade.
Importantly, traders are still responsible for covering their short even if the price of the stock goes up, not down. In this case, short sellers lose money because they have to pay more to buy shares and cover their short than they sold the borrowed shares for.
Short sellers need to be aware of a few critical details. First, borrowed stocks can be called back by a brokerage firm at any time. Once they’re called back, you may not have much time to cover your short and could be forced to take a loss. In any case, borrowed shares always need to be returned eventually.
Another thing to keep in mind is that your ability to short sell a stock depends on whether your broker can lend you the shares. Highly volatile or in-demand stocks may not be available for lending. Some brokers have a hard-to-borrow list that indicates which stocks may not be available to sell short.
How Long Can You Hold a Short Position?
There’s no specific time limit on how long you can hold a short position. In theory, you can keep a short position open as long as you continue to meet your margin requirements.
However, in practice, your short position can only remain open as long as your broker doesn’t call back the shares.
Limits on Holding Short Positions
The main limitation on holding long-term short positions is that your broker can call back the borrowed shares.
Stocks that are easy to borrow can typically held for a long time without being called back. These are stocks that brokers hold a lot of shares of, that rarely experience high volatility, and that aren’t in high demand among short sellers. As an example, Apple and Amazon shares are generally easy to borrow and the chances of a short position on these stocks being called back is low.
Hard-to-borrow stocks or stocks that require a locate request (which confirms shares are available to borrow) are more likely to be called back sooner. Hard-to-borrow stocks also have higher borrowing fees, which can make it costly for traders to hold these positions for more than a few weeks or months at a time. In general, hard-to-borrow stocks are sold short only for brief periods when a stock is most volatile.
Another thing to keep in mind is that to keep a short position open, you must continue to meet margin requirements for your position. Margin requirements can change quickly if a stock experiences high volatility.
Moreover, since borrowed shares must always be returned eventually, short selling can lead to theoretically infinite losses as the price of a stock rises. Brokers use margin calls to prevent this from happening. For example, if you have a $10,000 short position in an account with only $12,000, your broker may issue a margin call or call back your shares if the price of the underlying stock rises by 50% over a brief period.
Conclusion
At least in theory, you can keep a short position open for as long as you continue to meet the position’s margin requirements. However, in practice, your ability to keep a short position open is determined by whether or not your broker calls back the borrowed shares at some point. Short positions on easy-to-borrow stocks may be held for many years, while short positions on hard-to-borrow stocks can span only days, weeks or months at a time.
The information contained herein is intended as informational only and should not be considered as a recommendation of any sort. Every trader has a different risk tolerance and you should consider your own tolerance and financial situation before engaging in day trading. Day trading can result in a total loss of capital. Short selling and margin trading can significantly increase your risk and even result in debt owed to your broker.Please review ourday trading risk disclosure,margin disclosure, andtrading feesfor more information on the risks and fees associated with trading.
FAQs
There is no set time that an investor can hold a short position. The key requirement, however, is that the broker is willing to loan the stock for shorting. Investors can hold short positions as long as they are able to honor the margin requirements.
How long can a short position be held? ›
There's no specific time limit on how long you can hold a short position. In theory, you can keep a short position open as long as you continue to meet your margin requirements. However, in practice, your short position can only remain open as long as your broker doesn't call back the shares.
What is the holding period for short sale positions? ›
In a short options position, the holding period is the time between when a short seller buys back the securities and when the security is delivered to the lender to close the short position.
What happens if you don't close a short position? ›
If the stock rallies from $100 to $110 and you decide to close the position, you'd buy back the shares for $11,000, a loss of $1,000. If you don't close out of the losing short trade, your risk is technically unlimited because the stock could continue to rally.
How long does a short squeeze last? ›
In general, short squeezes tend to last somewhere between several days and several months. There is no real “typical” length for a short squeeze, as each one is unique.
What is the settlement period for short selling? ›
No rules exist for how long a short sale can last before being closed out. The lender of the shorted shares can ask that the investor return the shares at any time, with minimal notice, but this rarely happens so long as the short seller keeps paying the margin interest.
Can you be forced to close short position? ›
This means that you could suffer a margin call from your broker. In this case, you'll have to put more cash in your account or liquidate positions, or if you're unable to do so, your broker may liquidate positions for you. You may be forced to close your short position against your wishes.
Is there a time limit on short selling? ›
When an investor or trader enters a short position, they do so with the intention of profiting from falling prices. This is the opposite of a traditional long position where an investor hopes to profit from rising prices. There is no time limit on how long a short sale can or cannot be open for.
What is the new rule for short selling? ›
The new rule will require investors to implement systems that permit them to monitor their daily short position and related activity in order to timely file any required Form SHO.
How much can you lose on a short position? ›
Potentially limitless losses: When you buy shares of stock (take a long position), your downside is limited to 100% of the money you invested. But when you short a stock, its price can keep rising. In theory, that means there's no upper limit to the amount you'd have to pay to replace the borrowed shares.
If this happens, a short seller might receive a “margin call” and have to put up more collateral in the account to maintain the position or be forced to close it by buying back the stock. Given the market's long-term upward bias, many investors find it hard to short stocks and achieve consistent, profitable results.
How many days to cover is good for a short squeeze? ›
Generally, competition is directly related to higher stock prices, so the higher the number of days to cover, the greater the probability of a short squeeze. In the example above, if all the short-sellers desired to close positions right now, it would take roughly four days in total.
How to tell if a short squeeze is happening? ›
Signs of a Short Squeeze
These are: An asset trading near its 52-week lows and the price is much lower than the fair value estimated by experts. The reasons for the gap may be many, but markets eventually correct and settle closer to the fair value. This is the minimum short squeeze price.
Who benefits from a short squeeze? ›
Speculators and traders who have short positions in a stock will face heavy losses if the stock undergoes a short squeeze. Contrarian investors who have built up long positions in the stock in anticipation of a short squeeze will benefit as the stock price climbs.
How long is a short term hold? ›
Generally, if you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
How long is a short term position? ›
A short-term position is a temporary job that can last from one day to about one month. You are assigned specific duties, and then you are finished after the allotted time is up. A long-term position is often considered to last beyond six weeks, or if you work more than 1,000 hours in a 12 month period.
How long are short term trades? ›
Short-term trading involves taking a position that can last from seconds to several days. It is used as an alternative to the more traditional buy-and-hold strategy, in which you'd hold a position for weeks, months or even years.
How do you hold a long-term short position? ›
Usually, it is achieved by borrowing shares of stock the investor thinks will fall in value, selling them to another investor, and then buying them back to cover the position—hopefully at a lower price. You can hedge a short stock position by buying a call option.
