Shorting on Robinhood requires a Gold subscription and a margin account

Robinhood lets you short stocks — bet that a stock price will fall — but only if you have a Robinhood Gold subscription and a margin account. A margin account is different from a standard cash account. It lets you borrow money or securities from Robinhood to trade, which is what shorting requires.

When you short a stock on Robinhood, you are borrowing shares from the broker's inventory, selling them at the current price, and hoping to buy them back later at a lower price. The difference between what you sold them for and what you paid to buy them back is your profit or loss. Robinhood charges interest on the borrowed shares, and you must maintain a minimum account balance to keep the position open.

Key Takeaways

  • Robinhood Gold costs $5 per month and is required to short stocks; a standard cash account cannot short.
  • You must convert your account to a margin account before you can place a short order, which takes one business day to process.
  • Robinhood charges interest on borrowed shares, and the rate varies based on how much you borrow and market conditions.
  • A margin call occurs if your account value drops below the maintenance requirement, and Robinhood can force you to buy back shares to cover the shortfall.
  • Short positions can be held indefinitely as long as you maintain the minimum balance and pay the interest charges.

Steps to set up a margin account on Robinhood

To short on Robinhood, you first need to upgrade to Gold and convert your account to margin. Open the Robinhood app or website and go to your Account settings. Select "Account Type" or "Investing" depending on your app version, then look for the option to upgrade to a margin account.

Robinhood will show you a disclosure document explaining the risks of margin trading, including the possibility of losing more than you invested. You must read and accept this document before the conversion is complete. The change takes one business day to process. Once your account is margin-enabled, you can place short orders.

You also need an active Robinhood Gold subscription. If you do not already have one, you can add it from the same Account settings menu. Gold costs $5 per month and includes other features like extended-hours trading and access to research tools.

How to place a short order

Once your margin account is active, shorting a stock works similarly to buying one, but in reverse. Open the stock you want to short and tap the order button. Instead of selecting "Buy," select "Sell" — but you are not selling shares you own. Robinhood calls this a "short sell" order.

Choose the number of shares you want to short and the order type: market order (sells when ready at the current price) or limit order (sells only if the price reaches a specific level). Review the order details, including the interest rate Robinhood will charge on the borrowed shares, then confirm.

The order executes during market hours (9:30 a.m. to 4 p.m. Eastern time on weekdays). If you place a short order during extended hours or on a weekend, it will execute when the market opens. Once the order fills, the borrowed shares appear in your account as a short position with a negative number.

Understanding margin requirements and interest charges

When you short on margin, Robinhood requires you to maintain a minimum account balance called the maintenance requirement. This is typically 30 percent of the value of your short position, though the exact percentage can vary by stock. If your account value drops below this threshold, Robinhood issues a margin call.

A margin call means you must deposit cash or close positions to bring your account back above the maintenance level. If you do not respond within a set time, Robinhood can automatically sell your positions — including your short positions — to raise the cash. This forced liquidation can lock in losses.

Robinhood also charges interest on the borrowed shares. The rate depends on how much you borrow and current market conditions. You can see the interest rate before you place the order. Interest accrues daily and is deducted from your account automatically. The longer you hold a short position, the more interest you pay.

Closing a short position

To close a short position and end the trade, you buy back the shares you borrowed. Open the stock with the short position and place a buy order for the same number of shares. Once the order fills, the short position closes and the borrowed shares are returned to Robinhood's inventory.

Your profit or loss is the difference between the price you sold at (when you shorted) and the price you bought at (when you closed). If you shorted 10 shares at $50 and bought them back at $40, you made $100 (before interest and fees). If you bought them back at $60, you lost $100.

You can close a short position at any time during market hours. There is no time limit on how long you can hold a short position, as long as you maintain the margin requirement and pay the interest charges. However, if the stock price rises significantly, your losses can grow quickly, and a margin call can force you to close the position at an unfavorable price.

Restrictions and risks specific to Robinhood

Robinhood does not allow shorting on all stocks. Stocks under $5, penny stocks, and some newly listed companies cannot be shorted on the platform. You can check whether a stock is shortable by searching for it in the app — if the short option is not available, Robinhood does not offer it for that stock.

Robinhood also restricts short selling during certain market conditions. If a stock experiences a sharp price drop, the SEC's uptick rule may explore, which requires short sales to occur only on an uptick (a price higher than the previous trade). Robinhood enforces this rule automatically, so you may not be able to short a stock that is falling rapidly.

Short selling carries significant risk. Unlike buying a stock, where your maximum loss is what you invested, a short position can lose money indefinitely if the stock price keeps rising. You are also responsible for paying interest and dividends on the borrowed shares, which adds to your costs. A margin call can force you to close the position at a loss.

Frequently Asked Questions

What is the interest rate Robinhood charges on borrowed shares?

Robinhood's interest rate on borrowed shares varies based on the amount you borrow and current market conditions. You can see the exact rate before you place the short order. Rates typically range from a few percent to higher amounts depending on how hard the stock is to borrow. The interest is deducted from your account daily.

Can I short a stock that is under $5?

No. Robinhood does not allow shorting on stocks priced under $5, penny stocks, or certain newly listed companies. You can check whether a stock is shortable by opening it in the app — if the short option is not available, you cannot short it on Robinhood.

What happens if I cannot cover a margin call?

If your account value falls below the maintenance requirement and you do not deposit cash or close positions within the time Robinhood allows, the broker can automatically sell your positions to raise the required cash. This forced liquidation may lock in losses on your short position and other trades.

Do I have to pay dividends on borrowed shares?

Yes. If the company whose stock you shorted pays a dividend while you hold the short position, you must pay that dividend to Robinhood. This cost is deducted from your account automatically. Dividends add to the total cost of holding a short position.

Can I hold a short position indefinitely?

You can hold a short position as long as you maintain the minimum margin requirement and pay the interest and dividend charges. There is no set expiration date. However, if the stock price rises and triggers a margin call, or if Robinhood recalls the borrowed shares, you may be forced to close the position.