Summary: Shorting is a risky but potentially profitable investment strategy for investors willing to speculate on stock price movements. In this guide, you will learn how to short Amazon stock on investment platforms such as eToro.
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About Amazon
Amazon (NASDAQ: AMZN) is a US-based multinational tech and e-commerce company. Founded by Jeff Bezos in 1994, the company started as an online bookstore, but it quickly expanded its range of products, eventually becoming the world’s largest e-commerce platform.
What is shorting?
Short selling, also known as taking a short position or shorting, is a trading strategy where you sell a stock you don’t actually own, anticipating that its value is going to drop soon. To be able to sell a stock you don’t own, you first borrow it. Then, you sell it and set aside the proceeds. Later, if your predictions come true and the price falls, you buy the stock back and return it to the lender, pocketing the difference in price.
To short sell, you typically need a specific brokerage account and meet some maintenance margin requirements. For instance, if the broker requires a 50% initial margin on shorted stocks, you’ll need $1,000 in your account to open a $2,000 short position.
Short selling is generally a bearish investment strategy, and traders make use of it when they anticipate a significant downward movement in the value of stocks, commodities, or other financial instruments.
Types of shorting
As mentioned, shorting traditionally entails borrowing shares from the broker, selling them on the open market, and then repurchasing them at a lower price if the stock price goes down as expected. Then, investors can return shares to the broker and keep the price difference.
Alternatively, however, investors can short stocks through derivatives such as:
- Options, which grant investors the right (but not the obligation) to buy or sell a stock at a predetermined price within a specified timeframe;
- Futures contracts, which obligate the buyer to purchase or sell the stock at a predetermined price on a future date, offering a chance to profit from price fluctuations without owning the underlying asset.
How to short Amazon stock?
To short Amazon stock (with options contracts), you can:
- Step 1: Choose the right broker: Open a margin account with a brokerage platform offering short-selling services, such as eToro. Note that US residents can only use options contracts to short, as CFDs are not available in the US;
- Step 2: Fund your account: Once your account is verified, deposit funds into it to cover margin requirements for short-selling Amazon stock. Margin requirements vary from broker to broker, so ensure you have sufficient funds to support your short position. Also, be sure you remember that you’ll often have you fund your options account separately from your regulat trading account;
- Step 3: Open a short position: Navigate to the Amazon stock page on your chosen platform. Then, select the Trade option. Next, you can choose the expiration date and the strike price for your option. Evaluate the pricing, risk, and pertinent metrics on the selection page. Then, determine the number of 100-share contracts you wish to purchase;
- Step 4: Cover the position: You can retain the option until its expiry, potentially yielding profit if the stock behaves as expected. But, if the market fails to align with your projections, your option might incur a partial loss or expire without value. If you choose not to wait for the expiry date, you can sell your option on the market. To do so, navigate to your ticket, select an order type (market, limit, or trigger), and await a buyer.
Disclaimer: 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. This content is not intended for US users. eToro USA LLC does not offer CFDs, only real Crypto assets, Stocks and ETFs are available.
Where to short Amazon stock?
Our recommended platform for shorting Amazon stock is eToro, a leading brokerage offering features such as:
- Commission-free stock trading;
- Access to over 2,000 stocks from 17 different exchanges;
- Option to purchase fractional shares;
- Charting tools;
- User-friendly platform simplifying the trading experience.
Highly Rated Stock Trading & Investing Platform
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Invest in 2,800+ stocks and other assets including 70+ cryptocurrencies and commodities.
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0% commission on buying stocks - buy in bulk or just a fraction from as little as $10. Other fees apply. For more information, visit etoro.com/trading/fees.
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Copy top-performing traders in real time, automatically.
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eToro USA is registered with FINRA for securities trading.
Why short Amazon stock?
While long-term investors base their decisions on fundamental and technical analysis to assess a company’s financial health and future prospects, short sellers focus more on short-term price fluctuations in hopes of quick profits. This means shorting Amazon stocks in a bearish market can be a solid strategy for more experienced short-term investors with a higher risk tolerance.
Short selling can also function as a hedge. An example of this is when investors buy a put option alongside a long-term stock investment as a common short hedge. The put option acts as insurance, granting the investor the ability to sell shares at a predetermined price should the stock price decrease.
– How to short Apple stock;
– How to short Tesla stock;
– How to short Meta stock;
– How to short Microsoft stock;
– How to short Nvidia stock;
– How to short Alphabet stock;
Amazon stock price today
Pros and cons of shorting Amazon stock
Pros
- Can lead to high profits: If your predictions are accurate, you can generate significant profits with small initial capital;
- Leverages: With leverages, you do not have to make a heavy initial investment;
- Hedge against other holdings: By short-selling, you can hedge against other assets you are investing in long-term;
- Solid strategy in bearish markets: Shorting has the highest potential for profit when the market is declining swiftly.
Cons
- Highly risky: Leveraged trading poses significant risks by magnifying potential losses;
- Short squeeze: A short squeeze occurs when a stock’s value rapidly increases, prompting short-sellers to urgently buy them back to avoid losses;
- Margin account requirements and interest rates: Maintaining a margin account is necessary. That is, falling below the minimum maintenance requirement may necessitate additional cash deposits. Borrowed stocks also accrue interest until returned.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
FAQs about how to short Amazon stock
How can I short Amazon stock?
To short Amazon stock, you’ll need a margin account with a brokerage that allows short selling, for example, eToro.
Can I short Amazon stock if I don't own any shares?
Yes, the whole point of short selling is that it allows you to profit from a decline in a stock’s price even if you don’t own any shares. When shorting, you borrow the shares from your broker and sell them, only to them back at a lower price.
Are there any extra fees associated with shorting?
Yes, there are fees when shorting, and you will have to maintain a minimum balance on your margin account.
What is naked shorting?
With naked short selling, investors short-sell shares they haven’t actually acquired in any way, not even by borrowing. That is, they profit by selling shares that are unavailable or nonexistent, hoping the shares will become accessible before the clearing period ends, enabling them to buy them and close their position before the initial sale is completed.
Highly Rated Stock Trading & Investing Platform
-
Invest in 2,800+ stocks and other assets including 70+ cryptocurrencies and commodities.
-
0% commission on buying stocks - buy in bulk or just a fraction from as little as $10. Other fees apply. For more information, visit etoro.com/trading/fees.
-
Copy top-performing traders in real time, automatically.
-
eToro USA is registered with FINRA for securities trading.
