Whether you’re selling stock you’ve invested in or want to initiate a bearish short position as a trader, there are many different reasons to sell stock.
While some traders might watch corporate insiders to see when they sell their company’s stock, the most common reason individuals sell their stock is that they need the money they’ve invested.
Main Takeaways: How to Sell Stocks
- Decide whether you’re a trader or investor. This comes down to how long you plan on holding onto your stock. You want to pick a style of selling that matches your financial goals.
- Use an online broker. Online brokers make it easy and convenient to sell your stocks.
- Test out the trading platform. Make sure the broker you select allows you to trade how you want. If you’re going to be day trading, pick a broker known for speed. If you’re a beginner, start with a broker with great resources an educational tools.
- Make your sale. Use your brokerage to set your sale price and begin selling your stock.
What You Need to Consider Before You Sell
You can simply enter a market order with a stockbroker and sell your stock. This is done at the current market price if you need to sell for the money, and you don’t have to consider much else.
On the other hand, if you want to sell your stock to buy another stock or if you want to trade one stock in order to make an investment in another stock, there are several things to consider.
1. Are you a trader or an investor?
First, think about your planned trading or investment horizon, which sets out the average time you plan to hold stock. Are you a trader or an investor? Both types of market participants buy and sell stock, but they have different ways of achieving the same goal of overall profitability.
For example, a day trader will have a much different time frame and criteria for selling stock than a long-term investor, so make sure your stock selling activity is part of your overall trading or investment strategy.
You can read Benzinga’s compilation of investing books for beginners to learn how to trade stocks for investment purposes.
2. Why do you want to sell your stock?
Before you sell your stock, consider your reasons for selling it. Be sure you’re not acting on impulse because of an adverse market move, especially if you’ll incur a loss. Remind yourself of the reasons you purchased the stock in the first place.
Be patient and try to research why the adverse move occurred. Remember, you buy stocks to make money, not to take losses.
If you actively trade short term strategies, your main reasons for selling stock will be to take a quick profit or a smaller loss. You might also sell your stock because market fundamentals indicate a looming recession, especially if they’re invested in cyclical stocks that stand a good chance of showing a future price drop.
You might also sell stock because you follow the company’s current situation and future outlook.
From here, you can tell the prospects for the company’s industry, including whether the company’s stock stops paying or reduces the amount of its dividend.
Each industry is exposed to different fundamental risks. For example, automobile companies might need to do a costly recall that would severely cut into earnings. Electric utilities may be liable for disasters, such as Pacific Gas and Electric found liable for the deadly Camp Fire in Northern California in 2018.
When news like this breaks, it can be a good fundamental reason for selling your stock in the affected company since its price is likely to decline quickly.
3. Understand sell order types
The order types for selling stocks are pretty straightforward and are in line with how the stock market works. Traders use different order types to limit their buying price, maximize their selling price and limit losses.
Market sell order. This type of order allows you to sell the stock immediately and it guarantees that the order will be executed without specifying the price of execution. Market orders typically get filled at or near the bid price when selling stock, just as they are filled near the offer price when buying. Keep in mind that the last sale price, which is generally displayed on a screen or stock ticker, may not be the price you’ll get when you trade using a market order.
Limit sell order. This is a type of order to sell stock at your specified price or better, which is what the word limit refers to.
Sell stop order/stop-loss sell order. A sell stop order triggers an execution once the stock reaches a certain price below the prevailing market, known as the stop price. Upon the market reaching and trading at the stop price, the sell stop order then becomes a market order to sell the stock at the best available price.
Trailing sell stop order. When you look at a profit on a long stock position and have placed a protective sell stop order to avoid taking more of a loss, you can also protect your profits by using a trailing sell stop order. This order is similar to a stop order, but its price is automatically moved up according to the parameters you specify as the market continues to rally, thereby improving the sale price you get if executed.
4. Get a grip on trade contingencies
In addition to the type of order you have entered to sell stock, you can also put a contingency on your order.
- All or none (AON): This contingency specifies that the sell order must be filled in its entirety or not at all. Partial execution cannot take place on an AON order.
- Immediate or cancel (IOC): An immediate or cancel order gets canceled if not immediately executed, although the order can be partially executed.
- Fill or kill (FOK): A fill or kill order combines an IOC with an AON. The order must be filled in its entirety immediately, or the order is canceled.
- Day order: Unless otherwise specified, a limit or stop order to buy or sell stock is good only for the day it was placed. This means it is a day order.
- Good ‘til canceled (GTC): This type of order stays on the books until the order is canceled or executed, regardless of the day it was entered on.
- Market on close (MOC): Generally, this is a limit order held by the broker throughout the trading day, but if the market fails to reach the desired level by the close, it then becomes a market order to be executed at the market close or shortly thereafter.
- Market on open (MOO): A market order used to buy or sell stock at the prevailing market on the opening bell or as soon as possible thereafter.
5. Consider selling short or buying put options
A couple of additional methods of selling stock exist that are mostly used by traders for speculative purposes. These consist of short selling and buying put options.
Different types of trading strategies may call for selling stock before it has first been purchased, which is also called selling short.
In order to sell short, your broker must be able to borrow the stock for you to sell. After selling short to express a bearish view on the market, you’ll ideally buy the stock back after the price has declined.
The profit from a short sale consists of the difference between the sale price and the price where the trader covered the short sale by buying back the stock previously sold.
This works in reverse as well, since if the stock price goes up after it is sold, then the trader loses the difference between the price he sold the stock at and the higher price he paid to cover his short sale.
Selling stock short also requires that your broker have the ability to borrow the stock and will allow you to make this type of trade. Selling short can even cost considerably more than just buying on margin, so if you’re thinking of selling stocks short, then you’ll need to put up some money to meet your broker’s requirements.
A broker will also charge a stock loan fee that can range between 2.5% and 100% of the value of the stock shorted, depending on the broker’s difficulty in borrowing the stock.
In the United States. the borrow rate for borrowing U.S. stocks to sell short is set by the Federal Reserve Board’s Regulation T that requires an account to have 150% of the stock’s value available as margin at the time of the short sale. For example, if you wanted to short 1,000 shares of a $10 stock, you would need $15,000 in margin in your account in order to meet the Reg.T requirement.
Note that certain rules may exist for short selling stocks to protect against stock market crashes, such as the uptick rule that was used in U.S. stock markets from 1938 until its removal in 2007. This type of rule usually states that in order to sell stock short, the price has to be at a higher price than the previous trade in the stock or at an “uptick.”
Since the global financial crisis hit in 2008 shortly after the original uptick rule was eliminated, the alternative uptick rule (SEC Rule 201) went into effect in 2010. This new circuit breaker rule now prohibits short sales for 2 days after a stock declines over 10% of its value compared with the prior trading day.
Buying Put Options
Another way to sell stock is by purchasing a put option on the stock. The advantage of buying puts is that they cost a fraction of the amount you would be required to put up to short stock, and that cost is called the option’s premium.
A put option gives the holder of the option the right, but not the obligation, to sell a given number of shares of stock at a certain price, known as the strike price.
The option contract lasts until a particular date and time known as its expiration, at which point the option either needs to be exercised or abandoned, depending on whether the prevailing market is better or worse than its strike price.
Also, if you own stock already and buy puts to combine with your long stock position, you have essentially insured or hedged your stock investment below the option’s strike price. If your stock then continues to appreciate, your put option would expire worthlessly, but you can still participate in the upside movement of the stock.
If your stock’s price instead declines substantially, your put option might end up “in the money,” so you would then need to either exercise or sell the put on or before its expiration.
Steps to Sell Your Stock Using a Broker
If your stock is already in a stockbroker account, then you should be able to sell the stock directly from your account.
Step 1: Pick a Broker
If you own stock but do not have a stockbroker, then you probably have physical stock certificates in your possession. In order to sell stocks in certificate form, you must take them to a licensed broker/dealer to sell for you.
Keep in mind that how you sell your stock is just as important as where you trade, so make sure you pick the best online broker for your needs. The right broker means the broker that best meets your requirements. Check out a few of our favorites.
Step 2: Try Out the Broker’s Trading Platform
The broker you select to sell your stock will most likely offer a virtual or demo account. This gives you the opportunity to assess the broker’s trading platform and stock execution service.
Ideally, you should open more than one practice account so that you can better determine which broker best suits your needs. Using a practice account can also help improve your trading and investing skills.
Step 3: Deposit Your Stock and Fund an Account
Once you’ve determined which broker best suits your needs after trading in a virtual account, you can then use either the stock you own or a margin deposit to open a trading account.
The value of the stock you deposit may suffice to open an account, although some firms may require more of an initial deposit than you have in stock. If this is the case, then you would have to deposit additional funds into the account as well as any stock you plan to sell.
Step 4: Sell Your Stock
After you have transferred your stock into a trading account, you can then choose a price level and place a sell order for your stock or just sell it at the market.
Depending on the price you wish to obtain for your stock sale, you can either enter day orders every day until you sell your stock or you can enter a GTC order.
Sell with Confidence
Selling stock doesn’t have to be complicated. You just need to have stock in an account or be able to borrow it and know at what price you wish to sell and the type of order and contingencies to place on the order.
Selling stock is most often done to liquidate an existing long position, but short selling has proven to be an extremely profitable strategy in down-trending or correcting markets. Also, the purchase of put options combined with a stock position can provide a hedge in uncertain markets over a given timeframe.