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I recently opened a margin account at Questrade with 1000 dollars to see if I can learn anything about margin trading.

Today, I'm trying to short sell 2 shares of XLU at a $40 limit price and it says: Not enough shares are allocated for shorting.

I am not sure what to do in this situation? I was of the impression that when I issue a short order, the broker will buy at market price and give to me, but apparently not.

What action I should take?

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    when i issue a short order, the broker will buy at market price and give to me . I burst out laughing. No one will take a loss for you. They want to profit from you and not the other way around. The broker will only borrow those shares if possible. They will never issue a buy order for the shares, to lend to you – DumbCoder Mar 11 '14 at 17:53
  • So a short sale strategy is always subject to availability? – Victor123 Mar 11 '14 at 18:05
  • Yes. The finance industry is more about profiting, whatever the cost, and not at all about charity. – DumbCoder Mar 11 '14 at 18:08
  • And it is entirely possible that a different broker would be able to fulfil the short sale request? – Victor123 Mar 11 '14 at 18:10
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    Ask the broker. Really. Shorts may require a round lot, 100. You see my comment said 'likely'? It's because I can't know for sure. The question has merit, but anyone with shorting experience (like when I shorted GLD at $180) isn't always going to know why 2 or 20 wont short. Most investors don't trade under 100 of anything. – JTP - Apologise to Monica Mar 11 '14 at 18:35
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For Canada

No distinction is made in the regulation between “naked” or “covered” short sales. However, the practice of “naked” short selling, while not specifically enumerated or proscribed as such, may violate other provisions of securities legislation or self-regulatory organization rules where the transaction fails to settle. Specifically, section 126.1 of the Securities Act prohibits activities that result or contribute “to a misleading appearance of trading activity in, or an artificial price for, a security or derivative of a security” or that perpetrate a fraud on any person or company. Part 3 of National Instrument 23-101 Trading Rules contains similar prohibitions against manipulation and fraud, although a person or company that complies with similar requirements established by a recognized exchange, quotation and trade reporting system or regulation services provider is exempt from their application. Under section 127(1) of the Securities Act, the OSC also has a “public interest jurisdiction” to make a wide range of orders that, in its opinion, are in the public interest in light of the purposes of the Securities Act (notwithstanding that the subject activity is not specifically proscribed by legislation). The TSX Rule Book also imposes certain obligations on its “participating organizations” in connection with trades that fail to settle (see, for example, Rule 5-301 Buy-Ins).

In other words, shares must be located by the broker before they can be sold short.

A share may not be locatable because there are none available in the broker's inventory, that it cannot lend more than what it has on the books for trade. A share may not be available because the interest rate that brokers are charging to borrow the share is considered too high by that broker, usually if it doesn't pass on borrowing costs to the customer. There could be other reasons as well.

If one broker doesn't have inventory, another might. I recommend checking in on IB's list. If they can't get it, my guess would be that no one can since IB passes on the cost to finance short sales.

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