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Frequently Asked Questions About I-9 Compliance
Howard Chase 4 years ago Views:
1 Frequently Asked Questins Abut I-9 Cmpliance What is required t verify wrk authrizatin? The basic requirement t verify wrk authrizatin is the Frm I-9. This frm is available n the HR website: The back f the frm lists the types f dcuments that a new hire must prvide t verify his r her identity and that he r she is authrized t wrk in the United States. The purpse f the I-9 frm is t verify identity and authrizatin t wrk in the United States. What are the current civil penalties? Vilatins f I-9 requirements: fines range frm $110 – $1,100 per I-9. Knwingly hiring r cntinuing t emply: fines range frm $375 – $3,200 per alien Pattern r practice: $3,300 – $11,000 Debarment frm gvernment cntracts fr knwingly emplying an unauthrized wrker Criminal penalties: fines and/r imprisnment What are the basic Frm I-9 requirements? Emplyers must cmplete fr every new hire after Nvember 6, Emplyers may nt knwingly hire r cntinue t emply a persn wh is nt authrized t wrk in the United States. Knwingly means actual knwledge r cnstructive knwledge. Physical presence f the emplyee is required. Must see riginal dcuments, nt cpies. Hwever will accept a certified cpy f birth certificate. Attach phtcpies f dcuments t I-9. N exceptin fr temprary r part-time emplyment. Wh shuld fill ut Frm I-9? Frm I-9 must be cmpleted fr all new hires, including temprary r part-time emplyment Frm I-9 must be cmpleted fr all emplyees wrking in the U.S., even if n payrll abrad Frm I-9 is nt required fr independent cntractrs Frm I-9 is nt required fr pre-11/07/86 hires (grandfathered emplyees) Frm I-9 is nt required fr emplyees wrking utside the U.S. r utside its territries Hw shuld Frm I-9 be cmpleted? Physical presence f emplyee is required (Smene has t see persn and his/her dcuments) Must see riginal dcuments, nt cpies. Hwever, will accept a certified cpy f birth certificate. Attach phtcpies f dcuments N exceptin fr temprary r part-time emplyment
2 When must the Frm I-9 be cmpleted? The Frm I-9 must be cmpleted within three business days f the date emplyment begins. If the new hire claims that the necessary dcuments were lst, stlen r destryed, the persn must prvide a receipt fr replacement dcuments within the three days. May nt accept receipt fr extensin f emplyee authrizatin dcument. If an emplyee has presented a receipt fr a replacement dcument, he r she must prduce the actual dcument within 90 days f the date emplyment begins. Is cmpletin f an I-9 required fr a persn wh is being rehired? N I-9 is needed if an emplyee is cntinuing t be emplyed. Fr example: Leave f absence, disability, vacatin, etc. Prmtin r demtin Strike, temprarily laid ff Disciplinary suspensin Transfer between ne distinct unit f emplyer t anther I-9s may be reused if cmpleted within 3 years f date f rehire (new I-9 recmmended) Is an I-9 needed fr cntractrs and temprary agencies? N I-9 frm is needed fr true independent cntractrs If yu cntract with a temprary agency fr persnnel, fllw the fllwing guidelines: Clearly identify the agency as the emplyer Indicate the agency will cmply with State and Federal requirements including, but nt limited t, prper I-9 cmpletin and maintenance Include an indemnificatin clause Entering int a cntract with knwledge f unlawful status can remve the independent cntractr prtectin Re-verificatin will be cnducted by the Office f Human Resurces. What are an emplyer s retentin bligatins? Emplyer must have a Frm I-9 fr every current emplyee (unless they were hired prir t Nvember 7, 1986) Emplyer cannt destry I-9 fr current emplyee Fllwing emplyee s terminatin, emplyer must retain I-9 fr the later f: 3 years after the persn began wrk: OR 1 year after the persn departs the cmpany Ideally centralize I-9 strage in ne lcatin Keep separate frm immigratin (including PAFs) and persnnel files What are basic Frm I-9 discriminatin vilatins? Dcument Abuse
3 Occurs when certain emplyees r applicants are subject t mre stringent verificatin measures than necessary t verify that they are eligible t wrk in the United States Citizenship Status Discriminatin Occurs when individuals are nt hired r are fired because f their real r perceived immigratin r citizenship status, r because f their type f wrk authrizatin Natinal Origin Discriminatin Emplyer treats an emplyee r applicant differently during the hiring and firing prcess because f his r her place f birth, cuntry f rigin, ancestry, native language, accent r because the individual is perceived as lking r sunding freign Retaliatin Example: emplyee terminated fr filing cmplaint What is dcument abuse? May nt ask fr mre r different dcuments May nt refuse t accept valid dcuments presented Shuld nt specify which dcuments will be acceptable Wh is in the I-9 prtected class? U.S. citizens r natinals Permanent residents Refugees Asylees Temprary residents under the legalizatin prgram (Special agricultural wrker r amnesty applicant under 1986 law) Wh is nt in the I-9 Prtected Class? Nn-immigrants such as: F-1 J-1 H-1 Asylum applicants Illegal aliens Hw shuld an I-9 be cmpleted? SECTION 1 must be cmpleted by emplyee n, r befre, the first day f hire. Ensure that emplyee checks bx, signs and dates the frm. SECTION 2 must be cmpleted within three business days f the date emplyment begins. SECTION 3 must be cmpleted n, r befre, temprary emplyment authrizatin expires. TIPS fr SECTION 1: SECTION 1 must be cmpleted by emplyee n r befre first day f hire. Ensure that emplyee checks bx, and signs and dates the frm. If emplyee checks Bx 2 (new frm Bx 3), A # must be entered. If emplyee checks Bx 3 (new frm Bx 4), expiratin date and A # r I-94 must be entered.
4 Mst cmmn errrs in SECTION 1: 1. Name in wrng rder 2. Address incmplete 3. Scial security number field blank (required fr emplyees wrking n cntract with FAR E- Verify clause.) 4. Attestatin bx nt checked r is incmplete 5. Signature missing 6. Date missing 7. Date f birth instead f current date TIPS fr SECTION 2: SECTION 2 must be cmpleted by cmpany representative within 3 business days f hire Verificatin f IDENTITY and WORK AUTHORIZATION Cmpany representative must review ORIGINAL DOCUMENTS Attach cpies f presented dcuments t the I-9 Mst cmmn errrs in SECTION 2: 1. Clumns A, B, r C left blank with cpies attached 2. Clumn B & C dcuments reversed 3. Dcument number missing 4. Dcument expiratin date missing 5. Date f hire missing 6. Certificatin nt signed Mst cmmn errrs in SECTION 3: 1. Re-verificatin nt cmpleted in a timely manner 2. Dcument prvided was nt acceptable r inadequately described 3. Over-dcumentatin (d nt re-verify identity) 4. Emplyer signature r date missing Dcument TIPS U.S. passprt CANNOT be expired (effective April 3, 2009 all dcuments must be valid at time f presentatin) Freign passprt must be unexpired ID card must be issued by a federal/state/lcal gvernment agency. (Schl IDs acceptable fr students/minrs) Vter s registratin card need nt have pht t cnfirm identity. Fr E-Verify candidates, a pht ID is required. Scial security card nt acceptable fr wrk authrizatin if it cntains ntatins Nt Valid fr Emplyment. Scial security card will NEVER say Valid fr Emplyment. Birth certificate must be issued by state r lcal gvernment authrity. (Nt church, nt hspital.)
5 Why must United States citizens fill ut the Frm I-9? The Frm I-9 is designed t determine wh is authrized t wrk in the United States. Its purpse is nt t determine wh is and wh is nt a citizen. While all citizens are authrized t wrk here, it is nt always easy t recgnize wh is and is nt a citizen because f the diverse heritage f ur cuntry. Emplyers must d an I-9 frm fr every emplyee, nt just thse wh appear t be nn-citizens. D I need t cmplete a Frm I-9 fr everyne wh applies fr a jb with my cmpany? N. Yu need t cmplete Frm I-9 nly fr peple yu actually hire. Fr purpses f the I-9 rules, a persn is hired when he r she begins t wrk fr yu fr wages r ther cmpensatin. Can I terminate an emplyee wh fails t prduce the required dcuments within three business days? Yes. Yu may terminate an emplyee wh fails t prduce the required dcuments, r a receipt fr replacement dcuments (in the case f lst, stlen r destryed dcuments), within three business days f the date emplyment begins. Hwever, yu must apply these practices unifrmly t all emplyees and nt just t thse wh d nt appear t be citizens. What are the legally acceptable dcuments that a new hire can shw fr I-9 purpses? The emplyer is required t verify bth identity and authrizatin t wrk in the United States. The back f the I-9 Frm describes which dcuments establish a new hire s identity and wrk authrizatin. Dcuments listed in List A establish bth identity and authrizatin t wrk in the United States List B dcuments nly establish identity List C dcuments nly establish emplyment eligibility, meaning the persn is authrized t wrk in the United States. Can I refuse t hire a persn wh des nt have a U.S. birth certificate r a Green Card but has ther papers? The emplyer must lk at the ther dcument papers t determine whether they prve identity and wrk authrizatin. An emplyer cannt require that the new hire prvide specific dcuments, such as a U.S. birth certificate r a Green Card. A new hire may shw any f the dcuments listed n the I-9 frm. The dcuments shwn in List A n the back f the I-9 Frm prve bth identity and authrizatin t wrk. If a new hire prvides a dcument in List A, nly ne dcument is needed. If the dcument prvided is nt in List A, the emplyee must prvide a dcument frm List B and a dcument frm List C. If I believe a new hire is an alien, can I ask the persn t prduce a Green Card when filling ut the I-9 Frm? N. Emplyers cannt specify which dcument r dcuments are acceptable frm an emplyee. If the persn prvides a dcument frm List A, r a dcument frm List B and a dcument frm List C, the emplyer may nt request any ther dcument t verify emplyment eligibility. When filling ut the I-9 Frm, can I accept a scial security card frm an alien as prf f wrk authrizatin? Yes, s lng as the scial security card des nt state NOT VALID FOR EMPLOYMENT r VALID FOR WORK ONLY WITH INS AUTHORIZATION. NO ONE WORKS UNTIL THE I-9 and W-4 FORMS ARE COMPLETED.
6 Frm I-9 Checklist SECTION 1. Emplyee Infrmatin and Verificatin: T be cmpleted n the first day f wrk. Earlier is acceptable, but the frm cannt be cmpleted befre the emplyee has been hired. Give the emplyee a Frm I-9 (all pages including instructins). Ask him/her t cmplete Sectin 1 and bring an acceptable cmbinatin f dcuments t yu n later than their third wrk day. NOTE: Let the emplyee chse the dcuments! Never request specific dcuments. Check that the emplyee has cmpleted all fields: Name: The emplyee must use his/her legal name in crrect rder Address, date f birth, scial security number Citizenship Attestatin a. A lawful permanent resident must prvide an 8- r 9- digit Alien Number b. An Alien Authrized t wrk must prvide the date wrk authrizatin expires and an Alien number r an 11-digit admissin number frm the frm I-94. Sign and Date: The frm is nt valid withut a signature Preparer and/r Translatr Certificatin: If smene ther than the emplyee cmpleted Sectin 1. SECTION 2. Emplyer Review and Verificatin: T be cmpleted n later than the emplyee s third day f wrk by an authrized representative f the hiring department. (Cntact yur supervisr r HR cntact in yur department t find ut if yu are authrized t sign this sectin.) Accept the first valid dcument r cmbinatin f dcuments presented. Accept nly riginals and d nt ask fr r accept mre than is required. Valid dcumentatin is ne f the fllwing: Once dcument frm List A, OR ne frm List B AND ne frm List C. Be sure the emplyee has signed the dcuments Nte that Freign Passprt with an I-94 Arrival/Departure Recrd requires an additinal wrk authrizatin dcument, such as I-20 r DS Make a readable cpy f each dcument. Recrd each dcument title, issuing authrity, dcument number, and expiratin date (if applicable). Use the crrect lines accrding t the key at the far left f the page. Be sure t use the crrect clumn fr List A, B, r C. Enter the emplyment begin date (mnth/day/year). Use the current date, if yu are cmpleting the frm befre the actual first day f wrk. D nt leave this space blank! SECTION 3. Updating and Re-verificatin: Only use this sectin when the emplyee s wrk authrizatin has changed r has a new expiratin date. Handling the Cmpleted I-9: Frward the riginal I-9 with all supprting dcuments t the Office f Human Resurces.
How To Outsource Blog Writing For Businesses: 9 Frequently Asked Questions, Answered
We’ve entered a renaissance of new businesses and online services that give companies the ability to outsource the things they don’t have the time, resources, or personnel for. You could build a business or marketing agency with a couple people and outsource your administrative, design, HR, marketing, and more specifically, blog writing services more efficiently than ever before.
That’s why we’re here today: to talk about outsourcing blog writing services.
9 Frequently Asked Questions About Outsource Blog Writing
Question 1: How do I get writers for my blog?
There are a bunch of different ways to get writers for your blog instead of writing the blogs yourself.
Agencies that specialize in content marketing continue to proliferate as the demand rises. The good agencies combine writing talent with content strategy and measurement in one place. Just as you would use an agency for your design needs, there are agencies available for your content needs.
But there’s one catch. Good agencies are expensive. The adage of “good, fast, cheap — pick two” applies here. And what’s more, agencies will never understand your business as intimately as someone working out of your office.
Hire inhouse writers.
Having a writer inhouse that understands your brand, tone, and product is invaluable. No writer will know you or your business as intimately as a writer that’s a part of your team. If you’re in the market for a writer, or a writer yourself, you’ve likely seen more and more content writer positions pop up across a range of industries and businesses.
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Inhouse writers offer a lot of convenience. Going through an agency, for example, oftentimes requires a lot of onboarding and red tape before anything starts. Inhouse writers can go and already have the background knowledge.
That said, an inhouse writer can get maxed out with work quickly. And what’s more, they can burn out quickly. Writing about the same thing, day after day, takes its toll. Getting up for yet another B2B blog post can be difficult.
Find freelance writers.
Freelance writers are a compromise between the agency and the inhouse writer. There are great, affordable freelance writers out there. But often, the problem with freelancers is that it’s hard to find the great ones. And when you stumble out of the blocks trying out a few here and there, you can sour on the freelance idea quickly.
Also, the management and HR of freelance talent can get onerous, especially if you’re a small company. Even agencies can run into freelancers working on a project-by-project basis.
Delegate within your office.
Find the English major in your office and making them write could work…or backfire in a big way.
This is the least ideal option, but an option nonetheless. Just sayin’.
Use a content writing company (like BlogMutt).
Shameless plug, but here’s why a content writing companies like BlogMutt make a lot of sense businesses and agencies. Often, they’re cheaper than an agency, more prolific than an inhouse writer, more efficient than a freelancer, and more specialized than someone getting assigned content in the office (when it’s not their specialty).
There are downsides to using BlogMutt or another content writing company. There is no quick, easy, cheap fix in content marketing. The question is, what investment of time or expense are you willing to do to make it work? If you use a content writing company, the onus for putting the writers in a position to succeed is on you. We’re a “garbage in, garbage out” service. Customers unwilling to invest the time to help our writers and use our content against a strategy have a hard time discerning value.
BUT, for those that invest the time and prep our writers appropriately…the payoff is immense.
Question 2: What’s the best way for creating blog content when using other writers?
1. Strategy: Start by asking why. “Why do I want a content marketing strategy?” and build from there. Marketers become enamored with starting the next thing without first asking, “Why are we doing this?” Sure, there are thousands upon thousands of pieces about content strategy.
Keep it simple, first. Worry about the other stuff later.
2. Support: Support your writers (this should be a bumper sticker). Give your writer nothing to work with, get nothing to work with. It’s that simple. You’re the subject matter expert.
Writers are the ones to bring your expertise to light in a readable way. When you provide more information and direction, you’ll get more out of your writer.
Question 3: What blogging tips should businesses consider when outsourcing blog writing?
- Don’t outsource until you have a strategy or editorial calendar in place.
- Have a budget; commit to it.
- Understand the long game of content marketing.
- Experiment and test content lengths, CTAs, headlines, etc.
- If you’re just starting out in content marketing, start small and get early wins.
- Repurpose your content across other channels: For example, take a blog post and turn it into an infographic.
Question 4: Outsource vs. inhouse — what’s better?
Consult the first two bullet points in question 3, above. Determining your strategy and budget will inform your answer.
Question 5: If I’m outsourcing my blog writing, where should I spend my extra time?
Answer: blog promotion.
If you want to get into content marketing, work on the marketing. Let someone else handle the content. Agencies can also assist in the marketing of your content, but that’s a major component of doing successful content.
Grow your presence on social. Contribute to guest posts. Find content partners to share insight and information.
Question 6: Do many other companies outsource blogging?
There’s no shame in outsourcing your content or blogging. Small businesses and major companies who see the value and scale of outsourcing do it. No matter a company’s size, scaling to meet the content needs within an organization is difficult and expensive.
The internet and digital age has created an economy of businesses that specialize for specific needs. The content industry is no different.
Question 7: What types of outsource writing services exist?
You can work with one service to handle all of your content needs. Or, you can work with services that specialize in specific niches. There are writing services that specialize by industry: financial, IT, media, communications, real estate, etc. There are also services that just offer social media content and monitoring.
And there are some services that just do a specific type of content online, like blogging.
If there is a specific need you have, ask us. If we can’t help you, we can definitely point you in the right direction.
Question 8: How much does it cost for outsourcing content creation?
We’d recommend starting with a budget before asking this question. But typically, outsourcing content creation can begin at $89/month and go up to thousands of dollars per month. It’s all contingent on need and scope of work.
Question 9: What if you didn’t answer MY question?
Those are typical outsourcing questions that we get all the time. The outsourcing economy is here. Companies and agencies are beginning to see the value and scale outsourcing provides.
But, if you don’t see your question here and want to discuss your outsourcing needs, feel free to ask us any other questions you have.
What You Need To Know About Binary Options Outside the U.S
What Do You Need To Know About Binary Options Outside the U.S?
Binary options let traders profit from price fluctuations in multiple global markets, but it’s important to understand the risks and rewards of these controversial and often-misunderstood financial instruments. Binary options bear little resemblance to traditional options, featuring different payouts, fees, and risks, as well as a unique liquidity structure and investment process.
Binary options traded outside the U.S. are also structured differently than those available on U.S. exchanges. They offer a viable alternative when speculating or hedging but only if the trader fully understands the two potential and opposing outcomes.
The Financial Industry Regulatory Authority (FINRA) summed up regulator skepticism about these exotic instruments, advising investors “to be particularly wary of non-U.S. companies that offer binary options trading platforms. These include trading applications with names that often imply an easy path to riches.”
- Binary options have a clear expiration date, time, and strike price.
- Traders profit from price fluctuations in multiple global markets using binary options, though those traded outside the U.S. are structured differently than those available on U.S. exchanges.
- Non-U.S. binary options typically have a fixed payout and risk, and are offered by individual brokers rather than directly on an exchange.
- While typical high-low binary options are the most common type of binary option, international brokers typically offer several other types of binaries as well.
Binary options outside the U.S. are an alternative for speculating or hedging but come with advantages and disadvantages. The positives include a known risk and reward, no commissions, innumerable strike prices, and expiry dates. Negatives include non-ownership of the traded asset, little regulatory oversight, and a winning payout that is usually less than the loss on losing trades.
Understanding Binary Options Outside the U.S
What Are Binary Options?
Binary options are deceptively simple to understand, making them a popular choice for low-skilled traders. The most commonly traded instrument is a high-low or fixed-return option that provides access to stocks, indices, commodities, and foreign exchange.
These options have a clearly stated expiration date, time, and strike price. If a trader wagers correctly on the market’s direction and price at the time of expiration, they are paid a fixed return regardless of how much the instrument has moved since the transaction, while an incorrect wager loses the original investment.
The binary options trader buys a call when bullish on a stock, index, commodity, or currency pair, or a put on those instruments when bearish. For a call to make money, the market must trade above the strike price at the expiration time. For a put to make money, the market must trade below the strike price at the expiration time.
The broker discloses the strike price, expiration date, payout, and risk when the trade is first established. For most high-low binary options traded outside the U.S., the strike price is the current price or rate of the underlying financial product. Therefore, the trader is wagering whether the price on the expiration date will be higher or lower than the current price.
Binary Options Outside the US
Foreign Versus U.S. Binary Options
Non-U.S. binary options typically have a fixed payout and risk and are offered by individual brokers rather than directly on an exchange. These brokers profit from the difference between what they pay out on winning trades and what they collect on losing trades. While there are exceptions, these instruments are supposed to be held until expiration in an “all-or-nothing” payout structure.
Foreign brokers are not legally allowed to solicit U.S. residents unless registered with a U.S. regulatory body such as the Securities and Exchange Commission (SEC) or Commodities Futures Trading Commission (CFTC).
The Chicago Board Options Exchange (CBOE) began listing binary options for U.S. residents in 2008. The SEC regulates the CBOE, which offers investors increased protection compared to over-the-counter markets. Chicago-based Nadex also runs a binary options exchange for U.S. residents, subject to oversight by the CFTC.
These options can be traded at any time, with the rate fluctuating between one and 100, based on the current probability of the position finishing in or out of the money. There is full transparency at all times and the trader can take the profit or loss they see on their screen prior to expiration.
They can also enter as the rate fluctuates, taking advantage of varying risk-to-reward scenarios, or hold until expiration and close the position with the maximum gain or loss documented at the time of entry. Each trade requires a willing buyer and seller because U.S. binary options trade through an exchange, which makes money through a fee that matches counter-parties.
High-Low Binary Option Example
Your analysis indicates the Standard & Poor’s 500 index will rally for the rest of the trading day and you to buy an index call option. It’s currently trading at 1,800 so you’re wagering the index’s price at expiration will be above that number. Since binary options are available for many time frames—from minutes to months away—you choose an expiration time or date that supports your analysis.
You choose an option that expires in 30 minutes, paying out 70% plus your original stake if the S&P 500 is above 1,800 at that time or you lose the entire stake if the S&P 500 is below 1,800. Minimum and maximum investments vary from broker to broker.
Say you invest $100 in the call that expires in 30 minutes. The S&P 500 price at expiration determines whether you make or lose money. The price at expiration may be the last quoted price, or the (bid + ask)/2. Each binary options broker outlines their own expiration price rules.
In this case, assume the last quote on the S&P 500 before expiration was 1,802. Therefore, you make a $70 profit (or 70% of $100) and maintain your original $100 investment. If the price finished below 1,800, you would lose your original $100 investment.
If the price expires exactly on the strike price, it is common for the trader to receive her/his money back with no profit or loss, although brokers may have different rules. The profit and/or original investment is automatically added to the trader’s account when the position is closed.
Other Types of Binary Options
The example above is for a typical high-low binary option—the most common type of binary option—outside the U.S. International brokers will typically offer several other types of binaries as well.
These include “one-touch” options, where the traded instrument needs to touch the strike price just once before expiration to make money. There is a target above and below the current price, so traders can pick which target they believe will be hit before the expiration date/time.
Meanwhile, a “range” binary option allows traders to select a price range the asset will trade within until expiration. A payout is received if price stays within the range, while the investment is lost if it exits the range.
As competition in the binary options space heats up, brokers are offering additional products that boast 50% to 500% payouts. While product structures and requirements may change, the risk and reward is always known at the trade’s outset, allowing the trader to potentially make more on a position than they lose. Of course, an option offering a 500% payout will be structured in such a way that the probability of winning the payout is very low.
Unlike their U.S. counterparts, some foreign brokers allow traders to exit positions before expiration, but most do not. Exiting a trade before expiration typically results in a lower payout (specified by broker) or small loss, but the trader won’t lose their entire investment.
The Upside and Downside
Risk and reward are known in advance, offering a major advantage. There are only two outcomes: win a fixed amount or lose a fixed amount, and there are generally no commissions or fees. They’re simple to use and there’s only one decision to make: Is the underlying asset going up or down?
In addition, there are also no liquidity concerns because the trader doesn’t own the underlying asset and brokers can offer innumerable strike prices and expiration times/dates, which is an attractive feature. The trader can also access multiple asset classes anytime a market is open somewhere in the world.
On the downside, the reward is always less than the risk when playing high-low binary options. As a result, the trader must be right a high percentage of the time to cover inevitable losses.
While payout and risk fluctuate from broker to broker and instrument to instrument, one thing remains constant: losing trades cost the trader more than they can make on winning trades. Other types of binary options may provide payouts where the reward is potentially greater than the risk but the percentage of winning trades will be lower.
9 Frequently Asked Questions About Short Selling
Short-selling, or “shorting a stock,” is an advanced trading strategy that involves potentially unlimited risks. But traders who know what to look for can still use it to their advantage. Here, we’ll take a look at the basics of short selling , when you might consider it and nine frequently asked questions.
2. What is short selling?
Short selling is the sale of borrowed stock. Generally, traders sell short when they expect a stock’s price to decline. This is also called a “directional short.” People also sell short to facilitate hedging and arbitrage, but we’ll focus on directional shorts.
To start a short sale, you must have a margin account with a brokerage firm, which allows you to borrow stocks from either Schwab’s own inventory or from an outside custodian bank or broker-dealer , using your own eligible securities as collateral. Then, you sell the borrowed security, which leaves a negative share balance that is then maintained in your margin account as a “short position.” To close the short position , you must buy back the security. If the price drops, you can buy back the stock at the lower price and make a profit on the difference. However, if the price of the stock rises, you might have to buy back the security at a higher price for a loss.
Here are two examples of how profit or loss is calculated on a directional short sale. (Trade commissions, margin interest, and fees are not included in these calculations, but can affect final outcomes and should be considered.)
- Short 100 shares XYZ @ $20, total proceeds = $2,000
- Stock price drops to $15, client buys back the 100 shares XYZ @ $15, total cost $1,500
- Total profit = $2,000 – $1,500 = $500
The maximum loss on a short is unlimited : The short seller’s losses accumulate as the price goes up, and the stock price could theoretically increase infinitely.
- Short 100 shares of XYZ at $20: total proceeds = $2,000
- Stock price increases and remains at $30 until expiration date
- Client buys back the 100 shares of XYZ at $30: total cost = $3,000
- Total loss: $2,000 – $3,000 = -$1000
2. What does it mean if a stock is hard-to-borrow (HTB)?
- Easy-to-borrow (ETB) means that there’s a supply of a stock and generally would be available for short selling.
- Hard-to-borrow (HTB) means that there’s limited supply of a stock for short selling. In this case, you’ll have to pay a daily stock borrow fee, which changes based on a stock’s price and its availability.
3. How does a short sale work?
Let’s take a look at how a short sale of an ETB stock might work, keeping in mind that the borrowed stocks are made available from other Schwab customers or from outside sources.
Short selling in practice – Source: Schwab Center for Financial Research. These examples are hypothetical and do not account for dividend and interest payments, taxes, trade commissions or other fees or expenses that could reduce returns or increase losses.
- Long holder, Mr. Armstrong, believes the XYZ stock will increase over time and buys 300 shares of XYZ in his margin account. He receives a dividend payment on the stock.
- Short seller, Ms. Bourne believes the price of XYZ stock will soon decrease and enters an order to sell short 100 shares XYZ.
- Schwab borrows the 100 shares from Mr. Armstrong to lend to Ms. Bourne to sell.
- When the short sale is executed, Mr. Armstrong’s account and positions remain unchanged, but Ms. Bourne’s account will show a short position (-100 shares XYZ).
4. What happens if dividends are paid on borrowed shares?
Now, let’s assume that a dividend is paid on XYZ while the shares are being borrowed. Schwab will typically allocate a substitute dividend payment to the lender, Mr. Armstrong, in lieu of the dividend, and will debit the substitute dividend payment amount from the borrower, Ms. Bourne. The payment in lieu of the dividend may not be entitled to the same tax treatment as may have been applied to the receipt of the actual dividend.
However, Schwab typically makes efforts to compensate lenders for any differential tax treatment. Schwab clients may refer to their Schwab Account Agreement for more information on payments in lieu of dividends.
5. What happens if the lender wants to sell the shares that have been borrowed?
Next, let’s assume Mr. Armstrong wants to sell all 300 shares of XYZ.
- Mr. Armstrong simply places the sell order for 300 XYZ as usual. He is free to do this as he is the rightful owner of the shares.
- If there are additional shares available for shorting, Ms. Bourne may continue holding her short position using those additional shares. If these shares are ETB, Ms. Bourne would continue to short without any additional fees. However, if the shares are HTB, she would pay a fee to continue to borrow the shares.
- If the sale results in unavailable shares, Ms. Bourne’s short position will be closed out via a purchase at the current market price by Schwab, at Ms. Bourne’s expense, and potentially without notice. This enables proper delivery of the shares to Mr. Armstrong.
6. How do you know if there are shares available to borrow at Schwab?
When you are placing an order on Schwab.com, you will see a note on the order entry verification screen if the security is hard-to-borrow.
Source: All-In-One Trade Ticket, Schwab.com
StreetSmart Edge ® has a HTB indicator to let clients know that shares of a security are HTB for shorting. However, the absence of the indicator for a particular security does not guarantee that it will be available to sell short. If you have further questions about the availability of a particular security to sell short, please contact a Schwab representative.
In StreetSmart Edge ® , the indicator a ppears in the top right of the All in One Trade Tool.
1. Open StreetSmart Edge.
2. Click Launch Tools.
3. Select All in One Trade Tool.
Source: StreetSmart Edge®
4. Click the Stock/ETF tab.
5. Navigate to the top-right of the stock trade ticket.
You will see the words “Hard to Borrow.”
HTB indicator in StreetSmart Edge
Source: All in One Trade Tool, StreetSmart Edge.
For more information on securing shares to borrow, clients can contact the Securities Lending Department at 800-355-2448.
7. When do you have to buy the shares back?
There are no regulations that limit the amount of time a short position can stay open; however, the following conditions may cause a short position to be closed out (bought back):
- Shares are no longer available to borrow: When a client borrows shares to short sell, the margin lender retains the right to recall the securities at any time and without notice. If the shares are recalled by the margin lender, Schwab will try to re-borrow the securities on the client’s behalf. However, if shares cannot be obtained, Schwab is then forced to close out (buy back) the short position at the current market price, at the borrowing client’s expense, and potentially without notice.
- There is an existing margin call on the account: Just as ‘long positions’ in accounts with margin calls are subject to liquidation at the discretion of the Margin Department (the department in a brokerage firm that monitors customers’ margin accounts), a short position is also subject to possible closure when a margin call exists.
8. What are the margin requirements?
Short selling is subject to the initial minimum $2,000 account equity requirement for using margin , which is an account-level requirement. See Schwab’s initial and margin maintenance requirements on short sales .
Schwab’s initial and margin maintenance requirements on short sales
|Security price||Schwab initial requirements (prior to settlement)|| Schwab maintenance requirements
(subsequent to settlement)
|> $16.67 per share||50% of proceeds||30% of market value|
|$5 – $16.67 per share||50% of proceeds||$5 per share|
|$2.50 – $4.99 per share||50% of proceeds||100% of market value|
|50% of proceeds||$2.50 per share|
Source: Charles Schwab & Co., Inc.
Here’s a basic example of an initial margin requirement: If you sold short 1000 shares of XYZ stock at $20, for a value of $20,000, you would need to have $10,000 in your margin account—that is, 50% of the value.
- Number of shares: 1000
- Price: $20
- Value: $20,000
- Margin %: 50%
- Requirement: $10,000
It’s important to note that this table is just a guideline. The above figures assume a margin equity requirement of 30%; however, if the margin maintenance requirement on a stock is higher, then the maintenance requirement on the short will be higher. It’s also important to note that these requirements can change at any time and without prior notice from Schwab.
9. How can you try to manage risk on a short sale?
The potentially unlimited loss associated with a short sale makes it important to proactively manage the risk.
A buy stop order can help manage loss on a short sale, in case the stock price goes up.
For a short sale, buy-stop orders trigger a market order to buy back when the stock trades at, or above, the designated stop price.
An alternative order to consider is the trailing buy-stop. With this order, the trader can specify a percentage or dollar amount from the securities low trade price to cover their short trade. If the ask price only moves upward (against you), the trailing stop will track the ask price until it reaches or surpasses your entered trailing amount. However, unlike the standard buy-stop order, when the price moves downward (in your favor), a trailing buy-stop will readjust the trigger price from the new low trade price.
Once you submit a trailing buy-stop order, it remains in force until it’s triggered by a specific price change in the inside ask price. Once triggered, it becomes a market order that’s submitted for immediate execution; however , there’s no guarantee that you’ll get any specific execution price or price range. The resulting execution price may be above, at, or below the trailing stop’s trigger price itself.
Let’s take a look at an example of how these order types can help to control loss on a short sale.
Example: (Trade commissions and fees are not included in these calculations.)
Mr. Armstrong shorts 100 shares of XYZ stock at $30. Initially, the stock price moves down to $27, but then builds back up and ends the day at $33.
- If Mr. Armstrong had no exit strategy on his trade and closed the position at the end of the day, he would end the day with a loss of $3 per share ($300).
- If Mr. Armstrong had set a buy-stop on this order for $32 ($2 above sale price), the stop would have triggered when it traded at $32, and the Mr. Armstrong would incur a loss of approximately $2 per share ($200) assuming the order was filled at $32.
- If Mr. Armstrong had set a trailing buy-stop on this order for $2, the initial trigger would take place at $32. However, as the price moved downward, the trailing stop would have readjusted with each new low, settling to $2 above $27, or $29.
- As the price changed directions, the trailing buy-stop would have tracked the upward movement until $29, at which point the market order to buy would have triggered, resulting in approximately a $1 per share ($100) gain for Mr. Armstrong.
Keep in mind that there is no guarantee that a stop order will execute at or near the stop price.
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