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What is the $2.50 rule?"

 
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emma



Joined: 19 Nov 2014
Posts: 60

PostPosted: Thu Aug 20, 2015 11:10 am    Post subject: What is the $2.50 rule?" Reply with quote

After my post about brokers that I use and recommend, a few people were asking what exactly the $2.50 rule is. Fair enough; let me clear that up.

The $2.50 rule applies when you are short selling stocks that are priced under $2.50. Basically, the rule states that for every share you are short, you still need to put up $2.50 of capital, even if the stock is priced lower.

Why does this matter? Let's say you have a $1000 account and you want to short sell pennystocks. If the stock is under $2.50, you will not be able to take a full $1000 position, even if you wanted to. Here's the math:

You have a $1000 account;

For ANY stock under $2.50, you must still put up $2.50 in capital.

Divide $1000 by $2.50, and the MOST shares you can short is 400 shares, REGARDLESS of price.

This can be a huge frustration for small accounts. You might have the perfect supernova chart and the stock is trading at $1, but you can't short 1000 shares. You can only short 400 because of the $2.50 rule.
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emma



Joined: 19 Nov 2014
Posts: 60

PostPosted: Thu Aug 20, 2015 11:11 am    Post subject: Reply with quote

Great post. I bookmarked your site and I am going to be reading your post on the daily basis. You have great information. Thank you for posting great post with us!!
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