How does the spread on an orderbook affect shorting?
A bid is an offer to buy something on an order book, so for example you may post an offer to buy one share, at $5. An ask is an offer to sell something on an order book, at a set price. For example you may post an offer to sell shares at $6. A trade happens when there are bids/asks that overlap each other, or are at the same price, so there is always a spread of at least one of the smallest currency unit the exchange allows. Betting that the price of an asset will go down, traditionally by borrowing some of that asset and then selling it, hoping to buy it back at a lower price and pocket the difference (minus interest). So, let's say as per your example you borrow 100 shares of company 'X', expecting the price of them to go down. You take your shares to the market and sell them - you make a market sell order (a market 'ask'). This matches against a bid and you receive a price of $5 per share. Now, let's pretend that you change your mind and you think the price is going to go up, you instantly regret your decision. In order to pay back the shares, you now need to buy back your shares as $6 - which is the price off the ask offers on the order book. Because of this spread, you have lost money. You sold at a low price and bought at a high price, meaning it costs you more money to repay your borrowed shares. So, when you are shorting you need the spread to be as tight as possible. It this a real situation or is it a made up example? Because for a stock that has a last traded priced of $5 or $6 and volume traded over $4M (i.e. it seems to be quite liquid), it is hardly likely that the difference from bid to ask would be as large as $1 (maybe for a stock that has volume of 4 to 5 thousand, but not for one having volume of 4 to 5 million). In regards to your question, if you were short selling the order would go in exactly the same as if you were selling a stock you owned. So your order would be on the ask side and would need to be matched up with a price on the bid side for there to be a trade.
Question: are you saying that buying a call is better than buying a vertical spread regardless of fees, or only because of fees? If the former, you are saying that buying a call and selling a vertical spread will always be profitable, which effectively means you're going short an out-of-the-money call. While that's a good strategy, it doesn't guarantee profit, and will lose money exactly when the vertical spread is a better strategy than buying the call outright. The most direct answer to your question in comments: if the stock goes down, you lose less money with the vertical spread than you do with a simple call. In return for this lower risk, you give up gains if the stock goes above the higher calls strike price. Heartworm in mammals, caused by a hazardous micro organism named Dirofilaria immitis, was once a southern United States disease but has now spread to different parts of the country. This endemic can affect cats, dogs, and ferrets. Since it is a bit different for each species, the heartworm medicines for each mammal differ as well. theoretically this concept makes sense.  However as recent numbers have shown ( I do not have the source handy but one can simply obtain this information via the ECB's website) banks have tapped this LTRO, something in the likes of 500 billion or so, and instead of buying Sovereign debt, they instead prefer to park this money with the ECB, paying something like 25 bps on deposits.  so instead of using this LTRO money to buy Sovereigns or perhaps lend to other banks, easing the strain on LIBOR, banks have just parked this money back with the ECB, as the ECB has seen its deposits once again reach record amounts (again, see the ECB website for proof).  Just this speaks volumes about the LTRO carry trade and how it is evidently not going to achieve its long term goal of bringing spreads down in Europe.  Perhaps in the short run yes, but if you look at the fundamentals (EURUSD, the EUR Basis Swap and the OIS-LIBOR Spread) they show how the situation in Europe is far from over, and the LTRO is nothing close to a long term and stable solution You don't necessarily have to use a LEAP to do a spread. Since you are doing a covered call, I'm assuming that you would be comfortable with having that call exercised and you are bullish on the stock. So doing a spread trade with the short call option would essentially be capping your maximum profit without risking the obligation to sell the stock below market value.  An example for the payoff from a bull call spread: long lower strike call, short higher (covered) strike call can be found here Yes, just set aside the amount of money. If you buy a cfd long in a stock for a 1000$, set aside 1000$. If you buy a cfd short, set aside the same amount and include a stoploss at the value at which the money is depleted. In this case however, you can stil lose more, because of opening gaps. By doing this, you replicate the stock return, apart from the charged interest rate. "Summary: The phrase ""short sale circuit breaker"" rule normally refers to the SEC's recent adoption of a new version of the uptick rule. The new uptick rule triggers a ban on short selling when the stock drops a certain amount. The SEC defines the process like this: The ""circuit breaker"" is triggered for a security any day the price declines by 10% or more from the prior day's closing price The alternative uptick rule, which permits short selling only ""if the price of the security is above the current national best bid.""1 The rule applies ""to short sale orders in that security for the remainder of the day as well as the following day."" In general, the rule applies to all equities. 1) The national best bid is usually the bid price that you see in Level 1 data.   Example: If a stock closed at $100/share on Monday, the ""circuit breaker"" would be triggered if the stock traded at or below $90/share during Tuesday's session. Short-selling would be disallowed until the start of trading on Thursday unless the short-sell price is above the national best bid, i.e. on an uptick. Purpose: The stated purpose of this rule is promote market stability and preserve investor confidence by restricting potentially abusive short selling from driving prices farther downward during periods of increased volatility and downward price pressure. Whether or not such rules succeed is a matter of some debate, and the SEC removed similar uptick rules in 2006 because ""they modestly reduce liquidity and do not appear necessary to prevent manipulation."" Exceptions: There are a few exceptions to the uptick rule that mainly revolve around when the short sell order was placed or when the securities will be delivered." I don't think that the trading volume would impact a broker's ability to find shares to short.  You might think that a lot more people are trying to short a stock during regular trading hours than in the pre-market, and that's probably true.  But what's also true is that a lot more people are covering their shorts during regular trading hours than in the pre-market.  For stocks that have difficulty in finding shares to short, any time someone covers a short is an opportunity for you to enter a short. If you want to short a stock and your broker is rejecting your order because they can't find shares to short, then I would recommend that you continue placing that order throughout the day.  You might get lucky and submit one of those orders right after someone else has covered their short and before anyone else can enter a short.  I have had success doing this in the past. Your original example is a little confusing because just shorting for 1k and buying for 1k is 100% leveraged or an infinitive leverage ratio. (and not allowed) Brokerage houses would require you to invest some capital in the trade.  One example might be requiring you to hold $100 in the brokerage.  This is where the 10:1 ratio comes from. (1000/10) Thus a return of 4.5% on the 1000k bond and no movement on the short position would net you $45 and voila a 45% return on your $100 investment. A 40 to 1 leverage ratio would mean that you would only have to invest $25 to make this trade.  Something that no individual investor are allowed to do, but for some reason some financial firms have been able to.