Can You Short Stocks on Wealthsimple Trade? [The Facts]

Some links in this post are from our partners. If a purchase or signup is made through our partners, we receive compensation for the referral. 

Despite what we’ve seen in the markets over the past couple of years, shorting stocks is not just a strategy that hedge funds use against meme stocks. Shorting is actually a viable investment strategy that any investor can use if their trading platform allows it.

Wealthsimple, a popular Canadian investment and financial services platform amongst younger investors, publicly launched a trading platform in 2019 – but does it allow for short selling?

Unfortunately as of now, you cannot short stocks on Wealthsimple’s trading platform. However, the Wealthsimple platform does offer plenty of other investing capabilities and features to help beginner investors better manage their money. 

While shorting stocks has become popular on the stock market, it’s mostly for all the wrong reasons. And while I’m not you, and you’re not me, I personally stay away from these types of investment strategies anyway.

So as a Wealthsimple user myself, this “downfall” of Wealthsimple’s trading platform really has no impact on me, and it really shouldn’t for any beginner investors.

Try Wealthsimple Trade Today ($25 Bonus)

Can You Short Stocks on Wealthsimple Trade?

Wealthsimple Trade is a popular investing platform based in Canada. It is very popular with younger investors as it is a digital brokerage based online, with simple to understand ways of managing your finances.

It is actually one of the few brokerages that are available to Canadian investors that is not operated by one of the big banks.

For Canadian investors who are looking to short a particular stock or index, Wealthsimple Trade isn’t for you. Currently the platform only offers the ability to buy and sell stocks, ETFs, or crypto – but there is no ability to trade options or short stocks on Wealthsimple Trade, and as of now it does not appear that the platform will be adding these features anytime soon. 

How do I know this? Well I actually reached out to Wealthsimple directly and asked them. Here is what they had to say.

The fact that you cannot even trade options on Wealthsimple Trade means that you wouldn’t be able to buy a put option on a stock either. While a put options contract isn’t the same as short selling a stock, it does operate in a similar manner in that it is betting on the price of the stock to fall lower.

So the bottom line is that you cannot short stocks on Wealthsimple.

Related Financial Geek Article: Is Wealthsimple Trade Safe? [What Beginners Should Know]

What Exactly is Shorting a Stock?

Short sellers often get a bad name in the investing world. It is likely because most investors are long-term investors, and benefit when the price of the stocks they own go up. A short seller is the complete opposite, and is on the hunt for stocks which they believe will go down in price.

There are plenty of reasons for a stock’s price to fall including being over valued, long-term instability, or upcoming macroeconomic factors.

When you short a stock, you are selling borrowed shares of that stock at the current market price. If the stock price falls, you can buy the shares back at a discounted price. The difference in the two transactions is your profit from the trade. Shorting a stock takes place in a margin account as you need to borrow the shares from the brokerage to begin the short sale. 

It is one of the more advanced trading strategies and one of the riskiest as well.

Which is the exact reason why Wealthsimple really has no reason to introduce this capability into their Trade platform. Wealthsimple Trade is best suited for beginner investors who are looking to start with their investing journey – not for those investors looking to make massively risky bets on shorting stocks.

But why is shorting a stock risky? If the stock price falls, then everything works out. But if the stock price rises, then the potential losses can be devastating. Theoretically, the losses on this trade are infinite as long as the price of the stock continues to rise. 

What Does it Mean to Close a Short Position?

You have likely heard of hedge funds or other short sellers scrambling to close out their short position in a stock. But what does that mean? Since the shares you short are borrowed, you eventually have to return them to your brokerage. 

Closing out your short position means you need to buy actual shares of the same stock and return those to the brokerage. This will effectively balance out the number of shares, although you might be doing this at a loss. The alternative is to risk the price of the stock continuing to rise which would only increase the net loss. 

Again guys, shorting a stock can be very risky for this exact reason. You have an unlimited potential for loss.

What is a Short Squeeze?

If you were following the markets in 2021, you are likely familiar with the term short squeeze. Let’s just say if you are a short seller, the last thing you want to happen is for your position to get squeezed.

So what exactly happens in a short squeeze?

A short squeeze happens when a stock or an asset has a large group of short sellers in short positions. If the price of the stock suddenly and unexpectedly goes up, then all of these short sellers will move to cover their position at the same time. Since you cover a short position by buying shares, the price of the stock will continue higher as more shares are bought. 

Related Financial Geek Article: Can You Day Trade with Wealthsimple? (Pros and Cons)

Which Canadian Brokerages Allow Short Selling?

If you are a Canadian investor and are determined to short sell some stocks, then there are options available for you. In fact, most other brokerages available in Canada offer the ability to short sell.

Most of the big banks offer the ability to short sell, including TD Direct Investing, RBC Direct Investing, BMO Investorline, and Scotiabank iTrade.

The key with short selling on any of these platforms is you need to first apply to have access to a margin account. Each platform will have its own set of conditions you must meet to qualify, which might include things like trading experience and cash account balance. 

Conclusion: Can You Short Stocks on Wealthsimple?

The answer is definitely no. Wealthsimple is as its name suggests: is a simplified way for younger Canadians to start investing. Short selling is quite an advanced strategy that most beginners shouldn’t attempt.

If short selling is something you’d like to learn, you will first have to apply to a brokerage for a margin account and the ability to short sell stocks. Most of the big banks and other brokerages that operate in Canada will offer this option once you have been qualified to do so.

But again, as I’ve mentioned throughout this article, shorting stocks is not for beginners which is likely why Wealthsimple doesn’t offer it.

Wealthsimple’s Trade platform is more meant for beginner, or even experienced investors who aren’t looking to do anything fancy outside of buying and sell equities, and maybe even some crypto. One great feature that Wealthsimple Trade does offer however, that a lot of other brokerages don’t, is the ability to buy fractional shares.

To learn about Wealthsimple Trade, check out my article here. If you’d rather just get started now, you can do so here and you’ll get $25 with your sign-up. Not bad hey!

Anyways folks, we will leave it there. Thanks for reading and come back whenever you’d like. We’ll be here!

Geek, out.