Simultaneous long & short

I’m trading little POS stocks that like to take off and do 700% gains in one day.

One little trick is to open a long & short position in the same security. Once the stock has its blow off top, you sell the long side and gain on the short side collapsing back down.

Is this possible with the Alpaca API?

I realize the basic problem here is that Alpaca does not offer HTB shorts, but I’m curious if

There are two issues as far as I understand.

  1. You can’t short HTB stocks
  2. You can’t open long and short position in the same security in single account. More so, you can’t open simultaneous long buy and short sell orders in the same account. If you have two accounts, may be then but 1 still stands.

Correct me if I am wrong, Thanks!

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My experience is that you are not allowed to have both a long and a short order live at the same time. I find it strange and do not know where this limitation come from:

  • Alpaca
  • The Exchange
  • The Regulator
    I believe it it Alpaca, because I can’t understand how a market maker ever could operate under this restraint. If it Alpaca, could some insider plz explain if this limitation will be removed.

Holding a long and short position is often called “shorting against the box”. Back in the day, this was used as a tax avoidance strategy. However, in 1997, congress passed the Taxpayer Relief Act which, among other things, nullified these tax advantages.

There isn’t any direct SEC or FINRA rule against holding both long and short positions. However, it’s eyed with suspicion. The current ‘conventional’ wisdom is there’s little reason for holding a long and a short position simultaneously. One could always simply hold the net difference? Furthermore, because of shorting fees, the cost would be higher than just holding the net difference. The thinking is, if one could accomplish the same ends with less cost by NOT holding both long and short then the trader must be doing something maybe less than legal. Because of this, most, if not all US brokers won’t allow a retail traders to be both long and short simultaneously. They don’t want to run the risk of being involved with any activity which even hints at being improper.

What could be improper? There are currently a number of SEC rules around short sales. One is Rule 201 (Alternative Uptick Rule). This restricts the buying short certain stocks under certain conditions. If one held an equal amount of long and short they could circumvent this rule. How? If there were a short sale restriction in place, a trader holding both long and short, could sell their long shares which would have the net effect of increasing their shorts which is not the intent of this rule. That’s just one example.

This is a restriction brokers place on retail traders but isn’t necessarily applied to Market Makers and institutional investors.

Hope that helps?

That’s super bad, I can’t believe you’re saying Alpaca does business like this.

If you’re holding dividend yielding stock in an attempt to get long-term capital gains advantage and want to hedge while there is turbulance in the market, you go ‘net zero’ (placing a short on top of your buy) to not lose your favorable tax-status and protecting you from a specific event of market turbulance.

Alpaca even advertises the ability to make “market neutral” trades so I’m getting confused by your answer.

If the price falls more than the interest charged on the short then wouldn’t it make it a worthwhile investment?

I really can’t believe you’re saying that if we wanted to do this then we would have to set up 2 accounts, even with different exchanges just to go around this. That just over-complicates things

Interactive Brokers doesn’t even allow this within the same account. So yeah, good luck.

I understand what you mean by only having 1 position (long/short, or 0) for a particular stock/ETF, but am I able to place a long order and a short order simultaneously (kind of like market-making), or is that not allowed?

Not allowed. Alpaca requires that you close out the working long order when you create a short order. It should be though I can do it with IB.

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Alright, well it’s probably worth my time to try out IBKR. The API documentation they have isn’t great but it’s not the worst. On the plus side they have options, level 2 book data, and I can code in C++. I think I’ll look into opening an account with them, that being said, are there any commissions for trading stocks/ETFs using their API? What account type would you recommend? Thanks in advance.