How stock locates work — easy-to-borrow vs hard-to-borrow, fees, the locate types, and buy-in risk — and what to look for in a broker built for the short side of the market.
Quick Primer: What is Short Selling?
Short selling means borrowing shares from your broker, selling them at the current price, and buying them back later ideally at a lower price to pocket the difference. Because you are selling shares you do not own, a margin account is required. Closing the position, known as "covering", means buying the shares back on the open market and returning them to your broker.
Short selling is a core part of active trading. It allows traders to profit in bear markets or during stock corrections; without it, active traders lose half of their potential market opportunities. For many, the short side can be where the cleanest setups appear, but it requires a specific inventory process before you can trade.
Most large, liquid stocks are Easy-to-Borrow (ETB), meaning your broker has plenty of shares available to short instantly. However, the high-momentum stocks that active short sellers target most, like low-float runners and parabolic small caps, fall into the Hard-to-Borrow (HTB) category.
To short an HTB name, you must secure a specific "locate" first. This means finding available shares to borrow and paying a locate fee that moves based on supply and demand. Because these volatile stocks are scarce, they are the hardest to locate and can be the most expensive to hold. Once you are in the trade, a sharp squeeze can cause severe losses, or a forced buy-in can close your position against you, no matter how right your structural thesis was.
That puts significantly more weight on your broker choice than long trading does. Surviving and thriving on the short side comes down to the specialized tools you have to find a setup, confirm a borrow, and execute before the window of opportunity closes.
At LiveStream Trading, we rate TradeZero as one of the few brokers genuinely built from the ground up for the short side.
TradeZero’s Powerful Short Selling Infrastructure
- Massive HTB Inventory: Sourced from more than 14 distinct liquidity providers to maximize your chances of finding a borrow.
- Proprietary Real-Time Locator: Access their locate system starting at 4:00 AM ET.
- Three Distinct Locate Types: Choose between Standard, Single-Use, or Pre-Borrow locates to match your trading strategy.
- Locate Credit-Back: TradeZero gives you the ability to receive credit back on your unused locates. By marking your no longer needed locates for credit, they can potentially be reapplied to another TradeZero customer, and you could recoup a part of your fee.
- Free Built-In Real Time Scanner: TradeZero’s ProScanner is a real-time U.S. equity market scanner built directly into ZeroPro and TZ1, at no extra charge. You can filter by percent change, float, price, and volume to instantly surface short-side candidates like gap-and-fade setups or overextended momentum movers. You can run preset screens or save your own unique custom parameters to deploy every session, all without paying for extra third-party software.
- Real-time Paper Trading: Test your trading strategies across TradeZero’s platforms with free real-time NASDAQ basic market data.
- Maximize capital efficiency during the trading day: 6:1 Intraday Leverage is available for TradeZero International clients, and 3:1 intraday leverage for TradeZero Canada clients.
- Sub-$1 Shorting: Ability to short sell stocks priced under $1 is available to TradeZero International clients.
TradeZero is known industry wide as a broker specializing in short selling and has been named Best Broker for Short Selling seven times: six consecutive wins at the Benzinga Global Fintech Awards (2020–2025) and the UF Awards MEA in 2026.
This guide covers exactly how TradeZero’s locate process works and where each feature fits into your daily routine. We will break down what separates ETB from HTB stocks, what a locate costs, why locate prices fluctuate, which locate type to use for specific setups, and how to actively limit your risk of a forced buy-in.
As discussed, short selling means borrowing shares from your broker, selling them at a fixed price, and buying them back later, ideally at a lower price.
The shares are borrowed from your broker, and then sold immediately, which is why a margin account is required. Closing the position, “covering”, means buying the shares back on the open market and then returning these shares to your broker.
To see how this works in practice, let’s look at a simulated example using a realistic setup:
- You borrow 100 shares of a stock and sell them immediately at $1.00 each = $100 total credit.
- The shares drop in value as anticipated, and you buy them back at $0.40 each to cover.
- Buying back 100 shares at $0.40 costs you $40.
- Your Gross Profit: $100 - $40 = $60 (minus any broker fees/interest).
While the profit potential is clear, it is also very easy to lose capital quickly when shorting stocks. If the shares you borrow go up in price instead of down, your potential losses are theoretically unlimited because there is no ceiling on how high a stock can climb.
On large-cap, highly liquid stocks, the borrow process is routine: shares are widely available, fees are minimal, and the trade execution happens smoothly.
However, on high-momentum names, like low-float runners, volatile small caps, or equities with high short interest, availability is no longer a given. In these situations, the locate process, the act of sourcing and acquiring the shares you want to short, becomes the mandatory gate you must clear before you can place your trade.
Easy-to-Borrow (ETB) vs. Hard-to-Borrow (HTB)
Each trading day, brokers receive an Easy-to-Borrow (ETB) list from their clearing firms. Stocks on this list, typically large-cap equities, high-liquidity names, and most of the S&P 500, can be shorted with no extra steps because a deep supply of borrowable shares is automatically assumed.
Anything not on that list is considered Non-Easy-to-Borrow (NETB), universally referred to by traders as Hard-to-Borrow (HTB).
Shorting an HTB stock requires a locate first. This is a formal confirmation that borrowable shares actually exist and have been safely reserved for your account. Without this step, your short order on a HTB stock cannot be processed. This is a strict regulatory mandate under the SEC’s Regulation SHO, not a broker preference.
Because the setups active short sellers look for, low-float gappers, parabolic runners, and heavy premarket momentum names, revolve almost entirely around HTB stocks, understanding the locate process is an essential skill.
What is a Short Locate?
A locate is your official permission to short a stock that isn't on the standard ETB list. To use them effectively, two foundational points matter from the outset:
- A locate is not a short sale: Sourcing a locate simply grants you the right to short the stock. You must still place a separate sell order to execute the trade.
- Locate fees are charged upon acceptance: You pay for the locate the moment you accept it, whether you end up executing the trade or not. With TradeZero’s locate sell-back system you can potentially recoup back part of the fee on unused locates.
Locate fees are quoted on a per-share basis and are affected by the real-time supply and demand of that specific stock's borrow inventory. A thin-float name experiencing heavy short interest from the trading community could cost significantly more to locate than a stock with ample available inventory. Furthermore, these fees can fluctuate throughout the trading day as market conditions change.
TradeZero’s Three Locate Types
TradeZero offers three distinct variations. Choosing the right one directly impacts both your trading flexibility and your bottom-line costs.
1. Standard Locate
The Standard Locate covers the majority of your day-to-day HTB trading needs. For standard, non-threshold securities, this locate is entirely reusable. This means you can enter and exit short positions on the exact same ticker multiple times throughout the trading day using just one single locate allocation.
2. Single-Use (SU) Locate
The Single-Use Locate is specifically engineered for Reg SHO Threshold Securities. These are stocks that have been placed under heightened regulatory scrutiny due to an unusually high volume of unsettled trades or "fails to deliver" across the broader market.
To remain fully compliant with strict SEC regulations governing these volatile plays, a Single-Use locate covers exactly one short entry and one cover. Once you exit the trade, the locate expires, and re-entering the position requires sourcing a new one.
Because TradeZero’s system streamlines this process, SU locates are typically a more cost-effective alternative to a full pre-borrow, making them the ideal choice for a single, well-planned risk layout on a heavily shorted threshold name.
3. Pre-Borrow Locate
A Pre-Borrow reserves shares in advance, rather than simply confirming availability at the exact moment of your request. This distinction is critical in two specific scenarios:
- Overnight Holds: Carrying a short position past the market close with a Pre-Borrow substantially reduces your forced buy-in risk. A standard locate offers no equivalent protection once the regular trading session ends.
- Repeated Intraday Trades: Pre-Borrows are completely reusable throughout the day. This gives you significantly more execution flexibility than a Single-Use locate when you expect to scale in and out of a position.
Because of this, Pre-Borrows can tend to be the most expensive of the three options. The premium you pay covers the security of fully reserved inventory, lower buy-in exposure, and the freedom to re-enter trades without paying for a fresh locate each time.
Credit-Back: Recovering the Cost of Unused Locates
Every short seller knows the frustration of paying for a locate that you never end up using because the setup breaks down. With TradeZero, you can mark an unused locate for credit, and list it back to the inventory pool. If another trader picks it up, you receive a full or partial rebate on the fee.
This feature applies across all three locate types with a few simple rules:
- Standard & Pre-Borrow Locates: Credit-back is available at any time, provided the shares are not currently tied to an open short position.
- Single-Use Locates: The credit applies only if the locate has not yet been used to open a trade.
While the rebate depends entirely on another trader picking up your returned shares, this is far from a token feature. If you short sell actively, this credit-back feature can benefit you with your monthly cost side.
Why Locate Quality Varies Between Brokers
Each broker draws from its own network of clearing firms, prime brokers, and third-party lenders. The breadth and depth of that specific network dictate exactly which stocks you can access and what price you will pay.
Mainstream retail brokers tend to run minimal HTB infrastructure by design because their core customer base skews long. This is where TradeZero stands out. As they have built specifically around short selling, they invest heavily in wide locate networks because their traders demand it. Their patented locate system pulls from over 14 distinct liquidity providers. In practice, names that are completely unborrowable at a mainstream broker, are frequently available and tradable here.
Know Your Cost Before You Hold
One trading habit worth sticking to is to always know your structural costs before you hold a trade overnight. TradeZero shows overnight borrow rates upfront and transparently. Before you carry a position past the closing bell, you can check the exact per-share cost and accurately model your risk.
Frequently Asked Questions: Short Selling Locates
1. Do I need a locate for every short sale?
Not for every single trade. You only need a locate when a stock is not on your broker’s Easy-to-Borrow (ETB) list. ETB stocks are large-cap, highly liquid names where a deep supply of borrowable shares is available.
Any stock omitted from that list is classified as Hard-to-Borrow (HTB) or Non-Easy-to-Borrow (NETB). Shorting these names requires a confirmed locate, before an order can be accepted. This is a strict regulatory mandate under SEC Regulation SHO to prevent naked short selling; without a locate, your broker's system will not process the order.
2. How much does a short locate cost, and what affects the price?
A short locate does not have a fixed price. The fee is quoted on a per-share basis and is driven by real-time supply and demand for that specific stock's borrow inventory.
3. Am I charged if I accept a locate but don’t place the trade?
Yes. Industry-wide, locate fees are charged the exact moment you accept and confirm them, not when you execute the trade. The fee pays for the broker to lock down and reserve those shares exclusively for your account, making them unavailable to anyone else. However, TradeZero’s unique Credit-Back feature can offset this cost. If you return an unused locate to the pool and another trader purchases it, you receive a full or partial refund.
4. What is the difference between a locate and a pre-borrow?
A standard locate confirms that borrowable shares exist at the exact moment of your request and reserves them for that single trading session. A Pre-Borrow pulls those shares ahead of time to hold them in-house for you.
5. What is a buy-in, and how do I reduce the risk of one?
A buy-in is when your broker closes your short position because it can no longer source or maintain the borrow on the shares you’ve shorted. It executes at the current market price.
Buy-ins most commonly happen in two situations: holding a short overnight on a stock whose borrow availability deteriorates, or being short a Reg SHO threshold security where settlement fails trigger close-out obligations. The most effective way to reduce the risk is a pre-borrow, which secures the shares in-house in advance so the broker has confirmed physical possession; for any short you plan to hold overnight, it’s the appropriate tool.
6. What is a Reg SHO threshold security, and why does it affect my locate?
A Reg SHO threshold security is a stock that has appeared on the SEC’s daily threshold list after recording significant fails-to-deliver, shares not delivered by the settlement date, for five consecutive trading days. Regulation SHO threshold securities carry stricter handling than ordinary hard-to-borrow stocks.
That then changes the locate rules. On a non-threshold HTB stock, one locate can cover multiple entries and exits in a day. On a threshold security, each short sale needs its own locate, one short, one cover, then a new locate for the next entry, which makes frequent trading on these names more expensive. It’s why TradeZero offers a single-use locate: a cost-efficient way to short a threshold name once without paying for a pre-borrow.
7. How early can I get a locate before the market opens?
At TradeZero, locate requests open at 4:00 AM ET — five and a half hours before the 9:30 AM regular session. This matters because premarket is often when hard-to-borrow names move most, on news, earnings reactions, or social momentum, and by the open those names may already have thinner inventory and higher fees. Securing a locate early can lock in better pricing and confirm availability before the window narrows. Most mainstream brokers don’t offer premarket locates at all; their locate desks open at or near market hours.
Risks Worth Understanding Before You Short
The locate system determines whether you can access a trade. What happens inside the trade is a separate risk profile. Before short selling becomes a regular part of your strategy, these deserve clear-eyed attention:
- Unlimited loss potential: there’s no ceiling on how high a stock can go. Losses on a short position are theoretically unlimited, unlike a long where the floor is zero.
- Short squeezes: when a heavily shorted stock rises sharply, short sellers covering can accelerate the move.
- Margin requirements: short selling requires a margin account. Fall below maintenance margin and your broker can force liquidation at the current price.
- Fee accumulation: locate fees, borrow interest, and overnight multipliers can turn a theoretically profitable trade into a loss. Model the full cost before accepting a locate.
- Forced buy-ins: your broker can close a short without notice if the borrow becomes unavailable. Pre-borrows reduce this risk but don’t eliminate it.
Short selling is a specialised discipline. The right infrastructure, broad inventory, transparent fees, flexible locate types, and a credit-back mechanism, doesn’t change the underlying risk. It gives experienced traders the tools to manage it more precisely.
If you want to experience the TradeZero locate system, scanner, and full short selling suite, it’s all at TradeZero Short Selling.
Short selling involves significant risk, including unlimited loss potential, and may not be suitable for all traders.
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Disclosure
This article is published by LiveStreamTrading.com for informational and educational purposes only. It does not constitute investment advice, a recommendation to buy or sell any security, or a solicitation to open a brokerage account.
LiveStreamTrading.com has not been paid to produce this article. However, LiveStreamTrading.com may receive compensation for each reader who opens a TradeZero account and avails of an offer referenced in this article. This referral arrangement means LiveStreamTrading.com has a financial interest in readers choosing TradeZero, and readers should take this into account when evaluating the content. The editorial views expressed in this article are those of LiveStreamTrading.com.
TradeZero is not responsible for and neither affirms nor endorses any of the views or opinions expressed in the Content. TradeZero makes no representations or warranties with respect to the accuracy of the Content or information available through any referenced or linked third party sites. The Content has been made available for informational and educational purposes only and should not be considered trading or investment advice or a recommendation as to any security. Nothing in this Content constitutes a personalized investment recommendation. Any securities discussed are referenced solely for illustrative and educational purposes.
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