How a two-leg trade is placed at a US broker

This is a description of the mechanics, not a recommendation to trade. Brokers differ in their rules, fees and order types; their own documentation is the authority.

The account

Selling a stock short means selling shares that are borrowed, so it requires a margin account approved for short selling. Under the Federal Reserve's Regulation T, a US margin account generally needs equity of at least 50% of a new short position's value, and brokers set their own maintenance requirements on top. If an account falls below them, the broker can close positions without asking.

Borrowing the short leg

• Before a short sale the broker must be able to locate shares to borrow. Widely held large-company stocks are usually easy to borrow.
• Borrowed shares carry a borrow fee, charged for as long as the position is open — usually small for large companies, but it can rise.
• A lender can recall borrowed shares, which can force the short position to close.
• The short seller owes any dividends paid on the borrowed shares.

Sizing the two legs

The two legs are not usually equal in dollars. The model's hedge ratio says how much of the second stock balances one unit of the first, so the share counts differ. PairsCopilot shows each setup at a fixed $1,000 reference leg so setups can be compared; scaling is proportional — both legs scale together, or the position stops being balanced.

Placing the legs together

The two orders are placed as close together as possible. If one leg fills and the other does not, the account holds an ordinary one-directional position — this is called legging risk. Some brokers offer multi-leg or paired orders; otherwise traders use limit prices close to the market and check both fills immediately.

Prices move after the close. The setup is computed at closing prices, so the gap may already be different by the time orders are placed; PairsCopilot's live-price check exists for exactly that reason.

Closing

A pairs position is closed by reversing both legs together: selling the long stock and buying back the short one ("buy to cover"), which returns the borrowed shares. Closing one leg alone would again leave a one-directional position.