Hard to borrow stocks are stocks where getting locates are difficult and sometimes impossible. This may due to extreme volatility of the stock, or just simply no available inventory of the stock due to its low float or overwhelming demand by short sellers.
What are hard-to-borrow stocks?
A hard-to-borrow stock is used to indicate what stocks are difficult to borrow for short sale transactions. If you are short selling a ''hard-to-borrow" stock, you'll have to pay a daily stock borrow fee, which changes based on the stock's price and its availability. Each stock's hard-to-borrow fee rate varies depending on the volatility and scarcity of the stock.
What is the meaning of hard to borrow list?
May 24, 2021 · Hard-to-borrow stocks are some of the most expensive to short. Again, that’s due to limited availability and higher perceived risk to brokers and traders. And the longer you hold a short position, as in multiple days, the more it will cost. Opening and closing a short position within a trading day may exempt you from hard-to-borrow fees.
What are the disadvantages of shorting hard-to-borrow stocks?
One of the major disadvantages of shorting stocks that appear on a hard-to-borrow list is the extremely high fees associated with the trade. In extreme cases, hard-to …
How to borrow a stock?
If the stock is immediately available to short (also known as “ easy-to-borrow (ETB) ”), then the order is placed as if you were selling shares normally. If shares are hard-to-borrow (HTB), the broker will need to find a way to borrow shares, and the stock is classified as “locate required.” This generally requires a request to locate shares (also referred to as a “short locate”).
What is a hard to borrow rate?
How do you know if a stock is easy to borrow?
What does hard to borrow mean on Webull?
Why would anyone let you borrow a stock?
Why does a stock become hard to borrow?
How much does it cost to borrow stock?
Can you short hard to borrow stocks on Webull?
Can you borrow off your stocks?
What happens when there is no more shares to borrow?
Does Robinhood lend your shares?
How do brokers borrow stocks?
How does an investor borrow a stock?
What Happens if the Lender Wants to Sell Borrowed Shares?
Short sellers don’t own borrowed shares. The original lender may still sell to exit the position. If that happens, the broker will contact the shor...
What Is a Hard-to-Borrow Rate?
Some stocks come with higher fees to short. Borrow fees vary depending on availability of shares and volatility. Brokers calculate the hard-to-borr...
How Much Does It Cost to Borrow Shares to Short?
Borrow fees are usually a fraction of the price. But they change daily for every stock. For hard-to-borrow stocks, fees are much higher. Short sell...
Who Pays Dividends On Borrowed Shares?
Short sellers don’t own the shares they’re trading. If companies pay dividends on borrowed shares, the broker will contact the short seller to pay...
Summary
A hard to borrow list refers to a list, i.e., an inventory record, of securities that brokerage firms are reluctant or cannot allow their clients to borrow for the purposes of short selling. Its purpose is to make transparent their list of the stocks that are “hard to borrow,” i.e., difficult to short sell.
What is Short Selling?
In the world of finance and investment, being “short,” going short, or short selling refers to the act of making a profit off of a decline in the value of an investment. It is a speculative investment strategy that involves borrowing a security that is anticipated to lose its value, i.e., experience a decline in its value in the future.
How Does the Hard-to-Borrow List Work?
Brokerage firms enjoy an abundance of options from which they can make securities available to investors for borrowing for the purpose of short selling.
Reasons for the Inability to Short Sell a Security
A security can be unavailable for short selling because of a variety of reasons, including:
What is an Easy-to-Borrow List?
An easy-to-borrow list is the direct counterpart of the hard-to-borrow list. It includes all the securities that are extremely liquid and are readily available for short selling.
Regulations Governing Hard-to-Borrow Lists
The regulations for the hard to borrow list fall under the Regulation SHO.
More Resources
CFI is the official provider of the global Capital Markets & Securities Analyst (CMSA)®#N#Program Page - CMSA Enroll in CFI's CMSA® program and become a certified Capital Markets &Securities Analyst.
What Is the Hard-to-Borrow List?
This list is a confidential — for brokers’ eyes only — catalog of restricted stocks.
Regulations
Once flagged as hard to borrow, shares become notoriously hard to find. As I noted, traders can ask brokers to locate shares. They don’t usually come cheap.
How Are Hard-to-Borrow Fees Calculated?
Brokers calculate fees using the value of the short position and the hard-to-borrow rate for that stock.
Are Options Affected?
I don’t trade options. But some top Trading Challenge traders do, like mentor Mark Croock. He applies the strategies he learned in penny stocks to options. It can potentially be another great way to grow a small account — with enough time and dedication.
Frequently Asked Questions About Hard-to-Borrow Stocks
Short sellers don’t own borrowed shares. The original lender may still sell to exit the position. If that happens, the broker will contact the short seller to liquidate their position. Filling the lender’s order is the priority since they’re the rightful owner of the shares.
The Bottom Line on Hard-to-Borrow Stocks
I don’t suggest shorting stocks. It’s too dangerous for newbies. Even professional short sellers can lose too much.
Quiet Periods
IPO underwriters are forbidden by rule from lending out shares of the IPO stock within the first 30 days of trading. That means that firms such as Goldman Sachs, Morgan Stanley, Bank of America, JPMorgan Chase, Deutsche Bank, Barclays and Credit Suisse will not be able to lend their shares of Snap for the time being.
Hard-To-Borrow List
Brokers use a “hard-to-borrow” list to keep track of which shares are difficult to find. The hard-to-borrow list is typically internal, but many firms make a related easy-to-borrow list available to their clients on a daily basis.
The Mechanics of Short Selling
Most trading platforms provide a separate button or tab labeled “Short”, “Short Sell” or “Short to Open” that allows traders to initiate a short sell order.
What Determines Whether a Stock is Easy to Borrow?
The broker’s clearing firm determines which stocks are immediately available to lend out for short sales. Most widely traded stocks (i.e. S&P 500 index stocks) are on the ETB list. However, they may occasionally end up on the “locate required” list along with less liquid stocks.
Short Squeezes and Margin Calls
If you fall under the maintenance margin, it can trigger an intraday margin call. Your broker may initiate forced liquidation to bring the account back under the maintenance margin levels.
What is a Hard-to-Borrow Fee?
A lot happens in a split second when you line up a short stock order. Our clearing firm has to locate the stock position before you're able to short it. When there is a lot of demand to short a stock, then locating shares can be challenging. As a result, our clearing firm may assess a hard-to-borrow (HTB) fee.
Where to find the history of HTB fees paid?
When an account holds a position that is subject to an HTB fee, it will display in the History tab as a debit Money Movement. HTB fees are charged daily based on settlement. The example below illustrates an HTB fee charged on an account short UNG shares. Additionally, accounts subject to HTB fees will see a pending cash entry list on the account.
How do I know if a stock is hard-to-borrow?
An underlying that is hard-to-borrow and potentially subject to an HTB fee will indicate in yellow at the top of the platform, above the name of the underlying.
Where can I see a Hard-to-Borrow Fee Rate?
If you want to short a stock and want to see if there is an HTB rate or availability, then it will display during order entry after clicking Review and Send. The HTB rate shown is an annualized rate.
Elevated Buying Power Requirements for Options Spreads
When trading any short credit spread, the typical buying power requirement is the credit received minus the spread width, multiplied by quantity.
You Want Prices to Fall
People invest in stocks with the hope of making money. Their goal is to ride the profit train on the tails of a company’s positive news and soaring profits.
Reviewing What Does Borrowing a Stock Mean?
You’ve done your research and want to take a short position. People dying typically will hurt the share price. So, you go to your broker and borrow the shares.
Why Would Someone Want to Lend or Rent Their Shares?
Money. It always boils down to money. And that’s what your broker will get. Firstly in the form of interest from lending the shares and secondly, in the way of commission paid by you to use their service.
What Happens to Me If the Lender Wants to Sell Their Stock?
As the renter or short seller, typically nothing. Typically the broker that loaned the shares out to the short seller will replace the shares from it’s existing inventory.
How to Borrow a Stock With 4 Steps to Short Sell
Contact your broker. You need to see if they have shares of the stock you want to bet against. Your broker will then find an investor who owns the shares and is willing to loan them to the brokerage firm. With, of course, a fee for the so-called “renting” of their shares. Unfortunately for you, you’ll have to foot this bill.
A Real Life Example of How to Borrow a Stock
Say company CAR; an automobile parts manufacturer is trading for $40 a share; way too high in your opinion. Plus bad news is circulating that a faulty sensor was the cause of fatal crashes on the highway.
Beware of Hidden Fees
It’s a given, in life, there are always hidden fees. Even if they say there are no hidden fees, they’re there, just hidden somewhere else.
What Is Short Selling?
- In the world of finance and investment, being “short,” going short, or short selling refers to the act of making a profit off of a decline in the value of an investment. It is a speculative investment strategy that involves borrowing a security that is anticipated to lose its value, i.e., experience a decline in its value in the future. The borrowed securities are then sold in the open market by th…
How Does The Hard-to-Borrow List Work?
- Brokerage firms enjoy an abundance of options from which they can make securities available to investors for borrowing for the purpose of short selling. When a brokerage firm comes close to running out of the aforementioned abundance of options of securities available, it notifies its clientele of the unavailability of the securities for short selling and places them on the hard-to-bo…
Reasons For The Inability to Short Sell A Security
- A security can be unavailable for short selling because of a variety of reasons, including: 1. Limited supply of the stock 2. Very high volatility 3. BullishBullish and BearishProfessionals in corporate finance regularly refer to markets as being bullish and bearish based on positive or negative price movements. A bear market is typically considere...
What Is An Easy-To-Borrow List?
- An easy-to-borrow list is the direct counterpart of the hard-to-borrow list. It includes all the securities that are extremely liquid and are readily available for short selling. While brokerage firms don’t usually make their hard-to-borrow lists readily available to their clientele as it is generally an internal list, it is not the case with easy-to-borrow lists. The easy-to-borrow lists are …
Regulations Governing Hard-to-Borrow Lists
- The regulations for the hard to borrow list fall under the Regulation SHO. The Regulation SHO is a legislation passed by the Securities and Exchange CommissionSecurities and Exchange Commission (SEC)The US Securities and Exchange Commission, or SEC, is an independent agency of the US federal government that is responsible for implementing federal securities law…
More Resources
- CFI is the official provider of the global Capital Markets & Securities Analyst (CMSA)®Program Page - CMSAEnroll in CFI's CMSA® program and become a certified Capital Markets &Securities Analyst. Advance your career with our certification programs and courses.certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career…