Stock loan trading
A stock loan fee is a fee charged by a brokerage firm, to a client, for borrowing shares. A stock loan fee is charged pursuant to a Securities Lending Agreement that must be completed before the stock is borrowed by a client such as a hedge fund or retail investor.
The stock loan fee amount depends on the difficulty of borrowing a stock — the more difficult it is to borrow, the higher the fee. The borrower must also put up collateral to borrow the stock.
Acceptable collateral includes cash, Treasuries or a letter of credit from a U. If the collateral is cash, the interest paid by the stock lender may offset part of the stock loan fee. Stock is generally borrowed for the purpose of making a short sale.
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The degree of short interest therefore provides an indication of the level of the stock loan fee, since stocks with a high degree of short interest are more difficult to borrow than a stock with low short interest. For example, assume a hedge fund borrows 1 million shares of a U.
The stock loan fee on a per-day basis day year is assumed is therefore:. A stock loan fee is an often-overlooked cost associated with shorting a stock. Apart from the stock loan fee, the trader has to pay interest on the margin or cash borrowed for use as collateral against the borrowed stock, and is also obligated to make dividend payments made by the shorted stock.
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What is a 'Stock Loan Fee' A stock loan fee is a fee charged by a brokerage firm, to a client, for borrowing shares. The stock loan fee on a per-day basis day year is assumed is therefore: Content Library Articles Terms Videos Guides Slideshows FAQs Calculators Chart Advisor Stock Analysis Stock Simulator FXtrader Exam Prep Quizzer Net Worth Calculator.
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