Is the cost to borrow shares if i wanted to short a regular old SP500 component fairly standard? Is it all broker specific? What is the typical cost to borrow something like CAT or TGT, to throw out completely random names?
Typically <1% per year to borrow those.
So if i had a hot take that Caterpillar was overvalued last April, and I had decided to short it when it was $105, it would have cost me roughly $1/share + the cost of any interim dividends to have kept that short position open through today? I know this is pretty basic stuff and I’m familiar with the mechanics, just not the specifics.
Depending on the broker, that is correct. As you said, you do have to pay the dividends too. Securities lending is highly profitable but brokers generally don’t try to bend you over on the rate for sp 500 stocks.
Bromion, are these rates available to retail investors, say, on the more sophisticated platforms like IB ?
The cost to borrow is usually the market rate specific to that stock less the federal funds rates. Essentially it’s supply versus demand set by the highest bidder.
I have an account with IB and i’ve seen actively shorted issues have rebates of 100% of the value of the position! These stocks are considered hard to borrow and owners of the stock will “auction” off the ability for traders to borrow their shares. If you have a normal brokerage account you’ll find you can not short these stocks, even though others are able to.
Yes, but many brokers don’t let retail investors short at all. IB is the best for it.
on IB when you borrow/lend shares, you can’t confirm any type of term, correct? So the term is always at the very least 1 day (the day you borrow or lend), but afterwards you can close out the agreement any time you would like. Your counterparty has the same option. Is there any way to set a term date for the contract?
- There is a price minimum of 200k for borrow transactions of easy-to-borrow shares.
for retail, no. Most institutions can term depending on the stock. Hard to borrow is hit or miss depending on the prime and client.
Yeah, on Friday during the final chaotic hour I went short on a “hard to borrow” name…for the first time I got the IB message “trying to locate shares” (guess everyone had the same idea), but 30 seconds later they found the shares and filled my order. Would have been impossible on Schwab.
What ? It’s a minimum of 200k per short on IB ???