# Borrow Fees and Stock Loan Costs

> Short sellers pay to borrow shares. Learn how borrow fees are set, easy and hard to borrow stocks, recalls, dividend payments and how fees affect a short trade.

Source: https://learn.tradelabsai.com/orders/borrow-fees-and-stock-loan-costs/  
Track: Orders and Execution · Level: Intermediate · Updated: 2026-10-03  
Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice.  
Cite as: TradeLabs Learn, "Borrow Fees and Stock Loan Costs", https://learn.tradelabsai.com/orders/borrow-fees-and-stock-loan-costs/

To sell a stock short, you must first borrow it, and borrowing is not free. The borrow fee is an annual interest rate charged on the value of the shares you borrow, accrued daily for as long as your short position is open. For most large companies the fee is tiny. For heavily shorted or scarce stocks, it can be large enough to turn a correct bearish call into a losing trade.

## How borrow fees work

```
Daily borrow cost = Value of shorted shares × Annual borrow rate ÷ 360
```

Brokers commonly use a 360 day year for this calculation, though conventions vary. The rate can change daily as supply and demand for the shares change, and the value of the position changes with the share price.

**Example: The same trade, two stocks**
You short $10,000 of stock for 30 days.
**Easy to borrow, 0.3% a year:** cost about $10,000 × 0.003 × 30 ÷ 360 = $2.50.
**Hard to borrow, 60% a year:** cost about $10,000 × 0.60 × 30 ÷ 360 = $500.
If the stock falls 4% over the month, the first trade makes about $397.50 before other costs; the second loses about $100.

## Easy to borrow and hard to borrow

| Category | Typical annual rate | What it means |
|---|---|---|
| General collateral (easy to borrow) | Well under 1% | Plenty of shares available to lend |
| Warm | A few percent to around 10% | Demand rising, supply tighter |
| Hard to borrow | 10% to over 100% | Few shares available, heavy short demand |

Brokers label stocks as easy to borrow (ETB) or hard to borrow (HTB). For HTB stocks, you may need to request a locate before shorting, and availability can disappear without warning.

## Where the shares come from

Brokers lend shares held in margin accounts and borrow from institutional lenders such as pension funds, index funds and custodian banks, who earn income from lending. See [Securities Lending and Stock Loan](https://learn.tradelabsai.com/industry/securities-lending/). When many traders want to short a stock and few holders lend it, rates rise.

## Other costs of being short

- **Dividends:** if the company pays a dividend while you are short, you owe that amount to the lender. A stock with a 4% dividend effectively costs a short seller 4% a year in addition to borrow fees.
- **Recall risk:** the lender can recall the shares, and if your broker cannot find replacements, you may be bought in, forced to cover at the market price, often at a bad time.
- **Margin interest and collateral:** shorting requires a margin account, and losses increase margin requirements. See [Margin](https://learn.tradelabsai.com/markets/margin/).
- **Short squeezes:** when hard to borrow stocks rise, forced covering can accelerate the move. See [Short Selling](https://learn.tradelabsai.com/markets/short-selling/).

## Borrow rates as a signal

High and rising borrow rates show strong demand to short a stock. Traders watch them, along with short interest and days to cover, as signs of crowded bearish positioning and potential squeeze risk. They do not predict direction on their own: some heavily shorted companies keep falling, others squeeze sharply.

## Alternatives when borrowing is expensive

| Alternative | Trade off |
|---|---|
| Buying put options | No borrow, but you pay premium; puts on hard to borrow stocks are often expensive too |
| Inverse ETFs | Only for indexes and sectors, not single stocks |
| Single stock futures or CFDs | Availability depends on country; costs built in |
| Shorting a related stock or sector ETF | Less precise exposure |

## Frequently asked questions

### How much does it cost to short a stock?

For most large, liquid stocks, a fraction of a percent per year in borrow fees. For hard to borrow stocks, it can be tens of percent or more per year, plus any dividends paid.

### Why did my borrow fee change?

Borrow rates change with supply and demand for the shares. More short sellers or fewer lenders push the rate up.

### What happens if my shorted shares are recalled?

Your broker will try to find shares elsewhere. If it cannot, it may buy in your position, closing your short at the market price.

## Sources

- U.S. Securities and Exchange Commission, [Short sale](https://www.investor.gov/introduction-investing/investing-basics/glossary/short-sale)
- Wikipedia, [Securities lending](https://en.wikipedia.org/wiki/Securities_lending)

## Continue learning

- Next lesson: [Financing and Overnight Costs](https://learn.tradelabsai.com/orders/financing-and-overnight-costs/)
- Previous lesson: [Market Data Fees](https://learn.tradelabsai.com/orders/market-data-fees/)
- Related: [Market Data Fees](https://learn.tradelabsai.com/orders/market-data-fees/): Real-time quotes and order book data often cost extra. Learn why exchanges charge for data, professional vs non-professional status and what data you actually need.
- Related: [Short Selling](https://learn.tradelabsai.com/markets/short-selling/): Short selling means selling a borrowed asset to profit if its price falls. Learn how shorting works, borrow costs, short squeezes and why the risk is so high.
- Related: [Securities Lending and Stock Loan](https://learn.tradelabsai.com/industry/securities-lending/): Securities lending lets short sellers borrow shares from owners for a fee. Learn how stock loans work, collateral, borrow fees, recalls, risks and who benefits.
- Related: [Transaction Costs](https://learn.tradelabsai.com/orders/transaction-costs/): Transaction costs include commissions, spreads, slippage, market impact and missed trades. Learn each part, how to estimate it and why it decides profits.
- Related: [Margin](https://learn.tradelabsai.com/markets/margin/): Margin is the deposit you put up to borrow money or open leveraged positions. Learn initial and maintenance margin, margin calls, interest and how to avoid them.
- Related: [All-In Trading Cost](https://learn.tradelabsai.com/orders/all-in-trading-cost/): Your all-in trading cost combines commissions, fees, spreads, slippage, financing and fixed costs. Learn to calculate cost per trade, per unit of risk and per year.