Direct answer: Before shorting, check the borrow fee. High fees (20%+ annually) can destroy your profit on anything but a quick daytrade. Know if the stock is Easy to Borrow (ETB) or Hard to Borrow (HTB), factor the cost into your risk/reward, and decide if the trade is still worth it. Some shorts aren't worth the cost.
Educational only, not financial advice.
You short a stock. It drops like you expected. You cover for what should be a $200 profit. But your account shows +$140. Where'd the other $60 go? Borrow fees. And you didn't check them before you clicked.
Reality check: Borrow fees are real costs that come directly out of your profit. On hard-to-borrow stocks, they can turn a winning trade into a losing one—especially if you hold overnight.
What Borrow Fees Actually Are
When you short a stock, you're borrowing shares from someone else. That borrowing has a cost:
- Stock loan fee (borrow fee): Annual percentage rate charged for borrowing shares
- Calculated daily: Even though it's quoted annually, you pay a fraction each day
- Deducted from your account: Usually overnight for positions held past settlement
Example:
- Borrow fee: 30% annually
- Position: $10,000 worth of stock
- Daily cost: ($10,000 × 30%) / 360 = $8.33 per day
Hold that position for a week and you've paid $58+ just for the privilege of being short.
ETB vs. HTB Stocks
Your broker classifies stocks by borrow availability:
| Classification | Meaning | Typical Fee Range |
|---|---|---|
| ETB (Easy to Borrow) | Shares readily available | 0.25% - 2% annually |
| HTB (Hard to Borrow) | Limited shares available | 5% - 100%+ annually |
| Not Available | No shares to borrow | Cannot short |
What makes a stock HTB:
- High short interest (many traders already short)
- Low float (few shares available overall)
- Recent IPO (limited lending inventory)
- Heavy demand (everyone wants to short it)
The Borrow Cost Process
Step 1: Check Availability Before You Plan
Before even analyzing the trade:
- Look up the stock on your broker's platform
- Check if it's ETB, HTB, or unavailable
- If HTB, find the borrow rate
Where to find this:
- Interactive Brokers: "Shortable Shares" column
- TD Ameritrade/Schwab: Short availability in stock details
- Most platforms: Contact locate desk or check trade ticket
If you can't find the rate, assume it's high.
Step 2: Calculate the Cost Impact
Convert the annual rate to your expected holding period:
| Holding Period | Fee Calculation |
|---|---|
| Same day (no overnight) | Often $0 or minimal |
| 1 day | (Position × Annual Rate) / 360 |
| 1 week | Daily cost × 5 trading days |
| 1 month | Daily cost × ~21 trading days |
Example with numbers:
- Position: $5,000
- Borrow rate: 50% annually
- Daily cost: ($5,000 × 50%) / 360 = $6.94
- 5-day hold: $34.70
Step 3: Factor Into Your R
Borrow cost is part of your trade cost. Include it in risk/reward:
Without borrow cost:
- Risk: $100
- Target profit: $300
- R:R = 3:1
With borrow cost ($35 for expected hold):
- Risk: $100
- Target profit: $300 - $35 = $265
- Adjusted R:R = 2.65:1
If borrow cost drops your R:R below your minimum, skip the trade.
Step 4: Decide If It's Worth It
Short anyway if:
- It's a day trade (minimal cost)
- Expected profit far exceeds borrow cost
- Setup quality is exceptional
Skip the trade if:
- Borrow cost eats >10% of expected profit
- You might hold multiple days
- R:R drops below your minimum after costs
Log your borrow costs in your trading journal.
Locate Fees: The Other Cost
Some brokers charge a separate locate fee for HTB stocks:
- Per-share fee: $0.01 - $1.00+ per share
- Flat fee: Fixed amount to reserve shares
- Pre-borrow fee: Pay upfront to guarantee availability
Example:
- Locate fee: $0.05/share
- Position: 500 shares
- Locate cost: $25 (on top of borrow fee)
Check your broker's policy. Some include locates in the borrow rate; others charge separately.
Review your costs with trade review to understand their impact.
Checklist
Pre-Short Cost Check:
✓ I checked if stock is ETB or HTB
✓ I found the borrow rate (annual %)
✓ I calculated daily cost for my position size
✓ I estimated total cost for expected holding period
✓ I factored cost into my profit target
✓ My adjusted R:R still meets my minimum
✓ I checked for any locate fees
✓ Trade is still worth it after all costs
When Borrow Costs Kill the Trade
Skip the short if:
| Scenario | Example | Action |
|---|---|---|
| Borrow rate >50% and planning overnight hold | 75% rate, $5k position, 3-day hold = $31+ | Skip or daytrade only |
| Cost >15% of expected profit | $50 cost on $300 target = 17% | Skip |
| Can't find borrow rate | Unknown cost | Assume worst, likely skip |
| Rate increasing rapidly | Was 20%, now 60% | Increased demand, skip |
How Rates Change
Borrow rates aren't fixed:
- Increase when: More shorts pile in, shares get recalled, demand spikes
- Decrease when: Shorts cover, more shares become available
- Can change daily: Check before each trade, not just once
If you're holding a short overnight, check the rate the next morning. It might have changed.
Common Mistakes
- Not checking rate before entry — Surprise fees kill profits
- Assuming all stocks cost the same to short — ETB vs. HTB is massive difference
- Holding HTB stocks too long — Daily fees compound fast
- Ignoring locate fees — These add up, especially on small positions
- Not factoring cost into R:R — You're lying to yourself about the trade's value
Do This Next
- Open your broker's platform
- Look up 5 stocks you've shorted recently
- Check the borrow rate for each
- Calculate what the cost would be for a 3-day hold
- On your next short, run the full cost checklist
Use TraderNSYT to track borrow costs on every short and review their impact on your P&L. See Short Selling Blueprint for foundational rules.
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