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How much do shorts have to pay to borrow stock? How much does it cost to maintain a short position?

The following is my conjecture based on my current, limited understanding. Any corrections are very welcome.

Most companies' shares are easy to borrow, so the short-seller doesn't have to pay anything for the privilege. When shares become hard to borrow (as we'd expect to be the case with OSTK), ordinary small investors can't short them anymore, and their attempts to open such short positions will be denied (the order will fail to be submitted, or perhaps will be submitted and immediately cancelled).

However, even with hard-to-borrow stocks, I gather that brokers can still get shares to lend, but may have to pay a fee to the lenders, and would pass on the fee (plus markup) to would-be short-sellers. So if you had a large marginable long position in a hard-to-borrow stock like OSTK, perhaps your broker would offer to pay you interest (5%/yr, 20%/yr, whatever is needed) for the privilege of lending your shares, and for charging this interest rate (or higher) to the borrowers (the short sellers). So it can become very expensive to maintain short positions in hard-to-borrow stocks.

[BTW, this sometimes seems to create excessive demand for put options on the stock, which can be exploited, albeit with risk, by someone who's bullish on the stock and is willing to sell naked puts. I've seen this happen with Fairfax Financial (FFH), which has also been on the Reg SHO list on-and-off.]

Small investors don't get paid interest on their short balances, but large investors can often arrange this. As an example, I see that Interactive Brokers currently pays interest on short balances over $100K: http://www.interactivebrokers.com/en/accounts/interest.php?ib_entity=llc.
I expect this to be pretty common. Also notice the statement from the link above:
Costs for position borrowing of stocks with special considerations (for example hard to borrow instruments) will be subtracted from short credit interest.

So the cost to borrow the stock, and to maintain a short position, can be zero (for small investors borrowing easy-to-borrow stock), or can be negative (with interest collected on large-ish short balances), or can be very high (for very hard-to-borrow stocks).

ValueFocused
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