A borrow fee is the cost of borrowing securities for a short sale, especially when shares are hard to borrow.
A borrow fee is the cost a short seller pays, directly or indirectly, to borrow securities needed for a short position. It is often quoted as an annualized stock-loan or hard-to-borrow rate and can change with supply, demand, and security availability.
Borrow fees matter because they are a carrying cost of short selling. A short thesis can be directionally right and still lose money if borrow costs, dividends, recalls, and price movement overwhelm the trade.
A common rough estimate is:
1borrow cost = market value borrowed x annualized borrow rate x days borrowed / day-count basis
If a trader borrows $20,000 of stock at a 6% annualized borrow rate for 30 days, a simple 360-day estimate is $100. Actual charges depend on broker terms, rate changes, dividend treatment, and the exact borrow arrangement.
| Cost | Applies to | Why it exists |
|---|---|---|
| Borrow fee | Securities borrowed for a short sale | Compensates for locating and lending securities |
| Margin interest | Cash borrowed from a broker | Finances a margin debit balance |
| Dividend or distribution charge | Short seller when the issuer pays a distribution | Compensates the lender or buyer for economic entitlement |
| Close-out or replacement cost | Failed or recalled borrow | Resolves a borrow shortage or settlement issue |