Short selling a stock has become an increasingly popular way for traders to profit off of negative market action. But sometimes short selling comes at a steep price.
In addition to the risk of making a losing trade, short sellers often must pay extremely high fees to borrow the stocks they need to complete a short sale. Those fees can eat into profits quickly and create tremendous pressure on short sellers to close out their positions.
The daily borrow fee is calculated as the borrow rate times the market value of the security divided by 365 days in the year.
S3 Partners analyst Ihor Dusaniwsky recently said stock lending is a market based on simply supply-demand economics, meaning stocks that are in high demand among short sellers can see borrow fees spike quickly. High borrow fees can also carry some useful information for contrarian traders as well…CLICK for complete article
