Borrowing Fee
A borrowing fee is what a short seller pays to borrow shares, usually quoted as an annual rate and charged daily.
To sell a stock you do not own, you first have to borrow it — and borrowing is not always free. The borrowing fee is the running cost of holding a short position, and on popular shorts it can quietly eat a large part of the profit.
- Category
- Trading Basics
- Reading time
- 4 min
- Also called
- Stock borrow fee, Borrow rate, Hard-to-borrow fee
- Updated
Borrowing fees in plain words
A Short Selling sale means selling stock you do not own.1 Your broker lends you the shares, and for certain securities it can charge a stock borrow fee.2
At Schwab, for example, the fee is the end-of-day short market value times the quoted rate, divided by 360.2
The rate depends on supply and demand in the securities lending market.2
How a borrowing fee builds up
Open the short
You sell borrowed stock you do not own.1
Check whether a fee applies
For certain securities the broker can charge a borrow fee.2
Note the quoted rate
The rate varies with supply and demand for that stock.2
Calculate daily cost
Short market value × rate ÷ 360, as in Schwab's method.2
Monitor daily
The fee can change daily and applies while the short stays open.2
Check your statement
Schwab shows the monthly total on the account statement.2
Worked examples
Example 1 — Daily cost
≈ $150 a monthA hypothetical short worth $36,000 at a 5% annual borrow rate.
| Daily fee | $36,000 × 5% ÷ 360 = $5 |
| 30 days | ≈ $150 |
Using Schwab's formula — short market value × rate ÷ 360 — the position costs about $5 a day.2
Example 2 — Hard-to-borrow stock
≈ $1,800 a monthSame $36,000 short, but the hypothetical rate is 60%.
| Daily fee | $36,000 × 60% ÷ 360 = $60 |
| 30 days | ≈ $1,800 |
The rate depends on supply and demand in securities lending, so heavily shorted stocks can cost far more.2
Example 3 — Profit vs fee
Profit after fees ≈ $2,358A hypothetical short of 1,000 shares at $40 is covered at $37 after 30 days at a 20% rate (avg value about $38,500).
| Price gain | $3,000 |
| Borrow fee | ≈ $38,500 × 20% ÷ 360 × 30 ≈ $642 |
| Net | ≈ $2,358 |
If the price drops you can buy back lower and profit, but the fee accrues as long as the short is open.2
Easy-to-borrow vs hard-to-borrow
| Aspect | Easy to borrow | Hard to borrow |
|---|---|---|
| Lending supply | Plentiful | Scarce |
| Typical fee | Low or none | High and variable |
| Rate changes | Rare | Frequent |
| Risk of recall | Lower | Higher |
Why traders track borrowing fees
Trade selection
Skipping shorts where fees eat the expected edge — see Trading Fees and Commissions.
Holding period
Shortening holds on expensive borrows.
Crowding signal
Reading high fees alongside Short Interest as a sign of a crowded short.
Squeeze awareness
Recognising conditions for a Short Squeeze.
Advantages and disadvantages
Advantages
- Makes the true cost of a short visible.
- Signals how crowded a short is.
- Easy to estimate with a simple formula.
Disadvantages
- Rates can change daily without warning.
- Can turn a winning short into a loser.
- Varies by broker and is not always shown up front.
- Hard-to-borrow shares may be recalled.
Going deeper
Read as far as you need. Each level builds on the one before it.
Renting shares
Beginner
Shorting means selling stock you do not own, and brokers can charge a fee to borrow it.2
The formula
Intermediate
Schwab's daily fee is short market value × rate ÷ 360, charged while the short is open.2
Supply and demand
Advanced
The rate follows supply and demand in securities lending, so a rising price raises the short's market value and the fee with it, on top of the loss.1
Common mistakes
Ignoring the fee
Planning a short on price alone.
Assuming a fixed rate
Forgetting rates can change daily.
Holding too long
Letting fees pile up on a slow trade.
Forgetting dividends
Short sellers may also owe dividends paid while short.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Short sellers may pay to borrow shares.
- Quoted as an annual rate, charged daily.
- Rates follow lending supply and demand.
- Fees can change daily.
- Include fees in every short plan.
Frequently asked questions
Is the borrow fee the same everywhere?
Why 360 days?
Do I pay the fee if the short loses money?
Further learning
- Short Selling
How short selling works.
- Short Squeeze
What can happen to crowded shorts.
- Trading Fees and Commissions
Other costs of trading.
- Margin
The account you need to short.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Investor.gov (SEC). Short Sales (opens in a new tab) Checked .
- Charles Schwab. Pricing Guide for Advisor Services (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.