The Risks of Shorting Series, Part II: Borrow Fees 

If an investor were to make a list assessing the pros and cons of shorting a position, as discussed in The Risks of Shorting Series Part I their top concern would likely be an increase in the price. But there are other factors that traders should be cognizant of, such as borrow fees. 

Shorting a stock requires a broker to borrow the shares. With this service comes a cost to the short seller called a borrow fee. The fees will range depending on supply, demand, and other factors which will be discussed in later articles. Depending on a broker’s inventory, stocks can be classified as “easy-to-borrow” or “hard-to-borrow.” Easy-to-borrow stocks are readily available to short as the broker has a large supply of long shares relative to demand from short sellers to borrow them. The inverse is true for hard-to-borrows, where lendable inventory is limited and demand meets or exceeds supply.  

If a stock is considered hard-to-borrow, then a higher fee will be assessed to the short seller as compensation to the lender for providing highly-demanded shares. For example, assume that a trader is looking to short Beyond Meat, Inc. (NASDAQ:BYND). BYND is a popular short as demonstrated by its utilization of nearly 100%. As a result, lenders will charge a higher borrow fee to the short seller. As of this writing, IBKR customers will pay a 54% borrow fee for shorting BYND. The opposite can be said of “General Collateral” stock such as Apple Inc. (NASDAQ:AAPL), which is highly liquid and readily available in the securities lending market. IBKR has millions of shares available for shorting because AAPL is a popular long position among lenders. This leads to a low borrow fee. Supply and demand is the leading factor for lenders when determining the borrow fee for a stock. 

Another factor is volatility. Some stocks will experience extreme price movements over the course of the trading day which can lead to large profits or losses. Stocks with higher volatility will command higher borrow fees. Investors seeking a big pay day in a small period of time will have to compensate the lender for the opportunity. 

Take SharpLink Gaming, Inc. (NASDAQ:SBET) as an example. In May of 2025, the share price jumped from a $3-handle to $124. The borrow fee rate reached 1,000%. Was it rational for traders who believed the price would decrease to pay that much? Absolutely. The trader’s daily borrow cost would be about 3% (1,000% / 360 days) of their position value. Shorts who entered this position believed that the price would decrease by more than 3% per day after the jump. In fact, SBET troughed in the $40’s the next day. 

Generally, borrow fee rates are not fixed and will be subject to changes intra-day. A short seller of a stock with a low borrow fee might not pay much attention to the daily cost. But a short squeeze may cause a sudden surge in the borrow fee rate to 100%. The short holder would then be liable to pay 100% as long as they hold the position, even though they opened the short when the fee rate was 1%. The borrow fee rate is an annualized percentage rate. It is charged every calendar day (not just on business days) that a trader holds a settled short position. Trade Date and Settlement Date mechanics will be discussed in a later article. 

Below is a chart of the aforementioned BYND. The red line displays the borrow fee rate over the past year and the blue line is the price. Over the course of the year, the price steadily decreased from about $7 to less than $3. However, the borrow fee became volatile during several stretches. The most significant movement was in November 2024, when the fee rate jumped from 34% to 195% during a span of three days, while the price didn’t change much. Traders should be aware of the possibility of drastic changes in borrow fee rates from day to day. 

BYND Short History (6/18/2024 – 6/16/2025) 

Source: Interactive Brokers Trader Workstation (TWS) – Fundamentals Explorer – Short Selling Tab 

A Note on Short Credit Interest: 

Short sellers should also factor short credit interest they will receive into their models. Short credit interest is paid on the cash proceeds received from selling a position short, offsetting some or all the borrow fee, and can be received by the short seller as a net credit. For example: if a trader was looking to short 500 shares of Apple Inc. (NASDAQ:AAPL) trading at $200 per share, their short balance would be $100,000. Using IBKR’s Short Sale Calculator, we can find the projected daily borrow fee and short credit proceeds for this position. With a fee rate of 0.25%, the trader would pay $0.69 per day. But the trader would also receive $2.99 in short credit interest, thereby the accruing positive daily interest of $2.30. 

IBKR clients can monitor indicative borrow fees throughout the day on IBKR’s various trading platforms. Final borrow fees assessed for the day are displayed on the Activity Statement, including the rate and total amount charged per short position.

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Originally Posted on June 18, 2025