Some of the best opportunities in the market are from the short side, and traders need to be able to quickly borrow the widest array of stocks to take advantage of those opportunities. Great Point not only clears at Wedbush, which boasts one of the largest available stock loan lists on the street, we employ third-party vendors to cover any gaps in that list. We deploy all of that directly in the trading platform, so you have access to all our stock loan services at the touch of a button.
What are stock loan services?
To sell a stock short, you have to first borrow it from someone that owns it. Generally your clearing firm handles this for you. They have large inventories of stock from their customer base, plus relationships with other firms that agree to share inventory with each other. For most stocks, this is sufficient, and is usually a free service the clearing firm provides for intraday locates. Some stocks have a low float or a large short position, making them more difficult to borrow. These are called Hard To Borrow stocks, and you need a good Stock Loan Service that can track down those stocks and make them available. This service is invaluable to active traders, as some of the best short trades can happen in these stocks. When news comes out in these types of stocks, having a resourceful Stock Loan Service means the difference between participating in the trade and sitting on the sidelines.
What are the costs for stock loan services?
Most active traders are just trading intraday and going home flat. In this case, the easier stocks provided by the clearing firm carry no extra fee for borrowing. For Hard To Borrow stocks that require the use of a third party Stock Loan Service, the charge is a function of supply and demand. Most will cost under a penny per share for the day, but particularly difficult to find stocks can have annual interest rates of 50%-100%, which translates to $0.07-$0.15 per share on a $50 stock. Of course, the opportunity in those stocks is usually well worth the cost. If you hold short positions overnight, there is a daily interest charge assessed on the value of the stock loan position that is similar to that intraday locate fee.
How difficult is it to borrow stock?
In Hard To Borrow stocks, it is a relationship business that involves calling around to track down blocks of stock that holders are willing to loan out. Behind the scenes this can be a tedious process, but we have streamlined it to make it easy for a trader to focus on trading. Costs to locate the stock are right in the software platform, so you can quickly make your decision on whether the trading opportunity is worth it. If you decide to borrow the stock, just hit a button and the software takes care of checking inventory, locating the stock, and releasing it for you to sell short, all instantaneously. Even if the stock isn’t currently available, that same key sends a message to our Stock Loan team to start tracking down more inventory for you.