Borrow costs on the short side

Every prior track sold short by pressing the other button. Equities is different: selling something first requires having it, so the short side runs on borrowed shares - and borrowed anything has a landlord.

The mechanics, briefly

A short sale delivers shares the seller does not own, so shares are borrowed - located, lent against collateral, and charged for at an annualised rate. On liquid large-caps the rate is trivial: general collateral, a fraction of a percent. On names where many want the same short - after bad news, in crowded trades - the rate goes 'special': multiple percent, occasionally tens of percent annualised. A CFD short outsources the mechanics but not the bill: the borrow cost passes through in the financing line, and hard-to-borrow names carry it visibly.

What the short side pays that the long never does

• The borrow fee: a running cost the long side simply does not have, scaling with exactly the crowdedness that made the short attractive - the market charging rent on popular opinions.
• The recall: lenders can call shares back, forcing a close at the lender's moment - a risk without a long-side twin, sharpest where borrow is tightest.
• The dividend: a short position over an ex-date owes the dividend to the lender - lesson 7's subject, priced into every short held across one.

The reading before the trade

Borrow rate and availability are checkable before entry - brokers publish indicative rates per name - and the standing habit follows the whole platform's pattern: the fee belongs in the idea's cost line before the idea is judged. A short thesis paying 20% annualised borrow needs the stock to fall 20% a year to break even on the borrow alone; plenty of correct short ideas are uneconomic at their borrow, and finding out before entry is the entire point of this module.