
You’ve probably heard the trading adage of “buy low and sell high” or, in other words, buying when stocks have fallen to a low price and selling them at a higher price. That’s not always the strategy a trader will use, though. For instance, short sellers do the exact opposite. They sell high and buy the stock back after the price drops to profit off the difference.
Traders might also use margin. Margin trading means borrowing money from the brokerage company and using that money to buy stocks. In other words, taking out a loan to buy securities and repaying the loan (usually with interest) back to the broker later.
When it comes to short selling, things can get a little complicated, especially when there’s a limited number of shares available — that’s where hard-to-borrow fees come in.
What does hard-to-borrow mean?
When you short sell a stock, you sell something you don’t own and take a negative position. However, sometimes traders hold too many shares of stock held short. In that case, brokers can put the stock on a hard-to-borrow list. This means there’s a reduced number of “shortable” shares in the market. However, when it’s actually possible, your broker will assure you that it can borrow the required shares, which is called “getting locate.”
What is a hard-to-borrow fee?
A hard-to-borrow fee is an annualized fee based on the value of a short position and the hard-to-borrow rate for that position. The fee is charged on a prorated basis depending on how many days you hold the position short.
You’ll generally see the fee assessed to your account at the end of the month or upon settlement of the closing trade. If you open and close a short stock position intraday (meaning not held overnight), you will not be subject to a hard-to-borrow fee.
This begs the question: When would you need to calculate it?
When shorting a stock, your broker will use its own inventory or borrow from the margin account of another client or even another brokerage firm. If the stock you are shorting is a popular stock to sell short and the demand has depleted the stock inventory within the firm (or firms), this is an instance that may create a “hard to borrow” situation. If a stock is determined to be hard to borrow you may be asked to pay interest and fees on the shares that you would like to sell short. The higher the demand for borrowed stock shares to sell short the higher the fees will be.
You may want to calculate this on your own, so you know exactly what you’re paying for hard-to-borrow fees. There’s a lot to take into consideration, especially since the broker must actively search for shares, and you may even see higher margin requirements and margin interest rates.
Hard-to-borrow Fee Calculation and Components
Let’s walk through an example of how the hard-to-borrow fee calculation works. But first, what’s the actual calculation?
The step-by-step hard-to-borrow fee calculation looks like this:
- (Market price of stock) x (1.02) = Per Share Collateral Amount
- Next, you take the per share collateral amount and use it in another calculation: (Per Share Collateral Amount) x (Share Quantity) = Trade Value
- Next, multiply the trade value by the annual hard-to-borrow rate: (Trade Value) x (Annual Hard-to-Borrow Rate) = Annual Hard-to-Borrow Fee
- Finally, divide the annual fee by 360 days to get the daily hard-to-borrow fee: (Annual Hard-to-Borrow Fee) / 365 = Daily Hard-to-Borrow Fee
Next, let’s look at an example.

Learn How to Calculate Hard-to-Borrow Fees
As a trader, you might be tempted to skim over details about things like hard-to-borrow fees, but it’s important to understand them because you’re the one who will be paying more. It’s almost always more costly to borrow stocks on the hard-to-borrow list compared to the easy-to-borrow list — but with information about these fees readily available, it’s worth it to learn all you can.
Learn more about margin trading and short selling at Ally Invest.
Comment on this article
Comments
math on April 3, 2018 at 9:52am
how is 11.22=12.00?
readingcomprehension on August 11, 2018 at 5:28am
(rounded up to the nearest dollar)
Locates on August 2, 2019 at 1:33pm
How do you locate shares to sell short on Ally?
Ally on August 6, 2019 at 4:39pm
Please give us a call at 1-855-880-2559 – a team member will be more than happy to discuss your options.
help on April 1, 2020 at 11:05pm
what is it divided by 360 instead of 365?
911Truther on May 10, 2020 at 1:22pm
How is the hard to borrow RATE calculated, not the fee, but the RATE? And who is getting this money?
Mohammad on August 30, 2020 at 12:39am
* The current industry convention percentage set by the securities lending market participants is subject to change. (market price of stock) x (1.02) = Per share collateral amount (rounded up to the nearest dollar)$11.00 x 1.02 = $11.22 = $12.00 So you are saying $11.22 = $12.00 ? Looks like you need to work on your math
Ricky on December 24, 2021 at 9:00am
This is good info thank u
Ricky on December 24, 2021 at 9:02am
Wait this doesn’t say how they actually come up with the fee…
Ricky on December 24, 2021 at 9:02am
Wait this doesn’t say how they actually come up with the fee…