Short Sale - Hard to Borrow charge

Posted by LegendOfLeverage on October 26, 2010 (02:08AM)

I've gotten hit up with two short sale - hard to borrow charges. One for 16% annualy, and the other for 23%. Was not having any before the move to Penson... is anybody else going through this? Really sucks needing to close these positions.

Posted by buynhold on October 26, 2010 (10:50AM)

I just got hit with one on FAZ--I have been short this position for quite a while, but just barely got notified of a charge--24% I believe.  Puts a crimp in the ability to make money off of it.  I may need to start looking for a second brokerage to alleviate the problem.

Posted by LegendOfLeverage on October 27, 2010 (12:05PM)

I'm possibly thinking the same thing, glad you responded. I hope this is not going to be a trend. I thought the move to Penson was going to make shorting easier.

Posted by OldFart on October 27, 2010 (12:10PM)

LofL - shorting is easier, in my experience. More expensive as well :-(

Posted by buynhold on October 27, 2010 (04:22PM)

OldFart said: LofL - shorting is easier, in my experience. More expensive as well :-(

 I totally agree.  I haven't gotten the "can't short today, try again tomorrow" message after the move to Penson.  But, when it costs 23% or more annually to short a stock, it's kinda hard to make money off of it.

Posted by OldFart on October 27, 2010 (04:37PM)

B&H - totally agree! It is a crazy setup by TK, I really can not understand their thinking - short a stock, we will charge you commissions and then when we feel like it we will tell you how much it is going to cost you. And if you do not like it, no problem - cover the short so that we can charge you another commission
Not to mention I am never just short, there are options around and if the shares are covered need to sell the options - more commissions and bid/ask spreads

Posted by Kenvestor on October 27, 2010 (06:05PM)

I haven't shorted since the Penson move so I'm glad you brought that to my attention. Appreciate it TK.

Posted by stock_man on October 27, 2010 (08:51PM)

I had shorted Credit Suisse(CS) few days back. Hard to borrow charge for this trade was 4% annual.

Posted by David Dusseault on November 15, 2010 (04:48PM)

All,

I wanted to provide an update for this one. As you know these fees are charged by our clearing firm. They are passed on by TradeKing and also every other firm that Penson clears for, and also other brokerage houses.

We agree with you, these fees have to be considered prior to entering a trade. The fees do impact potential returns. 

Here is some additional information from our hard to borow FAQ...

Hard-to-borrow fees, also known as negative rebate or negative borrow, are charged by our clearing firm when stock that is sold short is in low supply or has a small float. The annualized hard-to-borrow rate can range from 0% to above 100% of the principal value of the trade. The fee is based on the trade value, the number of days the position is held short and the daily hard-to-borrow rate for the stock. The hard-to-borrow fee will be assessed daily starting on the settlement date of the trade (T+3) and charged to your account monthly or on the settlement date of the closing transaction. Short stock positions opened and closed intraday (not held overnight) will not be subject to a fee.

In general, stocks carrying a negative rate indication above 3% will not be eligible for short selling without prior written customer authorization. However, if you do enter a short position and the negative rate exceeds 3% you will be responsible for all charges.

IMPORTANT NOTE: Negative rates and zero rates on existing positions may fluctuate. All rate increases will be passed on to you without prior notice. If a negative rate exceeds 3% TradeKing reserves the right to close the position on your behalf without prior notice.

Please call 877-495-5464 with any questions regarding hard to borrow fees.


Thanks,
Dave Dusseault
TradeKing

Posted by OldFart on November 15, 2010 (05:06PM)

David, does it mean a customer needs to send you a letter to be able to short the shares with negative rate > 3%?. Or is e-mail enough? And how it is going to work, how does one recognize these stocks?

Posted by David Dusseault on November 15, 2010 (05:40PM)

OF,

You would submit the trade and if the rate is over 3% it would be rejected, and we would contact you, make you aware of the fee, and then ask for a signed form in order to approve the trade.

We would also contact you if the rate went over 3% if you were already long the position, and would ask for the form at that time as well.

The next step in terms of our development would be displaying the fees prior to order entry. We're looking at a few options. We just have to make sure the data we're working off of is real time enough for that to work. Often times we have start of day short sale fee data, and it can change intraday but requires a phone call to get the info.

Thanks,
Dave

Posted by TheSnowMan on November 15, 2010 (05:57PM)


OldFart said: David, does it mean a customer needs to send you a letter to be able to short the shares with negative rate > 3%?. Or is e-mail enough? And how it is going to work, how does one recognize these stocks?

 this is the part I love the most:

The annualized hard-to-borrow rate can range from 0% to above 100% of the principal value


I love how TK can change the rate daily without any notice.  If you are going to charge these fees then there needs to be a hard to borrow list.  It is amazing that they can get the fee structure set up yet not the hard to borrow list. 

Poorly played TK, poorly played...

Posted by David Dusseault on November 15, 2010 (06:49PM)

Snowman,

Sorry if I was not clear. The fees are based off a hard to borrow list we get from Penson. We do not charge the fees or mark up the fees.

My point in the earlier post is that the fees can change intraday which is why they or the hard to borrow list are not posted online right now. We're working on that.
And yes, they can even change while you are short the position. If that happens, we notify you same day so you can avoid them.

It's possible something can be easy to borrow today, and be hard to borrow tomorrow. However if that were to happen we would let you know.

I think the important thing to take from this is that we're not charging these fees and often times neither is Penson. If its truly a stock that's hard to borrow they have to hit the street in order to get a locate and permission to borrow. And often times its other firms on the street charging the fees to Penson.

The important thing to remember here is we're upfront about the fees, and not trying to hide anything. We encourage you to contact us and ask questions about these fees and if they will apply to you.

These fees are recently new to short selling in general, but something to take into consideration. As I mentioned before, we don't make money on these fees or mark them up. We're only profitable if you are trading, and we'd rather not see or deal with these fees.


Dave

Posted by made to trade on April 25, 2012 (02:19PM)


David Dusseault said: Snowman,

Sorry if I was not clear. The fees are based off a hard to borrow list we get from Penson. We do not charge the fees or mark up the fees.

My point in the earlier post is that the fees can change intraday which is why they or the hard to borrow list are not posted online right now. We're working on that.
And yes, they can even change while you are short the position. If that happens, we notify you same day so you can avoid them.

It's possible something can be easy to borrow today, and be hard to borrow tomorrow. However if that were to happen we would let you know.

I think the important thing to take from this is that we're not charging these fees and often times neither is Penson. If its truly a stock that's hard to borrow they have to hit the street in order to get a locate and permission to borrow. And often times its other firms on the street charging the fees to Penson.

The important thing to remember here is we're upfront about the fees, and not trying to hide anything. We encourage you to contact us and ask questions about these fees and if they will apply to you.

These fees are recently new to short selling in general, but something to take into consideration. As I mentioned before, we don't make money on these fees or mark them up. We're only profitable if you are trading, and we'd rather not see or deal with these fees.


Dave

 I just want to get an update on this since the faq: https://www.tradeking.com/faq/hardtoborrowfee doesn't tell much.   I'm thinking of opening a margin account here.

-Before I trade, is there a way to know if the stock is 'hard to borrow'?
-Now let's say I short a stock and it is not hard to borrow.  But somehwere down the line, it becomes hard to borrow.  What is the time frame between being notified that it's 'hard to borrow' and actually being charged the fee?  Is there a window of opportunity to close out of the position before you get hit with the fee?

Thanks

Posted by SunnyOne on April 25, 2012 (02:23PM)

Where would one see a hard-to-borrow notification?

Posted by spshapiro on April 25, 2012 (03:41PM)

Sunny, shorting is not the equivalent in risk as buying stock. When you buy stock the worst that can happen is you lose your total investment. When you short, your losses can be indefinitely large (the stock could go to the moon.) Although you seem to have some fascination for risky schemes, you may save yourself some pain by learning a little more before jumping in.  In general the ‘riskier’ the stock, the more it is the type that might go to the moon overnight, the harder it is to borrow the shares. There is something called the law of Supply and Demand that is applicable here. You will NEVER feel that you got a fair shake when they call you to tell you that the fee to borrow has been raised, come up with more money or you will be liquidated of the short position. Shorting of these issues is for those who are of deep pockets as well as strong dispositions.

If it is of any measure for you, I have never shorted a stock. Couldn’t imagine doing so, but I have on occasion, bought a put.    

Posted by NASDAQsavages on April 26, 2012 (07:00AM)


Has anyone seen Penson clearing firms stock lately? I didnt know they were a public company until today.


ticker symbol: PNSN

52 week high: 6.23

6/25/12 closing price: .47

Posted by SunnyOne on April 26, 2012 (09:34AM)

Thanks shap, I was just wondering where one would see the hard-to-borrow warning.  I've never shorted a stock and won't any time soon. 

Posted by BAKES THE GREAT on April 26, 2012 (10:12PM)

spshapiro said:

Sunny, shorting is not the equivalent in risk as buying stock. When you buy stock the worst that can happen is you lose your total investment. When you short, your losses can be indefinitely large (the stock could go to the moon.) Although you seem to have some fascination for risky schemes, you may save yourself some pain by learning a little more before jumping in.  In general the ‘riskier’ the stock, the more it is the type that might go to the moon overnight, the harder it is to borrow the shares. There is something called the law of Supply and Demand that is applicable here. You will NEVER feel that you got a fair shake when they call you to tell you that the fee to borrow has been raised, come up with more money or you will be liquidated of the short position. Shorting of these issues is for those who are of deep pockets as well as strong dispositions.

If it is of any measure for you, I have never shorted a stock. Couldn’t imagine doing so, but I have on occasion, bought a put.    

 I hate when people say the ill-concieved and stupid hypothetical "your losses can be infinite when shorting a stock." First of all it isn't even true.  The most theoretically a stock could go up is equal to whatever the price would be if every dollar and debt was invested in that stock... something that would never happen.   Hell even AAPL can't get up to the level where it has captured 100% of the s&p500... yet.  Second margin requirements will initiate a forced covering of the stock if your losses are too great.  Sure it is possible to exceed this on a large gap-up of a stock, but this gap-up is never "infinite."  In fact the number of 100% and higher in one day gainers is extremely rare.  If you exclude IPOs and extremely small market cap stocks (typically penny stocks), then this number is even smaller.  While I do not know the actual data I can almost guarantee the number of companies that are 100% losers (aka go bankrupt or get kicked off trading) far exceed the number that gain 100% in one day.

My point is that presenting shorting as extremely risky as compared to going long is very misleading information.   Which stocks your pick to short OR go long is where the risk lies. 

Posted by spshapiro on April 26, 2012 (10:20PM)

Bakes, if you are going to quote me, would you at least read the quote, "your losses can be indefinitely large"  I wrote it that way with your specific objection in mind. Clearly, shorting is more risky than going long, or even buying a put. That isn't to say that you can't make money doing it, but you should be aware of the risk.

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