What is the borrow cost?

When opening a short position on a stock (going short), the borrow cost refers to the expenses associated with borrowing the shares from a broker. This cost is incurred because, as a short seller, you are essentially borrowing shares that you do not own in order to sell them in the market, with the intention of returning them to the lender at a later time when you close the position.

Borrow costs can vary depending on several factors:

• Short Interest: If a stock has a high demand for short selling, with many investors looking to borrow shares, the borrow costs tend to be higher. Conversely, if the short interest is low, the borrow costs may be lower.
• Availability: The availability of shares to borrow can impact the borrow costs. If a stock is in high demand for shorting and there is limited supply, the borrow costs may increase.
• Liquidity: The liquidity of a stock can affect the borrow costs. Less liquid stocks may have higher borrow costs since locating shares for borrowing may be more difficult.

It's important to note that borrow costs, and the ability to hold a short position, can change over time, and even on a daily basis for stocks with very limited availability in the lending market.

Borrow costs are charged as an annualised interest rate based on the value of the borrowed shares. These costs are included in the overnight fee generated on your short position on an ongoing basis until it is closed.

When shorting stocks that have limited availability for borrowing in the market, you can expect borrow costs to be significantly higher. Extreme cases of stocks that are hard to borrow can charge as high as 50% to 100% annualized, or even beyond 100% in specific cases, changing dynamically in response to market conditions on a daily basis.