Personal Finance & Money Asked by femto on March 9, 2021
According to, (https://www.investopedia.com/terms/s/stock-loan-fee.asp) , as more shares are shorted, the total supply of lendable shares is decreased since fewer shares are available to borrow.
But the same shares that have been shorted can apparently be borrowed & shorted again according to (Can a single share of stock be shorted multiple times?) — which seems to contradict the shrinking supply reasoning. Isn’t this a theoretically infinite supply since there is apparently no limit?
How is the borrow rate then being influenced by the supply of lendable shares being decreased as short interest rises if there’s nothing to prevent already shorted shares from being lent over & over again?
When shares are loaned for shorting, some of the buyers have cash accounts. AFAIK, shares cannot be loaned from a cash account though someone posted here this week that they can if one signs a lending authorization for. If that is true, I doubt that many owners of cash accounts are doing so since they tend include a lot of less sophisticated investors/traders (they don't short since a margin account is require to short) and/or they don't know about this special dispensation. Either way, cash account ownership reduces the number of loanable shares thereby decreasing the total supply of lendable shares.
Borrow rates fluctuate based on the security’s demand and the available inventory. But bear in mind that as the short interest increases, brokers may raise the borrow rate because they perceive higher risk.
Answered by Bob Baerker on March 9, 2021
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