A borrow fee is charged for each short position held in your account. The fee is calculated by applying a borrow rate to the market value of the position for the duration it remains open. The minimum annual borrow rate is 2.5% and in extremely rare cases it can be as high as its market value. Typically, Virtual Brokers borrow rates range between 2.5% and 100.0%. Market Value is determined using the greater of $3 per share or share price and is subject to a minimum value of $25,000 per short position (denominated in the currency of the account in which the position is held). Some factors that can influence the availability of stock are high demand, small float and increased volatility of the particular security.
Example 1: You borrow 1,000 shares of ABC stock valued at $45 per share.
Borrow fee (based on a borrow rate of 2.5%) = $45,000 x 2.5%/365 = $3.08 per day.
Example 2: You borrow 1,000 shares of XYZ stock valued at $15 per share.
Borrow fee (based on a borrow rate of 2.5%) = $25,000 x 2.5%/365 = $1.71 per day*.
*Short positions are subject to a minimum daily value per short position.
Short selling carries risk, so it may not be appropriate for all investors and traders, among them 1) There is the theoretical possibility of unlimited loss if a shorted stock starts a dramatic rise in price. 2) There is no maximum loss that a short seller can incur because there is no limit to how high the price of a stock can advance. 3) The short seller is responsible for maintaining adequate margin in the short account as the price of the shorted security fluctuates. 4) The short seller is liable for any dividends or other benefits paid during the accounts are short. 5) Buy-in requirements become effective if adequate margin cannot be maintained by the client and/or if the originally borrowed stock is called by its owner and no other stock can be borrowed to replace it. Click here to see Virtual Brokers' detailed Relationship Disclosure.