Short Rate & Stock Borrow Fee Calculator
How to Calculate Short Rate Fees
When trading stocks, the "Short Rate" (also known as the stock borrow fee or hard-to-borrow rate) is the annualized interest rate charged by a brokerage to a trader for borrowing shares to sell short. This cost is crucial for short sellers to calculate, as high short rates can significantly eat into potential profits, especially for hard-to-borrow stocks.
The Short Rate Formula
The calculation for the cost of borrowing stock is derived from the total value of the position and the annualized rate, typically applied on a daily basis (using a 360-day year standard in finance). The formula is:
Daily Fee = (Market Value × Annual Short Rate) / 360
Where:
- Market Value: The current stock price multiplied by the number of shares shorted.
- Annual Short Rate: The percentage fee quoted by the broker (e.g., 0.25% for easy-to-borrow, up to 100%+ for hard-to-borrow).
Example Calculation
Imagine you want to short 1,000 shares of a company trading at $50 per share. The broker quotes an Annual Short Rate of 8.5%.
- Position Value: 1,000 shares × $50 = $50,000
- Daily Calculation: ($50,000 × 0.085) / 360
- Daily Cost: $11.81 per day
If you hold this position for 10 days, your total cost to borrow would be approximately $118.10. This calculator helps you determine these exact costs and the price drop required just to break even on the fees.
Why Short Rates Fluctuate
Short rates are determined by supply and demand. If a stock is widely held by institutions and easy to locate, the rate is low (often near the General Collateral rate). However, for stocks with high short interest or low float, the supply of lendable shares decreases, causing the short rate to spike. Traders must monitor this rate daily, as it is variable and can change while the position is open.