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I would like to short a particular popularly traded stock, but when I attempt to do so I keep getting this message all the time: "Order rejected: This stock is not available to borrow. If you want us to locate it for you please call our trade desk."

Why does this happen, is it because my broker isn't a very good one or is it impossible to know why without calling them?

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Maybe this would be better titled something like "Why am I told 'this stock is not available to borrow'?" – poolie Feb 6 '12 at 4:10
up vote 12 down vote accepted

In order to short a stock, you have to borrow the number of shares that you're shorting from someone else who holds the shares, so that you can deliver the shares you're shorting if it becomes necessary to do so (usually; there's also naked short selling, where you don't have to do this, but it's banned in a number of jurisdictions including the US). If a stock has poor liquidity, or is in high demand for shorting, then it may well be impossible to find anyone from whom it can be borrowed, which is what has happened in this instance.

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Another useful piece of information: you can often still bet against the stock using options. However, because the stock can't be shorted, some kinds of arbitrage that usually keep options prices sane won't be possible. This can cause mispricing: often unshortable stocks have a synthetic long that's a lot cheaper than a real one, and a synthetic short that's more expensive than a real one. (Usually if the synthetic long is mispriced, you buy it and then do a nonsynthetic short for riskless profit, fixing the mispricing. Can't do that if there are no shares to borrow.) – Havoc P Feb 4 '12 at 14:00
I noticed that in this case the options are very expensive and I would be unlikely to profit from them. – satur9nine Feb 7 '12 at 18:23

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