# How do the fees for shorting stocks work?

Inspired by the comments to a previous question of mine.

Waiting for the stock to drop is especially painful to “short sellers,” who pay a fee to borrow shares owned by others. The idea is to quickly sell them on a hunch they will be able to buy the same number of them later for much cheaper before having to return them to the lender. That allows short sellers to pocket the difference, minus the fee, which is usually nominal.

In DJT’s case, the fee is anything but nominal.

It was costing 565% a year at one point earlier this month, meaning short sellers had only two months before any possible profits would be eaten up in fees, even if the stock went to zero. It’s a rate so off the charts, that only three other stocks in recent memory have exceeded it, according to data from Boston University’s Karl Diether and Wharton’s Itamar Drechsler, who have studied short selling back two decades.

How do you get from 565% a year to "two months before any possible profits would be eaten up in fees"? Does 565% a year mean that if I buy the stock now and lend it out for shorting, I would earn 565% by next year? One of the comments to the previous question said "Hypothetically, if a \$60 stock dropped a dollar a day for 60 days and became worthless, the total borrow cost would be a bit less than 1/2 the gain." How does one arrive at these numbers?

Hypothetically, if a \$60 stock dropped a dollar a day for 60 days and became worthless, the total borrow cost would be a bit less than 1/2 the gain.

Calculation for 100 shares:

BR = Borrow Rate

CP = Closing Price

DB = Daily Borrow Cost = (BR x CP x 100)/365

The borrow rate is 565% and the closing price is \$60.

DB(1) = (5.65x \$60 x 100)/365 = \$92.88

Now suppose that share price closes at \$59 on day two.

DB(2) = (5.65x \$59 x 100)/365 = \$91.33

If the borrow fee remains constant and share price declines \$1 per day, on the last day, at \$1, the borrow fee will be \$1.55. Quick dirty math would be (\$92.88 + \$1.55)/2 x 60 = \$2,832.90 which is very close to the actual sum. Therefore, this hypothetical short seller would pay out less than half of his short selling gain.

• Why is there a x100 in DB = Daily Borrow Cost = (BR x CP x 100)/365? Do you have to short at least 100 shares at a time? Commented May 8 at 3:27
• The majority of trading is in round lots (multiples of 100 shares) so the convention is to use 100 shares as a frame of reference. However, you can buy or short any number of shares that you want. I'll edit the question to make that clear. Commented May 8 at 11:36