Is it possible to short a stock or stock CFDs without paying any interest or swap fees for mantaining the position?
Thank you.
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2There is no free lunch. Nobody will lend you something for free.– DumbCoderJul 29, 2016 at 11:27
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1If you short a stock you are borrowing it from someone else. It is a loan.– homer150mwJul 29, 2016 at 15:40
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3 Answers
As others have said: unless you can find someone willing to make a zero-interest loan, the answer is no.
If you can figure out how to turn a "0% for first N months" credit card offer onto a leveraged investment or something of that sort -- seems unlikely -- maybe.
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While that is effectively a zero interest loan, how would that translate into shorting the stock? You could use that to borrow interest free to buy the stock but that still doesn't let you borrow the stock to sell short. I like the outside the box thinking though. Aug 1, 2016 at 12:58
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I didn't say it was possible, just that I can't see any other path which might make this miracle possible. Risk and potential reward are very*** closely linked in the stock market. Anyone looking for the latter without accepting the former is setting themselves up to be suckered.– keshlamAug 1, 2016 at 16:25
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I liked your answer, it was trying to work around the system which is basically what the OP is looking for. Aug 1, 2016 at 18:55
It is possible and it depends on your strategy.
As short selling interest rates are annual and levied monthly at a prorated rate. Interest rates are also low in general, with the exception of hard to borrow stocks.
Therefore you can maintain a short position for weeks on end and notice nothing. Months even, if the position itself has already gained in your favor.
There is no additional fee for opening the short position. Although some brokers have a "locate" fee, if it is hard to borrow the stock and they need to go find some shares to short. So you can do it as much as you like.
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It is possible to have gains offset the interest cost associated with shorting the stock, however, the OP asked if it was possible to short with zero interest. I didn't see anything in your answer that states how that might be done. Aug 1, 2016 at 18:52
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@homer150mw you're right maybe this statement wasn't as obvious as I thought: "As short selling interest rates are annual and levied monthly at a prorated rate." the complete thought would continue then with "therefore shorter term trades would have no interest levied".– CQMAug 1, 2016 at 20:33
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For positions held (or shorted) for shorter durations the interest would be prorated down to the number of days. I don't know that all brokers do that, I know that mine does and it makes sense for them to. Otherwise it would be easy to borrow the shares (or borrow funds on margin) and just return it the day before interest accrues if it were just done monthly. Aug 1, 2016 at 20:40
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@homer150mw I would just like to add that I've borrowed funds on portfolio margin in one of the fund's accounts, a special type of margin account that requires hundreds of thousands, and only paid $16 in interest that year. You are right though, not zero interest. I just consider it negligible and hope that OP finds this reality more useful than the question they asked verbatim.– CQMAug 1, 2016 at 21:12
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I would also hope that the OP finds it useful. The question as it was asked does not lend itself to getting any sort of affirmative answer. Your point is well made and hopefully answers the question that was intended even if it doesn't answer the one asked. Aug 1, 2016 at 21:28
If the stock offers options, you can utilize the synthetic short stock strategy. This consists of selling a call and buying a put option with the same strike and expiration and it simulates a short stock position's risk and reward. Since call premiums are high than put premiums by the carry cost, you're likely to receive a small a credit if the options are at-the-money.
A variation of this would be a collar where you sell a call at a higher strike and buy a put at a lower strike. The collar would behave similarly except that participation would be at the rate of option delta which is less than 1.00
answered May 5, 2020 at 13:50
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This doesn't avoid the interest/fee to borrow the stock. The carry cost reflected in put-call parity will be the net of the interest earned on cash and the interest (and dividends) paid on the stock. The market maker knows they will have to pay the interest/borrow fee to hedge after selling you the put. Traders trying to avoid the borrow fee will bid up the put until it's a wash.– nanomanMay 5, 2020 at 17:57
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If no dividends, call will exceed put cost by the carry cost. If you are doing an ATM synthetic short, you are selling the call and buying the put. That means a net credit. Check out some option chains and you'll see this to be true. The issue that will affect the no cost synthetic is the spread on each option. A pending dividend will distribute across the options, increasing the put's premium non linearly based on distance from ATM. Yes, that increases the synthetic short's cost but that is recovered on the ex-div date when share price is reduced by the amount of the dividend. May 5, 2020 at 18:22
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Yes, if the borrow cost is low enough, there will be a net credit reflecting the interest on cash -- just as in outright shorting you could earn interest on the sale proceeds. But the borrow cost is still part of the equation and, if it's high enough, will lead to a very expensive put and a net debit as discussed in this example. So I don't agree that the synthetic short is a way to avoid the borrow cost of shorting. You're still paying the cost.– nanomanMay 5, 2020 at 19:25