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Has anyone ever heard of a company charging you interest on short position? Should I try and open an account somewhere else if I want to short TSLA? This will cost me about $13 a day.

I was called today and was told that because I shorted TSLA and stock that is in high demand to short, that I would be charged 2% interest on the 23k that position represents.

Which seems very odd to me especially since I am not getting any interest on the 23k in my investment account that I received for shorting the stock.

I don't have to pay the interest on AAPL of which I have 1000 shares shorted to the tune of 100k. Its merely due to the fact that shorting TSLA is a high demand position.

  • Do you own AAPL long as well (is it a covered short, or a naked short)? – Joe Aug 4 '16 at 19:44
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    Q: " Has anyone ever heard of a company charging you interest on short position?" A: Yes. – user662852 Aug 5 '16 at 11:45
  • Joe that is naked as well. – Mark Monforti Aug 5 '16 at 14:54
  • No sense being so derogatory @Grade 'Eh' Bacon. I have been doing this for a long time I am up 16% in 9 months on this side account of mine. I understand fully what it going on and I have been shorting stocks for over a decade which is why i was surprised after shorting stocks for 15 years that I have never been charged interest before. – Mark Monforti Aug 5 '16 at 14:58
  • Let me know if I need to clean up the comments here. Let's all try to be a bit extra nice. – JTP - Apologise to Monica Aug 5 '16 at 17:54
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Brokers have the right to charge interest on any stock that they lend you. Since you borrowed the TSLA to short it, the owner of those shares can charge you interest until you return them.

If you are not getting charged interest on some shares that you have borrowed to short, consider it generosity on the part of the lender.

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  • Does the share lender get the interest or does the broker keep it? – JTP - Apologise to Monica Aug 4 '16 at 20:32
  • @JoeTaxpayer Only the lender gets the interest. In most cases the shares come out of margin accounts which have the securities held in the street name. In other words, when investors establish margin accounts usually the broker requires them to register all their securities in the broker's name, thus allowing the broker to lend them out. So, if you have a margin account, the stocks you have in that account, you don't actually own technically speaking. – Five Bagger Aug 4 '16 at 21:34
  • So, to be clear, if I owned TSLA, my broker might lend those shares, but I won't see the interest the short seller pays? The broker gets it? – JTP - Apologise to Monica Aug 4 '16 at 21:44
  • @JoeTaxpayer Right, if you have margin account, then you actually don't own the shares, your broker does, so your broker can lend those shares out whenever it wants even though you bought them. – Five Bagger Aug 4 '16 at 21:48
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I agree with Mark. I was quite confuse about the short position at first but then I did a lot of learning and found out that as long as you have enough cash to cover your margin requirement you do not pay any interest since you do not have a debit on your margin balance. This is not true for a long position though, supposed you have 5k cash and 5k margin balance, if you buy 10K worth of stocks then you will need to pay interest on the 5k of the margin balance since it is a debit. Since shorting is done at a credit basis, you actually get interest from the transaction but you still may need to pay the borrowing fees for the stocks so they could simply balance each other out. I have shorted stocks twice through two different companies and neither time I noticed any interest charges. But make sure you have enough cash to cover your margin requirement, because once your margin balance is used to covered your position then interest would accrual. Learn.

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