Exorbitant cost to borrow fee?

[tomkat22]

For you guys who do a lot of shorting I'm curious what you consider "exorbitant" when it comes to that fee. Do you have a cut-off percentage number,or just pay whatever your broker is asking? 40%,80%,165%? I'm not a high-rollin,baller so anything above 20% and I start to get a bit squeamish. Doesn't it become mathematically un-profitable above a certain % number?

 

[qwerty11]

> 100%

For instance, BKKT (was quite a big stock, i.e. lots of billions in market cap) some time ago jumped from only a few % to almost 600% for at least 1 or 2 weeks. That's unsustainable for short positions...

 

[comagnum]

The borrow fee % is the rate for a year (360 days). For example a 100% borrow rate on a $10,000 position = $28.33 for the day. The bid-ask spread may cost you more .. depending.

 

[zdreg]

The borrow fee % is the rate for a year (360 days). For example a 100% borrow rate on a $10,000 position = $28.33 for the day. The bid-ask spread may cost you more .. depending.

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You can explain what you mean by depending, or the OP can sit down with a piece of paper and do the calculations himself as it apples to his own trading.

You know the old saying give a man a fish you feed him for a day. Teach a man how to fish you feed him for a lifetime.

 

[FreeGoldRush]

The borrow fee is a market rate just like so many other data points. It is another cost thrown on your pile of costs when trading. When going short the math gets very complicated for those who don't skip it. You have to consider the bid/ask spread, borrow fee, risk of being squeezed out, your strategy for covering when there may not be sufficient liquidity, etc. Get real about those costs and add it all up to see if the expected earnings are sufficient compared to the standard deviation of your earnings. That's it. No thresholds or cutoffs regarding a specific borrow fee.

"Doesn't it become mathematically un-profitable above a certain % number?"

It sure does! Also consider that the borrow fee usually changes daily. So you have to know the cost of exiting some trades early simply because the borrow fee changed your probability of success after you entered the trade. You have to know ahead of time what triggers an exit.

 

[tomkat22]

Yeah I dont see how a hedge fund,or individual, can hold a large short position in a name for weeks or months on end. Seems a high CTB fee would eat them alive. They might be getting a better "deal" from their broker on that fee but still...

 

[zdreg]

Yeah I dont see how a hedge fund,or individual, can hold a large short position in a name for weeks or months on end. Seems a high CTB fee would eat them alive. They might be getting a better "deal" from their broker on that fee but still...

A hedge fund may also hedge their positions with options.