Loaning stocks with your broker?

C

Cabin111

I've heard bits and pieces of this information. Here is one from US News.

https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&cad=rja&uact=8&ved=2ahUKEwjYg4bN98jrAhUQ1qwKHUpdCKUQFjABegQIAhAB&url=https://money.usnews.com/investing/investing-101/articles/things-to-know-about-lending-shares&usg=AOvVaw32sMUbixEvHb7XKpXpWna1

I saw where it is not protected by SIPC. What are the pitfalls of doing this? Will they take any and all of my stocks? What if the borrower files bankruptcy?? Will I be unable to option (covered call) my stocks? Would I want to have stocks that are high fliers, but stable (McDonald's/QQQ)?? And how is the dividend treated??

Thanks for any input...
 
Are you referring to brokerages lending your shares to short sellers? This is pretty standard practice.
 
Cabin111 said:
Yeah, so where is my profit and what are the pitfalls??
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You get a piece of the borrow rates on hard to borrow stocks that your brokerage needs to borrow from you on stocks you already own anyways. Pitfalls maybe you help in driving down the price on a stock you own as short sellers use your stock to drive down the share value.
 
Bugsy said:
You get a piece of the borrow rates on hard to borrow stocks that your brokerage needs to borrow from you on stocks you already own anyways. Pitfalls maybe you help in driving down the price on a stock you own as short sellers use your stock to drive down the share value.
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My mind is churning. What if we hit a recession and value stocks (Walmart, McDonald's, Target, Procter and Gamble, QQQ) drop 30%. Why not buy and hold...And loan to someone else, since the underlying value is there. Or in a recession, find five of the best Berkshire Hathaway companies they own. If anyone knows value it is Warren Buffet!! What am I not seeing here...
 
Cabin111 said:
My mind is churning. What if we hit a recession and value stocks (Walmart, McDonald's, Target, Procter and Gamble, QQQ) drop 30%. Why not buy and hold...And loan to someone else, since the underlying value is there. Or in a recession, find five of the best Berkshire Hathaway companies they own. If anyone knows value it is Warren Buffet!! What am I not seeing here...
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Not quite sure what you're on about tbh. Is short selling a new concept to you? Short sellers not only keep a fair market value on prices but also help keep the market liquid.
 
Brokers loaning stocks, I get it. A pension fund loaning stocks, I can see it. A mom and pop person doing it...It just seems there would be red flags somewhere. Can't put my finger on the drawbacks...
 
Cabin111 said:
Brokers loaning stocks, I get it. A pension fund loaning stocks, I can see it. A mom and pop person doing it...It just seems there would be red flags somewhere. Can't put my finger on the drawbacks...
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If your stocks were purchased in a margin account you likely wont even know your broker borrowed them from you. Only cash accounts are actually asked, but honestly, if you bought the stocks based on solid analysis why would it matter? You get the extra incentive of interest on those shares and then the interest when it runs (if the trade setup was actually a solid buy in the first place).
 
Bugsy said:
If your stocks were purchased in a margin account you likely wont even know your broker borrowed them from you. Only cash accounts are actually asked, but honestly, if you bought the stocks based on solid analysis why would it matter? You get the extra incentive of interest on those shares and then the interest when it runs (if the trade setup was actually a solid buy in the first place).
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Do the fee brokers have embedded in the small print of the agreement terminology granting them to lend out your fully paid shares ?

For those that do lend out, cash is paid as collateral so in the event the one borrowing defaults, you would have their cash and thus be ok.
 
Bugsy said:
If your stocks were purchased in a margin account you likely wont even know your broker borrowed them from you. Only cash accounts are actually asked, but honestly, if you bought the stocks based on solid analysis why would it matter? You get the extra incentive of interest on those shares and then the interest when it runs (if the trade setup was actually a solid buy in the first place).
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Almost no broker pays you extra interest if they lend your shares from a margin account. I don't even think IB does unless you're not using margin and sign up for their program.
 
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