Term · Liquidity & Trading
Borrow fee
In briefThe borrow fee is the usually annualized charge for borrowing shares; high rates indicate scarce availability or strong demand for short selling. For small caps, high borrow fees can burden short sellers and make a short position significantly more expensive.
Definition
The fee for borrowing shares, usually stated on an annualized basis. High borrow fees indicate scarce availability or high demand for short selling.
How it is calculated
Formula. Annualized lending fee as a % of the value of the borrowed shares.
Why it matters for small caps
In the small-cap segment, high borrow fees can put short sellers under pressure and increase the cost of a bearish bet.
Common misreadings
- A high borrow fee does not automatically mean the stock must rise; it initially indicates scarcity and risk.
In the process
Frequently asked
What is a borrow fee?
It is the charge for securities lending, usually as an annual rate on the value of the borrowed shares. It arises when shares are borrowed for short selling.
What does a high borrow fee signal?
It points to a scarce supply or high demand for short selling. It is thus an indication of tension in the security.
Does a high borrow fee mean rising prices?
No, it initially indicates only scarcity and risk. An automatic price rise cannot be derived from it.
Related terms
Sources
Primary
Deutsche Börse – Marktstruktur
https://www.deutsche-boerse.com/dbg-de/maerkte-services/ps-preipo-listing/ps-marktstruktur
https://www.deutsche-boerse.com/dbg-de/maerkte-services/ps-preipo-listing/ps-marktstruktur
Methodology
NYU Stern – Aswath Damodaran, Valuation Resources
https://pages.stern.nyu.edu/\~adamodar/
https://pages.stern.nyu.edu/\~adamodar/
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.