Why Do Online Brokers Only Offer Small, Random Amounts Of Shares To Short?
I have attempted numerous times to short with Scottrade, and they often say “only 23 or 25 or 37 shares available to short.” These were for heavily traded company shares (in the 10s of millions).
How is it possible that these firms only have such small, random amounts available to short at any one time? Is it a way for them to make increased commissions for the buyer of short shares to buy in small lots?
Has anyone had this experience with either TD or Scottrade?
Comments
In order to short stock, the broker has to borrow it from someone with a margin account that does not have an outstanding order to sell it (which may be a stop and/or limit order). So if it a stock that everyone is trying to short, unload, or trade, it may be difficult to borrow. One of my brokers (thinkorswim.com) shows right on their trade screen if a stock is “hard to borrow”.
It’s not just TD or Scottrade, it’s all firms.
Most short sellers, sell only round lots, and as such they are easier to borrow.
Lenders do not want to lend odd lots, and firms themselves do not like using their in-house margin accounts to split positions to lend.
Many firms borrow stocks from “the street” rather than use in-house stocks, and the street does not look with favor on lending odd-lots.
Commission income has nothing to do with lending stock or catering to customers that short odd-lots. Odd lot lending is a hassel and not worth the effort unless the borrower is willing to pay a premium.
You may not like my response, but it’s given with many years of experience.