If an institution lends out stock it owns
and charges interest at say 7-10% until the stock is
returned, how does that benefit the owner of those shares if the
stock is then driven down 20-30%; they would be a net loser.
Unless, of course, I'm underestimating the fee paid to "borrow the
stock"...in which case, if larger, the transaction would
be prohibitive to the individual wanting to go short.
As I said, this just doesn't make sense to me. Those
"lending out" stock are betting against their own interests as best
I can see.
In all the years I've asked this question, NO ONE has
provided a plausible explanation. With so many owning stock,
it's incredible there isn't more of a ground swell of demand that
owners be allowed to remove their shares from the "lending"
market.
Wouldn't markets be more efficient if one could only buy
(without margin) and sell stock they actually have in their
possession?
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Thanks for taking the time to respond xxnilesshxx but.....
Crazy, but serious question about shorting stocks.......
Posted by RichieD on 16th of Dec 2014 at 09:41 am
say your answer makes no sense to me.
If an institution lends out stock it owns and charges interest at say 7-10% until the stock is returned, how does that benefit the owner of those shares if the stock is then driven down 20-30%; they would be a net loser. Unless, of course, I'm underestimating the fee paid to "borrow the stock"...in which case, if larger, the transaction would be prohibitive to the individual wanting to go short.
As I said, this just doesn't make sense to me. Those "lending out" stock are betting against their own interests as best I can see.
In all the years I've asked this question, NO ONE has provided a plausible explanation. With so many owning stock, it's incredible there isn't more of a ground swell of demand that owners be allowed to remove their shares from the "lending" market.
Wouldn't markets be more efficient if one could only buy (without margin) and sell stock they actually have in their possession?