Key Takeaways
- Stocks with limited shares available for shorting.
- Requires locate request and incurs extra fees.
- Higher risk of short squeezes and buy-ins.
What is Hard-To-Borrow List?
The Hard-To-Borrow (HTB) list identifies stocks that are difficult to borrow for short selling due to limited availability of shares in the lending market. This status often results from factors such as low float, high short interest, or illiquidity, requiring brokers to perform a "locate" before allowing short sales.
Being on the HTB list means you may face additional fees and risks like forced buy-ins or short squeezes, which are critical for active traders, including those classified as daytraders.
Key Characteristics
Understanding the main features of HTB stocks helps you manage risks and costs effectively.
- Limited share supply: HTB stocks have constrained supply due to low float or high demand, often leading to increased volatility and illiquidity (illiquid stocks).
- Locate requirement: Brokers must find borrowable shares before short selling, incurring locate fees and delays.
- Higher borrowing costs: Daily borrow fees are elevated compared to easy-to-borrow stocks like those in the S&P 500.
- Risk of forced buy-ins: Lenders may recall shares, forcing you to cover positions at unfavorable prices, linked to failure to deliver rules.
- Volatile price action: HTB stocks can experience sharp price swings, increasing risk for short sellers.
How It Works
When you short an HTB stock, your broker first checks if shares are available in their inventory. If not, a locate request is submitted to find shares externally, often resulting in additional fees and time delays.
Once shares are located, you can execute the short sale, but you must monitor for recalls or regulatory risks such as the Reg SHO Rule 204 that enforces close-outs to prevent persistent fails. These complexities make shorting HTB stocks more challenging than shorting liquid names like Apple or Tesla.
Examples and Use Cases
HTB lists commonly include stocks with low public float or recent hype-driven rallies. Traders use this information to assess short-selling feasibility and risks.
- Airlines: Stocks like Delta and American Airlines sometimes become hard to borrow during travel surges or disruptions.
- Tech giants: While most large-cap stocks such as Apple remain easy to borrow, occasional volatility can shift them temporarily onto HTB lists.
- Momentum trades: Traders shorting low-float biotech or speculative names watch HTB status closely to avoid costly locate fees and potential short squeezes.
Important Considerations
Shorting HTB stocks requires careful risk management due to higher costs and regulatory risks. You should factor in locate fees, increased borrow interest, and potential forced buy-ins when planning trades.
Monitoring real-time HTB lists and understanding rules like haircuts on margin accounts can help you navigate these risks effectively. Always verify availability before initiating positions to avoid unexpected failure to deliver problems.
Final Words
Hard-to-borrow stocks carry higher costs and risks due to limited availability and increased short interest. Before shorting, verify the HTB status and assess borrowing fees carefully to avoid unexpected expenses. Consider consulting your broker’s list to ensure your strategy aligns with current market conditions.
Frequently Asked Questions
The Hard-To-Borrow list identifies stocks that are difficult to borrow for short selling due to limited availability in the lending market. These stocks often have low float, high short interest, or high volatility, making them more challenging and costly to short.
Stocks are labeled Hard-To-Borrow when there are few shares available to lend, often caused by low float, high demand from short sellers, illiquidity, or price volatility. Broker inventories and real-time lending availability determine this status.
Shorting HTB stocks requires a locate request to find borrowable shares and usually involves higher fees and more risks. Easy-To-Borrow stocks are readily available from broker inventory and can be shorted without extra steps or significant fees.
When shorting HTB stocks, traders typically pay locate fees to find shares and higher daily borrow fees based on stock price and volatility. These costs are in addition to standard margin interest and any dividend payments if applicable.
HTB stocks carry higher risks like short squeezes, forced buy-ins, and regulatory recalls due to their low supply and volatility. Losses can be unlimited if the stock price spikes sharply, so careful risk management is essential.
Brokers maintain daily updated HTB lists based on real-time inventory from clearing firms. These lists can be accessed through trading platforms, sometimes requiring account approval or minimum balances to short these stocks.
First, you check if the stock is on the HTB list, then submit a locate request to borrow shares. Once located, you can short the stock but must monitor for recalls or regulatory rules that may force closing the position.
Yes, shorting HTB stocks involves compliance with regulations like SEC's Reg SHO Rule 204, which requires timely close-outs of fail-to-deliver positions. Traders must ensure proper locate and borrowing to avoid penalties.
