Shorting question

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fofx

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Hello,

I have read about shorting and understand the basics but have one question:

Why would companies lend stocks? I understand the shorter can make or lose money, but the only benefit the company gets is to temporarily swap stocks for cash? Is this the only reason a company would make stocks available for lending?

Ty!
fofx.
 
if you led stock the person that is borrowing it also has to pay you a small fee.

so like a pension that is only going to be long stocks, and knows it isnt going to sell them anytime soon, can lend them out and earn a bit more from their investment that just having the stocks sit in the bottom drawer.
 
I'm by no mean an authority on these these but my understanding is that the companies do not lend stock. They will do the initial share issue and raise capital and multiple institutions will snap up the issuance. You will lend the shares from a broker, probably working as a proxy for a wholesale equity dealer that will hold/have access to these shares.
They will charge you a fee to make money for their service and probably aim to have relatively flat exposure.

Dunno how accurate that is though.
 
OK, that's clearer. I had read that a there would be an intermediate party doing the lending, I just forgot to put it in my question :)

So, to summarize, a flat fee would be charged by an intermediate party lending stocks on behalf of a company. The company and the intermediate party both take a portion of fee, and the shorter gets the stock.

ty.
 
no, nothing to do with the company. The stock borrowing fee goes to the lender of the stock, either an IB or a long-only type fund happy to earn a few more basis points from lending the stock out.
 
The company never keep on changing the stock rather other stockholder do. The same stock is been revolving round and round different times a day. People sell and buy stock via stock holder and they act on behalf of the customer. They buy, sell and perform other decisions on the basis of pre-informed criteria by stock-owners.
 
One thing that will normally help when trying to make money via speculation is to forget about what goes on behind the scenes. In this case with shorting, who owns the stock, how/why is it able to be lent. who gets paid/doesn't get paid etc.

Having the best knowledge of the above won't help you make money nor lose any less. Therefore it's normally a waste of time or effort especially when that time could be spent analysing the markets.

So if a broker offers you the chance to go short something concentrate on trying to make money and letting the broker handle what goes on behind the scene.

Good luck!
 
anley said:
One thing that will normally help when trying to make money via speculation is to forget about what goes on behind the scenes. In this case with shorting, who owns the stock, how/why is it able to be lent. who gets paid/doesn't get paid etc.

Having the best knowledge of the above won't help you make money nor lose any less. Therefore it's normally a waste of time or effort especially when that time could be spent analysing the markets.

So if a broker offers you the chance to go short something concentrate on trying to make money and letting the broker handle what goes on behind the scene.

Good luck!
Click to expand...

Not always true... sometimes knowing the mechanics is extremely important for some of the more interesting trades...

Why? Cause the mechanics can be changed as part of the trade!

Simple example: Buying a CDS on bear sterns. From Lehman Brothers.
 
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