Short Selling Is Not Free. Here Is What You Are Actually Paying.
When you buy a stock, you pay the price and maybe a small commission. That is it. No ongoing fees. No rental charges. You own it.
Short selling is different. Think of it like renting an apartment versus buying a house. When you buy, you pay once. When you rent, there is a monthly bill that keeps coming until you move out. Short selling has “rent” in the form of borrow fees, and the longer you stay in the trade, the more rent you pay.
Most new traders focus on whether a stock will go down. They forget to ask: “How much is this trade going to cost me just to hold it?” That question matters more than you think, because fees can turn a winning trade into a losing one.
The Four Costs of Short Selling
1. Borrow Fee (The “Rent”)
When your broker lends you shares to short, they charge you a borrow fee. This is an annualized interest rate calculated daily.
Easy-to-borrow (ETB) stocks: 0.25% to 2% annually. Stocks like AAPL, MSFT, SPY. These are cheap to short. On a $10,000 short position, you are paying about $0.07 to $0.55 per day. Barely noticeable for day trades.
Hard-to-borrow (HTB) stocks: 10% to 300%+ annually. Small caps, penny stocks, heavily shorted names, recent IPOs. On a $10,000 position at 100% borrow rate, you pay about $27 per day. Hold that for a week and you have paid $190 in fees before the stock moves a penny.
The borrow fee is the single biggest hidden cost. Your broker should display the borrow rate before you enter the trade. If it does not, call them and ask. Never short a stock without knowing the borrow rate first.
2. Margin Interest
Short selling requires a margin account. Your broker charges interest on the margin you use. Typical margin interest rates range from 6% to 13% annually, depending on your broker and account size.
The good news: if you day trade (close by end of day), margin interest is minimal or zero since you are not holding overnight. It only accumulates on positions held overnight.
Compare rates: Webull, Robinhood, and Interactive Brokers all have different margin structures. IB typically has the lowest rates for active traders.
3. Commission and Exchange Fees
Most major brokers offer commission-free trading, but there are still small regulatory fees:
- SEC fee: About $0.01 per $1,000 sold (only on sells, including short sells)
- TAF fee: $0.000166 per share (FINRA Trading Activity Fee)
- ECN fees: Some brokers pass through exchange fees, especially on limit orders vs. market orders
These are tiny on most trades. On a 1,000-share short of a $20 stock, your SEC fee is about $0.20. Not a concern unless you are scalping thousands of times per month.
4. The Bid-Ask Spread
This is not a fee your broker charges, but it is a real cost. When you short sell, you sell at the bid price. When you cover (buy back), you buy at the ask price. The difference is the spread, and it comes directly out of your profit.
On liquid stocks like SPY or AAPL, the spread might be $0.01. On a thinly traded small cap, it could be $0.10 to $0.50. That means you start every short trade $0.10 to $0.50 in the hole before the stock even moves.
Real-World Cost Examples
Example 1: Day trading AAPL (easy to borrow)
- Short 200 shares at $185
- Borrow rate: 0.5% annually
- Hold time: 2 hours (day trade)
- Borrow cost: $0.05 (negligible)
- Spread cost: $0.01 x 200 = $2.00
- Total cost: About $2.05
Example 2: Swing trading a small cap (hard to borrow)
- Short 500 shares at $12
- Borrow rate: 85% annually
- Hold time: 5 days
- Borrow cost: ($6,000 x 0.85) / 365 x 5 = $69.86
- Margin interest: ($6,000 x 0.10) / 365 x 5 = $8.22
- Spread cost: $0.08 x 500 = $40.00
- Total cost: About $118.08
In Example 2, you need the stock to drop more than $0.24 per share just to break even. If the stock only drops $0.15, you actually LOSE money on a “winning” directional call because of fees.
How to Minimize Short Selling Costs
Choose easy-to-borrow stocks. Large caps with high float and high volume are cheapest to short. You do not need to short the hardest-to-borrow stock to make money.
Day trade when possible. Closing by end of day eliminates overnight borrow fees and margin interest. Most day traders who short are scalping for quick moves anyway.
Use a broker with low borrow rates. Interactive Brokers and Cobra Trading are known for good short locate availability and competitive borrow rates. Centerpoint Securities specializes in hard-to-borrow locates for active short sellers.
Check the rate BEFORE entering. Every broker shows borrow availability and rates. Look before you click. A 200% borrow rate should make you pause and ask whether the trade is worth the cost.
Use stop losses. This is not a cost-reduction tip, but it prevents catastrophic losses that make all fee calculations irrelevant. A $500 borrow fee is nothing compared to a $5,000 loss from a short squeeze you did not exit.
Disclaimer: This article is for educational purposes only and does not constitute financial advice. Short selling involves substantial risk of loss. Always consult a qualified financial advisor before making trading decisions.