Insights

How Are Stock Borrow Fees Calculated?

Alphanume Team · May 9, 2026

Annualized rates, daily accrual, and the real cost of carry on a short position.

Borrow fees are quoted as annualized percentages but accrue daily on the value of the short position. The headline rate is a snapshot — the realized cost depends on the rate over the entire holding period and the value of the short over time. Understanding both pieces is essential to estimating the true cost of a short and to comparing borrow-cost-adjusted returns across strategies.

The basic formula

The daily borrow cost for a short position is approximately:

Daily cost = Position market value × (Annualized borrow rate / 360)

Notes:

The denominator is 360 in most US prime brokerage conventions, not 365. This is a banking-day convention.
The "position market value" is the daily mark-to-market of the short position, not the original short sale value. Costs increase if the stock rises and the short loses money.
The annualized rate may change daily. The realized cost is the sum of daily costs over the holding period.

What the rate quotation covers

The annualized borrow rate is a net rate — it nets the cost of borrowing against any rebate paid on the cash collateral posted to the lender. In practice:

For general-collateral securities, the rebate roughly offsets the borrow cost; the net rate is near zero or slightly positive (you may even receive a small rebate).
For HTB securities, the borrow cost dominates and the net rate is meaningfully positive (you pay).
For special/deep-HTB securities, the rate can be punitive — 50%, 100%, 500% annualized.

Worked example

Consider a $100,000 short position in a stock with a 30% annualized borrow rate:

Daily cost = $100,000 × 0.30 / 360 = $83.33
30-day cost ≈ $2,500 (assuming static position value and rate)
180-day cost ≈ $15,000
365-day cost ≈ $30,400

Stretched over a year, the borrow consumes nearly the entire absolute return on a position that gains 30%. For breakeven, the short needs to capture at least the borrow cost in price decline.

Compounding across the holding period

The borrow rate can vary substantially across a holding period. A short opened at a 30% rate may average 50% over the holding period if borrow tightens, or 15% if borrow loosens. For backtests, using a single point-in-time rate to model historical borrow costs systematically underestimates realized costs in the worst-borrow names.

Mark-to-market effects

The position value used for daily accrual is the daily mark-to-market. Consequences:

If the short is profitable (stock declined), the position value falls and so does the daily cost — partially compensating the short for being "right."
If the short is unprofitable (stock rallied), the position value rises and the daily cost rises — compounding the pain.
For backtest accuracy, daily mark-to-market accrual is necessary; static accrual on initial value materially understates cost in adverse cases.

Broker-specific variation

Borrow rates vary by broker. A name might be 25% at one broker and 75% at another on the same day. Factors:

Broker's own borrow inventory.
Broker's access to other lenders.
Broker's customer base (heavy short demand at one broker can pressure rates).
Broker's pricing policies (some brokers run higher spreads on HTB borrow).

For competitive strategies, multi-broker locate aggregation can produce meaningfully lower realized borrow costs — see best brokers for short-selling strategies.

Special features that complicate the accrual

Indemnification clauses. Some prime brokers indemnify the customer against borrow-rate spikes for short-duration contracts.
Locked rates. Some borrow transactions are locked at a fixed rate for a defined period (term borrow). The rate is typically higher than the floating rate but provides predictability.
Recalls and replacements. If a lender recalls shares, the borrow is replaced at the prevailing rate — which may be higher than the original. Recalls also create buy-in risk.

Dividends

Beyond borrow fees, a short pays the dividend on the borrowed shares — see who pays the dividend on a shorted stock. For dividend-paying names, the dividend liability adds to the carrying cost and must be modeled separately from borrow.

For backtests

To model borrow cost accurately in historical analysis:

Use daily historical borrow rates (point-in-time, not current snapshot) — see what is point-in-time data.
Apply daily mark-to-market for the accrual base.
Apply dividend liability separately.
Compute borrow-cost-adjusted returns as the headline metric.