TeachMeFinance.com - explain Borrowing and lending stocks
Borrowing and lending stocks -- When a speculator sells
stock which he does not possess (when he sells it short) he
(or what is the same thing, the broker who acts for him)
has to borrow the stock to make delivery to the purchaser.
The one who possesses stock (who is long of it) is in ordinary
circumstances as anxious to lend it as the one who has
sold it short is anxious to borrow it.
The lender of stock receives from the borrower the market
value of it in money, but except when the stock is lending flat
(without interest) or at a premium the lender of the stock
pays to the borrower of it interest on the money paid for the
stock by the borrower. The rate of interest is determined by
bid and offer.
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