No. of Recommendations: 5
My understanding is that if you have a margin account the securities firm can lend out any of positions regardless if you have a margin loan or not.Only if you give consent! I sometimes give consent if the fee (interest) they are willing to share with me is juicy enough. I've received between 1.25% and over 75%, accrued daily and paid monthly, on various shares that I've allowed to be loaned out (to people shorting them). 75% interest is really quite rare and only happens under special circumstances (an upcoming event or a short squeeze), usually the typical rate is under 5%. The only other issue is that sometimes when dividends are distributed, they will not be considered to be "qualified" (because they were paid to you by the person who shorted it instead of by the company) so will be taxed at the higher ordinary income tax rate. But if I'm collecting an EXTRA 5% interest over and above the dividend, I don't mind paying a higher tax rate on a 2% or 3% dividend!
Here's a blurb from Schwab about it -
https://www.schwab.com/learn/story/earning-extra-i...If the securities firm went under you might also be an unsecured creditor. ?Most of the larger brokers will put up cash collateral against your shares so in the unlikely event that they go belly up, your money is there (not as an unsecured creditor). The reason they are willing to put up a cash collateral is because lending shares to people sho short them is VERY profitable, and they have the cash sitting there anyway, and it earns them interest for the duration.
