Stock Lending

TL;DR: Stock loan is a way to earn extra income on some of your non-blue chip stocks

For most stocks (e.g. FB, JPM) none of this applies. However, you might occassionally find yourself holding some more questionable stocks like WATT, or MDXG. This is where you may benefit from lending your shares.

How and why does this work?

It all starts with short selling. That’s when someone decides to sell a stock they don’t own (to bet it’s going down). To do this, they have to borrow the stock from someone who already owns it and is willing to lend it. They then sell it, and return it later.

But what happens when everyone wants to sell the stock? Then demand to borrow stock skyrockets without enough people owning the stock willing to lend it out. This demand/supply imbalance leads to a borrow fee – i.e. a fee borrowers pay lenders that is high enough to equilibriate supply and demand.

In short, if you own some stock the world wants to sell, then you can earn some extra income by lending it out.

This isn’t for everyone; it’s usually pretty hard headed to buy and hold a stock everybody wishes they could sell. But once in a while you might find that diamond in the rough.

Schwab is a broker that allows for stock loan. It has some restrictive rules: you must have at least 100 shares (share price doesn’t matter), you need somewhat significant capital to start (call in to check), they keep about half the borrow fees you collect, and the team only works during market hours (which is slightly annoying for full-time workers).

If this all doesn’t apply to you, maybe you can keep this in mind for the future. But if this all applies to you, it’s a great form of passive income.

Happy Lending!

TheJKW