Short Positions and Lending Stock
episode
DIY Money | Personal Finance, Budgeting, Debt, Savings, Investing
17 min
4 speakers
5 chapters
transcribed 1 month ago
Transcript
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Transcript generated automatically by AI and may contain errors.
What is the main topic discussed in this episode?
Hey, this is Allie, and thanks for listening to the show. Give us a five-star review where you listen and share this episode with someone who might need to hear it. Now, enjoy the show. Welcome back, ladies and gentlemen. You're listening to another edition of DIY Money.
DIY Money. Logan. What's up with you? I don't know. Not much, really. I'm going through summer. Dude, you're in beast mode. I'm in beast mode.
I know that we talk about it a little bit, but you are killing it.
You're very kind. I don't feel like I'm killing it. It's just every day, get up and... You just PR'd a race. Yeah, but that's, you know, again, it's as people know who are training. This is not a humble brag.
You know I'm bad. Only last week I murdered a rock, injured a stone, hospitalized a brick. I'm so mean I make medicine sick.
I'm busting my butt, and I'm trying very hard. So what's the next goal? The next is September 6th, marathon outside of Chicago, and do my best. I love it. And go from there. I like it.
We'll see what happens.
Fantastic. All right. We have a unique question today. We're going to jump right into it. We'll skip all the housekeeping stuff. You know this podcast sponsored by Juul, et cetera. But we have a unique one because it's intricate in that it requires some explanation. And then the area that I want to go with it is why this person would lend their shares. Stay with me. So let's break for our sponsors. And now we got a question. Johnson, what do you got?
Hey, DIY Money. This is Johnson from Virginia. I recently opened up an account with a well-known fintech company, which allows me to lend stocks. This is something that I'm not really familiar with, but my understanding is I would earn interest on my holdings. Could you touch on sort of the mechanics of stock lending and like essentially what that is? And if this is like a risky endeavor? that I should try and stay away from. Thanks. Love the show. Keep up the good work.
Okay, Johnson. So first of all, what this has to do with is short selling. And I'll let Logan talk sort of the mechanics of short selling because I do think it's important to understand that there's this whole other world out there that investors or speculators, institutions at times, hedge funds certainly engage in. And that is basically betting against stocks, trying to profit from the decline of stocks. And there's a mechanics behind it that a lot of people don't, I think, understand. And it actually has to do with borrowing stock that you don't own. Well, guess what? If you are going to borrow a stock that you don't own, someone has to lend it to you, right? Of course. So I will talk about the question you ask, and then I'll let Logan talk about the mechanics behind short selling and how that all works.
But first of all, it's important to know that most people... They engage in this in their accounts and they have no idea. Most of the time when you open a traditional brokerage account, you have an option to open it on margin or not on margin. Now let me explain what that means. Margin call, gentlemen. Margin is the ability to borrow money online. in a very short or longer period of time from your custodian to buy and sell stocks. Now, way back like six months ago, I don't know when they changed it, you would buy a stock and and it would actually not physically be in your account. You actually wouldn't physically own it. It would show up in your account in a matter of seconds, like hit the buy button, F5 or refresh, there it is.
But behind the scenes, you didn't actually own it. It took a few days to what's called settle. So there used to be this trade date, so if you bought something on Monday, plus three days, and I think when I started in the business it was a week, but three days before it actually settled in your account. So you buy it on a Monday, that's your T, or trade date, plus three days, Tuesday, Wednesday, Thursday, it now settles in your account and you own it. And what is happening in that time period? Well, You are buying a stock, then the company that has those shares that are issued and the transfer agent who is actually moving the stock around and keeping track, believe it or not, of who owns the stock.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:02–5:15
2
What question about stock lending did the caller from Virginia ask?
5:15–7:10
3
How does short selling connect to lending your shares?
7:10–11:35
4
What is a margin account and how can it let brokerages lend your stocks?
11:35–13:48
5
How does trade settlement (T+3/T+2) affect ownership and short lending?
13:48–16:56