Traders.com

HARD TO BORROW?

I have been trading for about six years. I just now have been able to short stocks, and don’t understand a couple of things. Sometimes when I try to sell short by placing the order at the bid price, I get an error message that says “Hard to borrow” or “Contact order desk.” It is my understanding there are no longer short-sale rules, something like uptick rules. Why would I care about something being “hard to borrow”? What does that even mean? Thank you for your years of giving advice at Stocks & Commodities, I really appreciate it.
— gatortrader

Thanks for the kind words! First, for decades we had the uptick rule to consider when selling shares we don’t already own (selling short). This means that we must sell the stock at the offer, or at the last price increase versus hitting bids, thus risking running the stock price down.

Your broker/clearing firm needs to have in its inventory the long shares of the stock you shorted. If they don’t, they must borrow shares to comply with their obligation. If they don’t have the shares, they’re asking you to “borrow” the stock through them. If the stock is illiquid or “hard to borrow,” then they advise you to contact them. Hope this helps.