What is Borrowed Stock?
Borrowed stock involves stocks that are considered to be part of a short sale. Usually, the seller chooses to take the borrowed stock on a loan basis from a broker, then sells the stock on the open market. The idea behind marketing borrowed stock is to ultimately pay a lower price per share for the stock that is on loan, while selling the stock at a greater price. Short sellers do operate with an understanding that dealing with borrowed stock includes a degree of risk. Because the stock market can and does occasionally take an unexpected turn, there is always the possibility that the quoted price extended by the broker for the borrowed stock will be higher than the price that the short seller can secure for the final sale of the stock. When this happens, it is the short seller who must absorb the loss, rather than the buyer or the broker. More often, however, short sales conducted with borrowed stock can prove to be a steady means of generating revenue. By paying close attention to the
