Do I earn interest when shorting stocks?

External question — Personal Finance Stack Exchange Author: Flux Original post: https://money.stackexchange.com/questions/127163 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Suppose I short 100 shares of a $5 stock. My cash balance will be +$500 due to the short position. Does this $500 earn any interest? I have heard two opposing answers: The $500 earns interest, and I do not need to pay the broker interest. The $500 does not earn interest, and I have to pay the broker interest. Does the answer depend on whether or not the stock being shorted is "hard to borrow"?

External answer — Personal Finance Stack Exchange Author: base64 Original post: https://money.stackexchange.com/a/127164 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Does this $500 earn any interest? Brokers that directly give interest (e.g. Interactive Brokers) This is not dependent on whether the $500 came from shorting stock or depositing money. A broker gives you interest based on the cash balance (tiers) alone. Brokers that participate in "FDIC Deposit","Money Market", or "Sweep" program (e.g. Charles Schwab) and indirectly give interest In some cases, the full proceed from short sale does not get interest. In other cases, only the initial/minimum margin requirement from short sale does not get interest. If your broker does not give you interest on any cash balance, you may buy iShares Short Treasury Bond ETF (SHV) with such balance if your leverage still permits. pay the broker interest Strictly speaking, borrowing rate of each stock is not called "interest". Short selling a stock, even for SPY that could be easily borrowed, costs "borrowing rate". Each stock's borrowing rate is different. The harder to borrow, the higher the borrowing cost. If Borrowing Rate > Interest Earned on Cash Balance, then you are paying a net cost. Furthermore, Short Selling a stock will cost you "Payment In Lieu of a Dividend" if you held a stock right before a Ex-Dividend date. Cash will be deducted from your account.

External answer — Personal Finance Stack Exchange Author: Bob Baerker Original post: https://money.stackexchange.com/a/127169 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Shorters pay a borrow fee to the lending broker when they borrow shares to short. "Hard to borrow" determines the borrow rate which is as low as a fraction of a percent in very liquid issues and in some rare cases, nearly 1,000 percent. The borrow rate fluctuates daily. The shorter receives interest on the credit received from the short sale if the broker pays interest on cash balances. If he does not, you can use the proceeds to buy a security that does.