Unborrowable stock

What is an unborrowable stock?

An unborrowable stock is a stock that no one is willing to lend out to short-sellers. In the traditional practice of short-selling, you would find a market participant who is happy to lend you the stock, and then buy it back from you once you close the position. The meaning of ‘unborrowable stock’ comes from the failure of this process: if no one is prepared to lend you the stock, it becomes unborrowable.

Usually, finding short-selling opportunities is the job of your broker, who will then pass the owner's borrowing costs on to you. However, short-selling can depress a share’s price on the market and may even bring about a bear market. The lender of your shares would still maintain their long position on the stock, so, if there is a high short interest then they may start to pull their shares off the market. Your broker may then find it impossible to find a lender for this particular stock, which means that the stock has become unborrowable.

When shares in a company become unborrowable, the traditional means of short-selling them is impossible. Using CFDs for short-selling can give you a much more flexible method of shorting, because you are not selling the actual shares, but speculating on the price movements.

Example of an unborrowable stock

Let’s say that you decide to short-sell 100 shares of company ABC. Your broker has found you another investor who has a long position on 100 shares of ABC that is willing to lend you the shares to short-sell, and you are able to open your position.

After a few weeks, your prediction was correct, and the shares have declined. Due to the short-selling pressure, your lender has decided to close their long position for a loss, so their shares are no longer available to you. You are forced to close your position and sell the shares back to them because the shares have become ‘unborrowable’.