Quote:I understand that if you have a margin account it's best to lock shares up into a sell order to prevent them from borrowing against.
Here's what I understand:
1) With a margin account, -yes, the broker can borrow your shares for shorting without asking (or paying) in most cases. It's in your margin account agreement.
2) The concept of "locking up" your shares by putting in an order to sell them at a high price IS A MYTH, -your broker can still borrow your shares for shorting.
3) The only way to prevent shares from being loaned for shorting is to have them in a CASH ACCOUNT (or possibly, to request some kind of written agreement with your broker that prevents shorting).
Here's a big long post I and others wrote about this several years ago:
Sunday, October 22, 2017 11:30:22 AM
Post# 3654 of 3654
(Total Views: 5)
Posted On: 10/22/2017 11:28:00 AM
Posted By: riskreward007
WHY LOCKING UP SHARES (WITH A GTC ORDER) IS A MYTH:
Sunday, October 22, 2017 10:49:01 AM
Post# 3635 of 3649
Posted On: 10/22/2017 1:47:32 AM
Posted By: CyberC
To all investors:
Re: M&M's borrowing shares
I spoke directly to a TD Ameritrade Representative ( I asked....can putting your shares up for sale in a margin account prevent M&M's from borrowing your shares?) who had to take that exact question to a superior to get an answer. I was very disappointed when they told me that even if the shares were for sale, that the M&M's can still borrow their shares. The only way to keep M&M's from being able to borrow the shares of an investor was to have them in a Cash Account. I have put all of my shares in a Cash Account!!!
Another poster said that Fidelity told them the same thing.
CyberC
moneym8ker
Thursday, 07/28/16 01:43:35 PM
Post # 66137 of 66205
No sell order at ANY PRICE "locks up" your shares.
Do you have a "margin account" with your brokerage? If you do? Then you accepted an agreement in the account sign up process and your shares can be borrowed from you and loaned out.
This is TRUE FOR ALL ONLINE BROKERAGES.
Have a cash account only with no margin account enabled. Then your shares are safe from being borrowed.
Not convinced that the "lock your shares up with GTC orders" is just a myth?
Contact your broker (Etrade, TDA, Scottrade, Fidelity, etc) and do two things:
1) determine if you're cash account only or if you've enabled margin trading.
2) request a "Loan Exempt Restriction". This restriction exempts your shares...all shares in the account, from being loaned out.
Still not convinced?
Read FINRA RULE 4314-4330. The rules specifically cover the borrowing and loaning of shares held in accounts of online brokerages as well as brick and mortar brokerages.
GTC orders DO NOT LOCK UP YOUR SHARES.
So why is it important to dispel this myth?
Simple...if you believe the myth, and you've done nothing more than put a GTC order in for your SFOR shares then YOU’VE ACTUALLY DONE NOTHING AND YOUR SHARES ARE STILL BEING BORROWED AND LOANED OUT.
Any trader, on any board who perpetuates this myth does more harm than good.
CORRECTLY "locking up your shares" HURTS "SHORTY".
Incorrectly locking up your shares ACTUALLY HELPS SHORTY!
How? How does incorrectly locking up your shares HELP THE VERY GROUP OF TRADERS YOU DONT WANT TO BE HELPING IF YOU’RE LONG SFOR?
It helps them because you only THINK you're locking up shares...but you haven't locked up anything. So now, thinking your shares are safe from shorty, they're not at all safe and shorty gets to borrow, borrow, borrow all day long with you blind to the fact that you're actually hurting yourself.
Get the facts...repeat the facts...dispel the myth AND ACTUALLY MAKE YOUR LONG SHARES STRONGER BECAUSE THEY ARE OFF THE SHORTS TABLE!
moneym8ker Friday, 07/29/16 03:57:15 PM
Re: Plato post# 66669
Post # of 66681
Plato...
Those who claim that a GTC sell "locks up" your shares from being borrowed and loaned out from shorts are part of the problem...certainly not the solution.
In fact, it actually HELPS SHORTS who propagate this myth to their own favor.
Let's say I'm a short.
I tell longs...any long who will listen, to simply lock up their shares with GTC sell orders. Those longs who believe it, and don't research it... enter GTC sell orders thinking it will help prevent shorting...when in fact, they've done nothing.
It'd be like a burglar saying "all you have to do to keep burglars out is "cast a spell over your doors and windows" knowing full well that locks, not spells, are what keeps a burglar out.
All others who continue this GTC with high sell orders myth...you're to blame for keeping your millions of shares available to be borrowed/loaned out, and then shorted.
riskreward007
Thursday, 07/28/16 06:36:49 PM
Re: moneym8ker post# 66144
Post # 66211 of 66214
CORRECT INFORMATION ON LOCKING UP YOUR SHARES:
1) CASH ACCOUNT: DO NOTHING. Your shares are ALREADY LOCKED UP and can't be loaned out for shorting by your broker.
2) MARGIN ACCOUNT: Complete a LOAN EXEMPT RESTRICTION (LER) form that's available from some online brokers to prevent the loaning out of your shares. If they won't give you a LER, then move your shares to a cash account.
I REALLY HOPE THAT PEOPLE HERE WILL PAY ATTENTION TO THIS, AND STOP PERPETUATING THE MYTH OF: LOCKING UP YOUR SHARES WITH GTC ORDERS (WHICH DOES NOTHING TO PREVENT THEM FROM BEING LOANED OUT). I SEE THIS MYTH PERPETUATED CONSTANTLY ON PRACTICALLY EVERY STOCK BOARD I VISIT.
Additional Info:
Posted On: 10/22/2017 11:40:11 AM
Posted By: Stargazer2000
I have a Schwab cash account and for one stock that I own I was asked by Schwab if I would be interested in loaning all my shares to some other customer so they can short the stock. I was offered the first time 5%, than 10% and the final offer was 25% of the value of the stock per year times the share price times the percentage dived by 100. So, I owned 100,000 shares and times 25% (if they kept it that long) times $1.50 so they would pay me $37,500 if they loaned the stock for one year. I said no each time, so even with a cash account they can do it but they pay. I was wondering if in a margin account the brokerage firm also gets reimbursed for loaning a customer's stock but keeps it...
Posted On: 10/22/2017 12:03:43 PM
Posted By: riskreward007
Re: Stargazer2000 #3657
Yes, if you have shares in a margin account, the broker can loan them out (for shorting) and keep the money for loaning them.
Margin accounts are especially lucrative for brokers, as they don't have to pay anyone to loan shares or ask anyone's permission (it's in your margin account contract).
If your broker was willing to pay you that much to borrow your shares for shorting, they obviously make big $$$ doing this.
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