What is an Easy-to-Borrow List?
An easy-to-borrow list is a brokerage firm's list of securities that are available for shorting.
How Does an Easy-to-Borrow List Work?
Short selling involves a three-step trading strategy that seeks to capitalize on an anticipated decline in the price of a security. First, arrangements are made to borrow shares of the security, typically from a broker. Next, the investor will sell the shares immediately in the open market with the intention of buying them back at some point. Finally, to complete the cycle, at a later date he/she will repurchase the shares (hopefully at a lower price) and will return them to the lender. In the end, the investor will pocket the difference if the share price falls, but will of course incur a loss if it rises.
For example, if Mr. Johnson firmly believes ABC Corp. stock is due to fall, he might call his broker to short 100 shares of the company. If ABC Corp. is on the easy-to-borrow list, Mr. Johnson can transact the short sale more easily because his broker doesn't have to go out and find some stock for him to sell.
Why Does an Easy-to-Borrow List Matter?
Stocks that are on the easy-to-borrow list are easier to short and might even incur lower brokerage fees to do so.
