What Is a Short Locate?Imagine this.
You wake up early, spot a small-cap stock gapping up 50% on premarket news, and decide it looks like a great short. You request a locate, accept the quoted fee, and wait for the opening bell.
The setup never comes.
Maybe the stock keeps squeezing higher. Maybe you simply decide the risk isn't worth it.
So you don't place the trade.
Later that day, you check your account and notice you've still been charged for the locate.
If you've never shorted stocks before, that charge can seem confusing.
"I never even entered the position. Why did I pay?"
The answer comes down to what a short locate actually is.
Many traders assume a locate fee is part of the short trade itself. It isn't. The fee is charged when you accept the locate, not when your short order fills. Whether you end up selling a single share or never place the trade at all doesn't change that.
Every short sale on a U.S. exchange starts the same way. Before your broker can even accept a short order, they first need to confirm that shares are actually available to borrow. That's what the locate does.
Knowing when you are charged is as important as knowing how much you're charged.
A short locate follows a simple sequence:
you request shares, your broker quotes a borrow fee, you decide whether to accept it, and you may receive a credit if those borrowed shares aren't fully used.
Once you understand that sequence, the charges on your account make a lot more sense.
๐ Why Does a Locate Exist?
When you buy a stock, the process is straightforward. You purchase shares and become their owner.
Short selling works differently.
You're selling shares you don't own yet. Those shares first have to be borrowed from someone else, with the intention of buying them back later and returning them.
Naturally, that raises an important question.
How does the broker know those shares are actually available?
That's exactly why the locate exists.
Before a broker can accept your short order, U.S. regulations require them to make a reasonable determination that the shares can be borrowed and delivered when the trade settles. That confirmation is known as a locate .
One point that often confuses newer traders is the difference between a locate and margin.
A locate is the broker's confirmation that shares are available to borrow before opening a short position. Margin, on the other hand, is financing that's applied after a position exists. They may both appear as costs on your account, but they're solving two completely different problems.
If you're an active short seller, you'll often request locates before the market even opens. Many brokers start accepting locate requests as early as 4:00 AM ET , giving traders time to secure borrow before reacting to overnight news or premarket price moves.
Think of it this way: a locate doesn't put you into a trade. It simply makes the trade possible.
๐ What a Short Locate Actually Is
A short locate is simply your broker confirming one thing:
"Yes, we can borrow these shares for you."
That confirmation happens before your short order is even allowed into the market.
Think of it as a reservation.
Your broker checks its network of lenders, finds shares that are available to borrow, and offers to reserve them for you at a quoted price. If you accept, those shares are set aside so they're available when you decide to enter the short trade.
That's why every locate has three parts:
Confirmed borrow availability: the broker has found shares that can be borrowed.
A quoted per-share fee: the cost of reserving those shares.
Same-day validity: if you don't use the locate that day, it expires and you'll need a new one for the next trading session.
That confirmation is what satisfies U.S. short-selling regulations. The fee is simply what you pay to reserve that borrow, if applicable.
๐ ETB vs HTB Stocks
Not every stock is equally easy to borrow.
Big, liquid companies are usually easy to borrow (ETB) . There are plenty of shares available, so the locate is often instant. In many cases, it costs very little, or nothing at all.
Hard-to-borrow (HTB) stocks are different.
Lots of traders want to short them, but only a limited number of shares are available to borrow. That shortage pushes locate fees higher, especially in fast-moving small-cap stocks.
One important thing to remember is that locate pricing isn't fixed.
It's driven by supply and demand in the securities lending market. A locate that costs just a few cents today could cost several times more tomorrow if more traders suddenly rush to short the same stock.
๐ The Four Stages of Every Short Locate
No matter which broker you use, every locate follows the same basic sequence.
Step 1: Request
Everything starts with a request.
You enter the ticker, choose how many shares you'd like to short, and submit the locate request.
Nothing has been reserved yet.
More importantly, nothing has been charged.
At this stage, you're simply asking your broker to see what's available.
Step 2: Offer
The broker then searches its network of securities lenders and comes back with an offer.
That offer usually includes two things:
the number of shares available
the per-share locate fee
Think of this as receiving a quote.
You're still under no obligation to proceed.
If the price looks too expensive, you can simply decline it and move on without paying anything.
Step 3: Accept the Offer
This is the step that catches many new traders off guard.
The moment you click accept , the locate fee becomes payable.
That's because you're paying to reserve access to those borrowed shares, whether you ultimately use them or not.
Step 4: Credit-Back or Expiry
Once the trading session ends, one of two things usually happens.
If your broker supports unused-locate credits, and the borrowed shares can be returned to the lending pool, you may receive a partial credit back.
If not, the locate simply expires.
Most brokers don't carry unused locates into the next trading day. If you still want to short that stock tomorrow, you'll need to request a completely new locate.*
Let's take a simple example.
Suppose you request a locate for 500 shares of a hard-to-borrow stock before the opening bell.
Your broker quotes $0.08 per share .
You accept the quote.
At that moment, you've committed to a $40 locate fee (500 ร $0.08).
A few minutes later, the stock becomes too volatile, so you decide not to short it after all.
Even though no trade was placed, the $40 locate fee still applies because the borrow was already reserved when you accepted the quote.
๐ Short Locate vs. Hard-to-Borrow
These two terms are closely related, but they aren't interchangeable.
A hard-to-borrow (HTB) designation describes the stock .
It simply means borrowable shares are relatively scarce compared to current demand.
A short locate describes the process .
It's the request your broker performs before any short sale, whether the stock is easy to borrow or hard to borrow.
With an easy-to-borrow stock, the entire process often happens so quickly that you barely notice it.
With an HTB stock, the exact same process takes place, but the quoted fee is usually much higher, and there may not be enough shares available to satisfy every request.
Interestingly, that status can change surprisingly quickly. A stock that's easy to borrow today can become hard to borrow tomorrow if short interest spikes or available inventory dries up.
๐ Why This Matters Before You Click "Accept"
Once you understand how short locates work, that "accept" button means a lot more.
You're not just agreeing to a fee but deciding if the trade is worth paying for.
Before accepting a locate, experienced short sellers usually pause for a few seconds and ask themselves:
Am I actually going to trade this stock?
Is this setup good enough to justify the locate fee?
If I never take the trade, am I okay losing this money?
These questions can save you from a common beginner mistake i.e. paying for a locate and never using it.
๐ Final Thoughts
A short locate may seem like a small step but understanding it can save you money.
Remember the process: Request โ Offer โ Accept โ Expiry.
The locate fee isn't the cost of opening a short trade, but the cost of reserving the opportunity to enter one.
Have a question about short locates we havenโt covered?
Drop it in the comments.
โ Team TradeZero
*Refund eligibility for unused locates is subject to applicable terms, conditions, and operational requirement.
๐ Disclosure:
This communication is for informational and educational purposes only. It does not constitute investment advice, an offer to sell or a solicitation to buy any security or financial instrument mentioned, or a recommendation to follow any particular trading strategy.
Trading involves risk. Trading on margin is intended for experienced investors only, as losses may exceed the initial investment. Short selling is extremely risky and can potentially result in unlimited losses. Availability of locates is not guaranteed and may vary based on market conditions and security availability. Please refer to TradeZero's current pricing and locate terms for additional information.
TradeZero provides self-directed brokerage accounts to customers through its operating affiliates: TradeZero America, Inc. a United States broker dealer, registered with the Securities and Exchange Commission (SEC) and member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC); TradeZero, Inc., a Bahamian broker dealer, registered with the Securities Commission of the Bahamas; and TradeZero Canada Securities ULC, a Canadian broker dealer, member firm of the Canadian Investment Regulatory Organization (CIRO) and member of the Canadian Investor Protection Fund (CIPF); and TradeZero Europe B.V., a Dutch broker dealer, authorized and regulated by the Netherlands Authority for the Financial Markets (AFM) and subject to the regulatory framework of the European Securities and Markets Authority (ESMA) under MiFID II (collectively, the "TradeZero Broker Dealers").
This article was provided by TradeZero to TradingView for publication pursuant to a commercial agreement.
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