Ask Colin

I hear it is possible to rent shares? Is renting shares a new method of trading or just a different term? 

Unless there is something new that I am not aware of, renting shares refers to a long-standing facility established so that institutions can lend shares to each other to facilitate short selling.

 

There is a detailed article titled Short Selling Australian Stocks on the Educational Articles page on the Free Resources menu of my website www.bwts.com.au. However, the renting aspect is simply this: Short selling means that you sell shares first and buy them back later, hoping to make a profit if the price falls. In order to sell share that you do not own, you need to rent them from someone so that you can deliver them to the buyer. When you close out the short sale by buying them back, you return the shares to their owner. You pay a fee to the owner for the privilege of renting them.

 

Any broker can give you more information on this. However, they may be reluctant, because this is not a game for inexperienced and especially small investors. Brokers therefore tend to not want to waste time informing small clients about something that is not relevant to them. Small investors who are interested in trading falling markets might use futures, CFDs, warrants or options. However, be warned that, like short selling, these methods may involve high levels of risk and leverage and are not to be undertaken without fully understanding how they function and the risks involved. (Written 4.7.05)

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