A short locate is your broker’s confirmation that shares of a stock can be borrowed, so you’re allowed to sell it short. On easy-to-borrow names this happens invisibly and costs nothing; on hard-to-borrow names you request the locate, pay a per-share fee upfront, and that fee is gone whether you take the trade or not.
That second case is where short sellers get surprised. The locate fee is only the entry ticket. Hold the short overnight and a separate borrow fee starts running, charged daily, weekends included. This page walks through the rule behind locates, the request process, what the fees do to your risk-reward, and why two brokers can quote wildly different prices on the same stock.
The rule behind it: Reg SHO’s locate requirement
You can’t legally sell short on a hunch that shares will turn up later. Under Rule 203(b) of the SEC’s Regulation SHO, a broker-dealer must have reasonable grounds to believe a security can be borrowed and delivered on the delivery date before executing your short sale, and that locate has to be made and documented before the order goes off.
Selling short without borrowing or arranging to borrow is naked short selling, and if the shares never get delivered it becomes a failure to deliver. Reg SHO’s Rule 204 forces clearing firms to close those out quickly, and Rule 10b-21 makes deceiving a broker about your ability to deliver outright fraud. Market makers doing bona fide market making get a narrow exception to the locate requirement; you don’t.
One more piece of Reg SHO matters for day traders: Rule 201, the short sale restriction (SSR). When a stock drops 10% or more from the prior close, short sales are restricted to prices above the best bid for the rest of that day and the next. SSR doesn’t stop you from shorting; it changes how your orders can fill.
Easy to borrow, hard to borrow, and the two categories past that
Brokers sort every stock into borrow categories each day. SpeedTrader documents four, and the structure is similar across direct-access firms:
| Category | What it means | Locate needed? |
|---|---|---|
| Easy to borrow (ETB) | Plenty of shares available, typically large liquid names | No, just hit the short button |
| Hard to borrow (HTB) | Limited supply; usually low float, heavily shorted, or in play | Yes, paid locate, reusable intraday |
| Reg SHO threshold | Persistent failures to deliver (10,000+ shares and at least 0.5% of shares outstanding failing for five straight settlement days) | Yes, and a standard locate is good for one short per locate; pre-borrows or single-use locates apply |
| Short prohibited | No shorting at all | Not applicable |
Notice the pattern: the stocks that show up on momentum scans every morning, the low-float gappers with a catalyst, are exactly the ones most likely to sit in the HTB or threshold bucket. The supply of borrowable shares is thinnest precisely where short sellers most want to be. If float mechanics are new to you, the explainer on float and volume covers why a 3-million-share float behaves the way it does.
How a locate request actually works
On a direct-access platform the locate tool is built into the software. In DAS Trader you open the short locate window, enter the symbol and share count, and send the request; Cobra Trading’s locate tutorial shows the same flow in both DAS and Sterling. The broker pings its borrow sources, often a dozen or more venues, and comes back in seconds with availability and a per-share price. You accept or decline.
Three mechanics matter more than anything else in that window:
- Accepting the locate charges you immediately, trade or no trade. Cobra, CenterPoint, and SpeedTrader all state this explicitly: the fee applies whether you ever short the shares or not.
- Accepting a locate is not a short order. It only makes the shares available. You still have to send the trade.
- A locate is good for that trading day. On non-threshold stocks you can short, cover, and re-short on the same locate intraday. Threshold securities are one short per standard locate.
Hours run long at brokers built for this. SpeedTrader and TradeZero both document locate availability from 4 a.m. to 8 p.m. ET, which matters because the smart play on a premarket gapper is to price and secure your locate before the open, not while the stock is ripping at 9:32. TradeZero’s locator adds a wrinkle worth knowing: unused locates can be marked for credit and potentially reapplied to other customers, recouping part of the fee, per its locates page.
What locates cost: the math nobody runs
Cobra Trading states that locate fees typically run 1–5 cents per share but can vary significantly with demand and the overnight rate. On a hot ticker, demand is the operative word; pricing is dynamic and can move intraday.
Run the numbers on a normal trade. Say a low-float stock gapped 70% premarket and you want 2,000 shares short. The locate comes back at $0.04 per share: $80, charged the moment you accept. Your plan risks $0.15 per share with a $0.45 target, so $300 max loss against a $900 target. The locate changes both sides. A stopped-out trade now costs $380, and a winner pays $820. Your two-to-one trade quietly became roughly 2.2-to-1 the other way of measuring it, and a scratch trade is no longer free; it’s down $80.
That’s at four cents. On the most crowded names, locates price far higher, and the calculation flips entire setups from tradeable to skip-it. The discipline this forces is real: if the locate fee is a meaningful fraction of your expected winner, the edge belongs to the lender, not to you.
One behavioral trap deserves its own sentence. The locate fee is a sunk cost the instant you accept it, and shorting a bad setup just because you already paid for the shares is throwing good money after bad.
Locate fee versus overnight borrow fee
These are two different charges, and SpeedTrader’s documentation draws the line cleanly: a locate confirms the broker can reasonably borrow the shares so you can short intraday; a borrow is the actual loan of shares that backs a position held overnight.
| Locate fee | Overnight borrow fee | |
|---|---|---|
| When it hits | Once, when you accept the locate | Daily while the borrow is open, weekends and holidays included |
| How it’s priced | Cents per share | An annualized percentage rate on the borrowed shares’ value |
| Day trade only? | This is the only borrow cost you pay | Doesn’t apply if you cover before the close |
The borrow clock is tied to settlement, which has been T+1 (trade date plus one business day) since the SEC’s shortened settlement cycle took effect in May 2024. That creates the weekend charge that surprises people: short a stock Thursday night, cover Friday, and the buy doesn’t settle until Monday, so you pay borrow fees for Friday, Saturday, and Sunday.
The rates aren’t trivial. SpeedTrader notes that hard-to-borrow names can carry annualized borrow rates over 100%, and in extremes into four figures. At 150% APR on a $10,000 short position, that’s roughly $41 a day, and a Thursday hold runs about $123 before Monday’s open. Worse, if your short halts for multiple days, the borrow fees keep accruing the entire time the stock sits frozen; a halt doesn’t return the shares or pause the meter.
Why your broker matters more than almost anything here
Brokers don’t draw from one shared pool of borrowable stock. CenterPoint’s guide says it plainly: different firms have access to different inventory, and not all locate services are equal. A retail app may simply show “not shortable” on a name where a direct-access desk fills a 5,000-share locate in seconds. That difference is structural, and it’s the main reason small-cap short sellers gravitate to direct-access brokers; the broader trade-offs are covered in direct access versus retail brokers.
The firms that compete on locates publish their tooling. Cobra Trading runs locate monitors inside DAS and Sterling plus a desk you can message for sources the tool doesn’t cover. CenterPoint Securities built its identity around short inventory for larger accounts. TradeZero’s locator prices availability across more than a dozen venues in real time and lets you credit back what you don’t use. Locates are also where active-trader perks live: Cobra’s PRIME program, for one, covers the cost of tools like Trade Ideas for clients trading 200,000+ shares a month, a route worth understanding before paying retail for a scanner; the details are in how to get Trade Ideas free through your broker.
A locate gets you into the trade. It does nothing about whether the trade was any good, and shorting parabolic low-float stocks is one of the fastest ways to blow up an account when a squeeze goes against you, since the loss on a short has no ceiling. Most day traders lose money, and short sellers pay fees on top of being wrong. Size like the locate fee is the cheapest mistake you’ll make that day, because it is.
Next step: pick the broker before the borrow
If you’re serious about shorting beyond ETB large caps, the locate infrastructure decides your broker shortlist for you. Start with the comparison of the best brokers for short selling, which ranks firms on locate sourcing, fees, and hard-to-borrow inventory.
Sources
- Key points about Regulation SHO, U.S. Securities and Exchange Commission
- SEC statement on implementation of the T+1 settlement cycle
- Cobra Trading: how to locate shares of hard-to-borrow securities
- SpeedTrader: short selling and stock locate search
- TradeZero: short selling tools and locates
- CenterPoint Securities: guide to stock locates
- Cobra Trading: Cobra PRIME program
FAQ
Do I pay the locate fee if I never short the stock?
Yes. The fee is charged when you accept the locate offer, and brokers including Cobra Trading, CenterPoint, and SpeedTrader state that it applies whether or not you execute a short sale. Decline the offer if the price doesn’t fit your trade.
Can I reuse a locate after I cover?
For most hard-to-borrow stocks, yes: a locate is reusable intraday, so you can short, cover, and short again on the same fee. Reg SHO threshold securities are the exception, where a standard locate covers one short and a fresh locate or a pre-borrow is needed to re-enter.
Why was I charged borrow fees over the weekend?
Borrow fees run on settled positions, and settlement is T+1. A short held Thursday night and covered Friday doesn’t settle until Monday, so the borrow accrues for Friday, Saturday, and Sunday even though the position was closed before the weekend.
What’s the difference between a locate and a borrow?
A locate is the broker confirming, before your short sale, that shares can reasonably be borrowed for delivery; it’s what Reg SHO requires and what day traders pay for. A borrow is the actual loan of shares that supports a short position held overnight, billed daily at an annualized rate on the position’s value.
What happens if I’m short a stock that gets halted?
You stay short until trading resumes and you can buy to cover, and borrow fees continue to accrue every day of the halt. Multi-day halts on hard-to-borrow names can turn a small position into a large bill.
Are locate fees the same at every broker?
No. Each firm sources borrows from its own mix of inventory and third-party venues, so availability and pricing on the same ticker differ from broker to broker, sometimes dramatically. Brokers that specialize in short selling typically locate across ten or more venues and quote in seconds.