Discover How Stock Lending Can Generate Extra Income!
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The financial market offers many ways to make money, some more well-known and others less so. Have you heard of stock lending? BTC (Banco de Títulos CBLC) is the system responsible for allowing an investor to lend their stock to someone else in exchange for compensation. In short, you can make your stocks even more profitable. Let?s talk more about that!
How Does It Work?
The process of lending your stocks to someone is quite simple and requires nothing more than the click of a button for the loans to start being made available. You just need to find the BTC section in your brokerage or ask your investment advisor.
As with any rental operation, there are two parties involved, the lender and the borrower, and it's no different here.
Lender: This is the one who already owns the stocks and intends to lend them to another investor. When the stocks are rented, the lender still remains the legitimate owner of them, so they can still sell the stocks whenever they wish and also retain their rights to any dividends distributed. By lending the stocks, the lender receives a small fee for loaning their stocks to another investor, which increases the passive returns on their stocks.
Borrower: This is the investor who, as the name suggests, "borrows" the stocks, paying a small fee for the privilege. They do this because they are setting up a short-selling operation, where they sell something they don?t actually own, hence the need to "borrow" these stocks. We can discuss more about this in another article. What do you think?
How Much Do I Earn (or Pay)?
The amounts received or paid for stock lending can vary greatly, but like everything in the market, it follows the law of supply and demand.
Imagine the following:
Scenario 1: XPTO3 stock is in a clear downtrend.
Scenario 2: XPTO3 stock is in an uptrend.
In which scenario will the price of the stock rental be higher? Many investors might look at scenario 1 and imagine the significant gains they could achieve by entering a short-selling operation of XPTO3, right? Exactly! This increases demand, and when demand goes up, so does the price! The reverse is also true in scenario 2.
Rental rates can be checked through your home broker, or you can ask your advisor. They are always displayed as annual rates but are charged proportionally based on the number of days you hold them.
Tip: Don?t enter any short-selling operation without first checking the rental rate. You may encounter a rate much higher than you expected.
