hello friends,

if you are new to the securities biz you may not be aware that many of your brokerage firms use your shares to loan out to short sellers who then crush the price of the very stock you are investing in!

why you might ask does your broker work against your interests?

easy, he gets $$$ for loaning out the shares.  a brief tutorial with some broad generalities:

a share of a stable and very liquid stock, like say, microsoft might be loanable for 1 - 6% in a boring market depending who the borrower is  connected to, what balances they keep at the firm, and how much trading revenue they generate, etc.

whereas a stock that is highly volatile (any stocks come to your mind?) might bring 20 - 40% annual interest on a loan out!!!

(these % interest rates are not exagerations)

the legal short seller borrows your shares, from your broker,  then sells into the market lowering the selling price of ALL shareholders.

this is a bit simplified but if you talk with a trusted expert (believe me your broker is not the  person i have in mind) you will see what i mean.

often, your margin account agreement (i know retirement accounts, in the states at least,ldo not have margin agreements) lets your broker loan out anything in your account!  read the fine print! 

why do you think so many firms will offer trades for $9.95.  the trading commission is irrelevant when you can make a ton of $$ loaning out stuff you do not own!

now remember in the U.S. IRA accounts do not have margin ability and should not be able to be loaned, i  do not know about the canadian rrs??? (sorry i forgot the abreviation for canadas retirement system) or equivalent.

now you should be asking yourself:

 if my shares are loaned out what happens if my broker (most of whom are heavily involved in derivatives) goes broke?? 

also,

why are my own shares being used to bludgeon the value of what i thought was my own holding and i thought was my own exclusive asset??

many brokers are not aware of what goes on in the backroom of a brokerage firm, they are just salesmen and order takers.  so you need to do some homework.

after you do some homework you might come to the next question:

 how do i protect myself and simultaneously thwart legal short sellers.

the answer you may decide is to take delivery of the shares, ie get the actual certificate in hand and stash in a safety deposit box. 

 many a wise investor has found this useful on several counts.

you will find that if you request your shares your broker might squeal like a stuck pig.  now you will know why.

related to the above, do not take my word for this, do your own homework.  you will be glad you did.

do your own homework.

be right and sit tight.

regards,

jeff