when a short seller borrows shares to make delivery to the buyer the seller must pay a rebate fee this fee depends on the dollar amount of the sale and the availability of the shares in the marketplace if the shares are difficult or expensive to borrow the rebate fee will be higher 
in some instances the brokerage firm will force the short seller to buy the securities in the market before the settlement date this is referred to as a forced buy in a brokerage firm may require a forced buy in if it believes that the shares might not be available on the settlement date 3before going short a trader should check with their broker what the short sale rebate fee is for that stock if the fee is too high it may not be worth shorting the stock the federal reserve board s regulation t requires that all short sale trades must be placed in a margin account a margin account requires the investor to deposit 150 of the value of the short sale trade 4 so for example if an investor s short sale totals 10 000 the required deposit is 15 000 since short sellers are exposed to unlimited losses a substantial deposit is required to protect the brokerage firm from potential losses in a customer s account if the price of the security increases the short seller will be asked to deposit more money to protect against larger losses if the price continues to rise on a position causing a larger loss and the borrower is unable to deposit more capital the short position will be liquidated the borrower is liable for all losses even if those losses are greater than the capital in the account 5for example assume a trader shorts 100 shares at 50 they are short 5 000 worth of stock and are therefore required to maintain a balance of 50 more than that or 7 500 if the stock drops there is no problem since the short seller is making money but if the stock rises rapidly the trader could face significant losses and may be required to put more money in the account if the stock jumps overnight to 80 per share and the trader is unable to get out before that it will cost them 8 000 to get out of that position the trader must increase the account capital to 12 000 to keep the trade open or exit the trade and take the loss if they take the loss it is 30 per share multiplied by 100 shares which is 3 000 this will be deducted from the 7 500 balance leaving them with only 4 500 minus fees example of a rebatesuppose a trader borrows 10 000 worth of stock abc with the intention of shorting it the trader has agreed to a 5 simple interest rate on the trade settlement date this means that the trader s account balance should be 10 500 by the time the trade is settled the trader is responsible for transferring 500 to the investor or the person they borrowed the shares from to make the trade on the trade settlement date 