what is a rebate 
in a short sale transaction a rebate is a portion of interest or dividends that is paid by a short seller to the owner of the stock or bond shares being sold short short selling requires a margin account broadly speaking a rebate is a sum of money that is credited or returned to a customer on completion of a transaction a rebate may offer cash back on the purchase of a consumer product or service this may be a flat rate rebate which is automatically subtracted from the purchase price or a conditional rebate which is only valid under certain conditions such as buy one get one free some conditional rebates require the purchaser to submit a form along with proof of payment to the company offering the cash back understanding rebatesbusinesses offer rebates for many reasons mainly because they are a potent marketing tool drawing customers who are attracted to the prospect of receiving cash back on expensive items while companies sometimes take a loss on a rebated product they often find a way to squeeze out a profit on them and even when they do take a loss customers who purchase items with rebates may buy other items in the store giving the business a net profit some companies price protect certain products by offering rebates on others hoping that sales of products with rebates will allow them to keep other products at a higher price point the mail in rebate is one of the most familiar types of consumer rebates since they require a certain amount of effort some consumers fail to take advantage of them many businesses take this into account when deciding to offer a mail in rebate knowing in advance that only a certain proportion of customers will take the cash back companies can estimate an average price reduction less than the rebate amount rebates are commonly offered on sales of new vehicles typically the vehicle manufacturer pays for the rebate rather than the dealer the manufacturer gives money to the dealer who then transfers it to the consumer by law dealers must pass on the full amount of the rebate to the customer provided the customer qualifies for it 1rebates sometimes harm the resale value of vehicles since they effectively lower their sticker price rebates vs discounts and reduced interest ratesrebates are collected after payment while discounts are taken before purchase discounts are more likely to be offered by retailers while rebates are more likely to be offered by manufacturers such as automakers reduced interest rates by contrast lower the monthly payments on large purchases such as vehicles car shoppers are sometimes presented with a choice of a rebate or a reduced interest rate when purchasing a car the rebate option will give the buyer more immediate cash in hand but a lower interest rate can provide more significant savings in the long run rebates in securities tradinga short seller in the financial markets is betting that a stock or other asset will decline in price short sellers sell securities that they do not own in order to do that the trader must first borrow the stock from its owner and deliver it to the buyer when the trader places a short sale trade the stock must be delivered to the buyer on the trade settlement date the goal of selling short is to profit from a price decline in a stock by buying it at a lower price after the sale selling short exposes the seller to unlimited risk since the price of the shares that must be purchased can increase by an unlimited amount that said a trader can exit a short sale at any time to cap the risk if dividends are paid during the period that the stock is borrowed the borrower must pay the dividends to the lender similarly if bonds are sold short any interest paid on the borrowed bond must be forwarded to the lender 2