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Securities lending is a method of increasing the yield on a long-term equity portfolio by lending out some of your shares for a fee. The main reason why other investors would want to borrow your securities is short-selling requirements, where a trader expresses a negative view on an asset’s price by borrowing shares then replacing them at a new, lower price. Short selling is an inherently risky activity so there is a risk that the borrower may run into difficulties, potentially harming your investment.
Anyone with long-term equity holdings can lend out their securities for a fee, if their broker allows it. Normally this will involve splitting the fee with your broker who will handle the legal documentation side of the agreement. The premium is paid to reward investors for both the inconvenience of locking up your shares and also the theoretical risk of a default by the borrower. Investors with long-term holdings can increase their yield by receiving this premium in addition to any dividends and the capital accumulation of the shares.
Short-sellers borrow securities in order to profit from downwards price moves in equities, without using derivatives. To do this, a fund – normally a hedge fund – borrows securities at the current market price, holds them for a certain period, then when the price has declined, returns the borrowed securities by replacing them with new ones bought at the (hopefully) lower price. The problem with short selling is that in theory the potential losses from this kind of trade are unlimited; in practice funds will exit the position before it becomes untenable, but the strategy remains high-risk.
ADSS offers a range of global markets for traders, with CFD opportunities in indices, commodities, forex, equities and more. We also feature tutorials, how-to guides, and weekly webinars to help you navigate the financial markets and find better trading opportunities. You can start trading and investing online by opening a live trading or demo trading account.
ADSS
8th floor, CI Tower
Corniche Road
PO Box 93894
Abu Dhabi
United Arab Emirates
Trading Services
ts@adss.com
+971 2 657 2414
Investing in CFDs involves a high degree of risk that you will lose your money due to the use of leverage, particularly in fast moving markets, where a relatively small movement in the price can lead to a proportionately larger movement in the value of your investment. This can result in loses that exceed the funds in your account. You should consider whether you understand how CFDs work and you should seek independent advice if necessary.
ADS Securities LLC – S.P.C (“ADSS”) is authorised and regulated by the Securities and Commodities Authority (“SCA”) in the United Arab Emirates under First Category: Dealing in Securities and Fifth category: Arrangement and advice (Introduction). ADSS is a Limited Liability Company – Sole Proprietorship Company incorporated under United Arab Emirates law. The company is registered with the Department of Economic Development of Abu Dhabi (No. 1190047) and has its principal place of business at 8th Floor, CI Tower, Corniche Road, P.O. Box 93894, Abu Dhabi, United Arab Emirates.
The information presented is not directed at residents of any particular country outside the United Arab Emirates and is not intended for distribution to, or use by, any person in any country where the distribution or use is contrary to local law or regulation.
ADSS is an execution only service provider and does not provide advice. ADSS may publish general market commentary from time to time. Where it does, the material published does not constitute advice, or a solicitation, or a recommendation to a transaction in any financial instrument. ADSS accepts no responsibility for any use of the content presented and any consequences of that use. No representation or warranty is given as to the completeness of this information. Anyone acting on the information provided does so at their own risk.
