How Stock Lending Works and When It Can Be Profitable

Renting shares is an increasingly popular strategy among investors looking for a way to monetize their assets without having to sell them.

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This practice allows an investor who owns shares (donor) to "rent" them to another (borrower) for a certain period, receiving a rental fee in return.

Meanwhile, the borrower uses these shares for specific strategies, such as short selling.

But how does this process work and when can it be profitable? Let's take a closer look.

What is Share Renting and How Does it Work?

Share Rental

Renting shares is basically an agreement between two investors, mediated by a broker or a financial institution, where the donor (the person who owns the shares) temporarily gives their shares to the borrower.

In return, the donor receives a fee, which is the rental rate.

This amount is agreed in advance and is usually a percentage of the total value of the shares rented.

For the borrower, the interest in renting shares is generally related to the strategy of short selling.

In this strategy, the borrower sells the leased shares with the expectation that the price will fall, allowing him to repurchase them at a lower price and return them to the lender, profiting from the difference.

The process is simple:

  1. Registering with a brokerTo rent shares, both donors and borrowers need to be registered with a brokerage firm that offers this type of service.
  2. Making shares availableThe donor makes their shares available for rent at the brokerage house. They retain all rights to dividends and any bonuses.
  3. Rental agreementWhen the borrower is interested in the shares, the broker formalizes a contract that establishes the term, rate and other rental conditions.
  4. Return of sharesAt the end of the contract or when the borrower decides to close the position, he must return the shares to the lender.

Advantages and Risks for the Donor

For those who own shares and want to rent them out, the biggest benefit is the extra return without having to sell the assets.

The donor remains the owner of the shares and retains the rights to dividends, bonuses and other income that may be distributed during the rental period.

In other words, he earns as much from the increase in value of the shares as he does from the rent.

However, as with any investment, renting shares is not without its risks.

Although the borrower is obliged to return the shares at the end of the contract, there may be a risk of default if the borrower is unable to buy them back.

In Brazil, however, the share rental market is guaranteed by the stock exchange (B3), which mitigates this risk, since the institution assumes responsibility for returning the shares in the event of problems with the borrower.

Another point to bear in mind is that if the value of the shares rises sharply during the rental period, the donor cannot sell them immediately, since they are in the possession of the borrower.

In this case, he may miss the opportunity to make a significant profit from selling the shares.

When is Renting Shares Profitable?

Renting shares can be profitable in two main scenarios:

  1. Lateralized marketIf your shares are stable, with no major fluctuations in price, renting can be an interesting way of generating additional income. In this case, you earn the rental fee without losing the benefits of future appreciation or dividends.
  2. Long-term investmentIf you are a long-term investor and don't intend to sell your shares for a long time, renting can be a way of maximizing your profits. During the period in which you keep the shares, they can generate extra income while continuing to appreciate in value.

However, it is important to evaluate the rental fee.

In periods of high volatility, these rates tend to be more attractive, since more investors will be willing to rent the shares to carry out short sales.

Examples of Applications for Renting Shares

There are several brokerage apps that make the process of renting shares easier.

Below are some popular and well-rated examples:

XP Investments

XP's application offers a friendly and easy interface for renting shares.

The broker has one of the largest portfolios of assets available for rent.

Play Store Review: 4.6 stars

BTG Pactual Digital

Another widely used app, BTG Pactual Digital offers advanced tools and specialized support for renting shares, making it a good choice for investors of different profiles.

Play Store Review: 4.4 stars

ModalMais

ModalMais is known for its competitive rates and ease of use for those wishing to rent shares. In addition, the app allows you to closely monitor investment performance.

Play Store Review: 4.2 stars

Conclusion

Renting shares can be an interesting strategy for investors looking for a way to monetize their assets without disposing of them.

It offers an opportunity for extra income, especially in stable markets or for those who adopt a long-term strategy.

However, it is essential to be aware of the risks and ensure that the rental conditions are in line with your investment strategy.

With the support of reliable brokers and tools such as apps like XP InvestimentosThe process becomes even simpler and more accessible.

In the end, remember that choosing the best stock rental contract is a process that requires attention, research and sometimes expert advice.

Ensuring that your choices are aligned with your expectations and financial objectives is a fundamental step towards successfully using this investment strategy.