What Is Stock Lending on Robinhood?

Stock lending on Robinhood lets users lend out shares they own to institutions in exchange for passive income.

Curious about how to make your stocks work for you, even when you're not actively trading? Robinhood’s Stock Lending program offers investors the opportunity to lend their shares to other financial institutions, such as hedge funds and get paid for it. But what’s the catch? Let’s breakdown how it works, whether it’s a smart move for your portfolio and how you can benefit from lending your stocks.

How Does Robinhood Stock Lending Work?

Stock lending on Robinhood is pretty straightforward. When you enroll, Robinhood makes your eligible stocks available for lending. Institutions like hedge funds or market makers borrow these stocks for activities such as short selling or to cover shortages. In return, you earn a portion of the fees these borrowers pay. The best part? You still own your stocks and can sell them whenever you want, even while they're on loan.

Is Stock Lending a Good Idea?

Stock lending can be a good option if you want to generate extra income from your stocks. It’s important to weigh the pros and cons before diving in.

Pros

• Passive Income: You get paid for simply holding stocks that are lent out, making it a hands-off way to increase your earnings.
• Full Ownership: Even though your stocks are lent out, you retain ownership and can sell them at any time.
• No Extra Fees: Robinhood doesn’t charge you anything to participate in stock lending; the money you make is purely upside.

Cons

• Borrowers Get Voting Rights: While your stocks are on loan, you lose your voting rights on company matters.
• Dividend Impact: If your stock pays dividends, you might receive "cash-in-lieu" instead, which could be taxed differently.
• Limited Earnings: The income from stock lending is often minimal unless you hold large amounts of in-demand stocks.

Is the Robinhood Stock Lending Safe?

Robinhood’s Stock Lending program comes with security measures to protect your shares. The program follows SEC regulations, ensuring borrowers provide collateral and minimizing the risk of your stocks not being returned. It’s essential to understand that stock lending involves a certain level of risk, especially regarding dividends and market shifts. That said, Robinhood is a well-established platform with solid safeguards in place to protect its users.

How to Qualify for Stock Lending

To qualify for stock lending on Robinhood, you must meet certain criteria:

• Total Account Value: While there’s no specific minimum account value, the more valuable and in-demand your stocks are, the more likely they will be lent.
• Types of Investments: You must own whole shares of stocks, ETFs or ADRs to participate.
• Income Reporting: You’ll need to report any earnings from stock lending on your taxes.

How to Enable and Disable Stock Lending on Robinhood

Enabling or disabling stock lending on Robinhood is simple, whether you’re using the mobile app or web:

1. Mobile: Go to your account settings, find "Stock Lending," and toggle it on or off.
2. Web: Navigate to your account settings and locate the "Stock Lending" section to enable or disable it with a simple click.

How to Get Paid Through Stock Lending

Earnings from stock lending are automatically credited to your Robinhood account on a monthly basis. Payments are based on the demand for your stocks and the length of time they’re on loan. Keep in mind that if your lent stock pays a dividend, you’ll receive cash-in-lieu of dividends, which may not be as beneficial as receiving the actual dividend itself.

Is Robinhood Stock Lending Worth It?

Stock lending on Robinhood can be a great way to generate passive income without much effort. The potential drawbacks, like losing voting rights and possible tax implications, mean it isn’t for everyone. If you’re not overly concerned about having a say in company matters or maximizing dividend returns, stock lending could be worth exploring to boost your portfolio’s earning potential.

Frequently Asked Questions