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Written by Sam Pennington on February 11, 2023
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How Does Robinhood Stock Lending Work In 2024?

If you're an investor with Robinhood, you may have heard of Stock Lending.

This program allows you to earn extra income on the stocks you already own.

Here's what you need to know to get started.

When you lend out your stocks, you earn interest on the loan, which is paid to you on a monthly basis.

Robinhood facilitates the lending process and matches borrowers with lenders.

Learn More: Robinhood Retirement 3% Match

Robinhood is a popular "all-in-one" investing app.

While they are most well-known for their commission free stock trading, they've recently shaken up the Retirement Investing World too.

Introducing Robinhood Retirement; home of the biggest IRA match on the market.

Robinhood IRA Boost

Here's what you need to know:

  • Robinhood offers 2 types of retirement accounts - the Roth IRA and Traditional IRA
  • All Robinhood investors will get a 1% Match on what they Contribute or Transfer
  • Robinhood Gold members will get a 3% Match - the biggest on the market

And don't worry, this comes with a Portfolio Builder Tool. You don't have to construct your investment portfolio from scratch if you don't want to.

Lastly, you'll even get a free stock worth up to $200 when you open a new Robinhood account using our link.

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How Does Stock Lending Work?

To be eligible for Stock Lending, you need to have a total account value of at least $5,000, reported income of at least $25,000, or some trading experience.

If your account is flagged for pattern day trading, you are not eligible for Stock Lending until you are no longer flagged as a pattern day trader.

If you are eligible for Stock Lending, you can enable it through the app or website.

Once you enable Stock Lending, Robinhood will begin searching for borrowers for your stocks.

At this time, you cannot select which stocks to lend out.

If you enable Stock Lending, your entire equities portfolio will be considered for lending.

If your stocks are loaned out, you can still sell them at any time and realize gains or losses as you would otherwise.

What Assets Are Eligible For Stock Lending?

Whole shares of fully paid securities, including stocks, ETFs, and ADRs, are eligible for Stock Lending.

Securities purchased on margin and fractional shares are not eligible.

If you have fractional shares of a security, such as 1.5 shares of BCDE, only one share can be loaned out through Stock Lending.

How Do You Get Paid Through Stock Lending?

When Robinhood borrows shares of a particular stock from your account on a given day, you earn interest on the loan.

You will earn either:

  • A rebate rate that is 15% of the weighted average rebate rate earned by lending that stock to borrowers on that day.
  • $0.01 for your total position in that stock that was borrowed during that month.

This would be your share of the rebates Robinhood earned for that stock on that day.

Your income from Stock Lending will vary from month to month.

You're more likely to earn money when there's high market demand and low market availability for the stocks you own.

You maintain economic ownership of your stocks and can sell them at any time.

The value of your stocks isn't fixed to the price based on which they're loaned and may go up and down.

If you decide to sell your shares, you'll realize any gains or losses on them.

What Happens With Dividends?

Stocks on loan can still earn dividends.

The resulting amounts are just paid out and taxed differently.

If your stocks are on loan, you'll still receive cash equal to any dividends earned, which will be passed to you from the borrower through Robinhood.

These payments are often referred to as "cash in lieu of dividends" or "manufactured dividends."

Manufactured dividends will be labeled on your brokerage account statements as "Manufactured Div." instead of "Cash Div."

The other big difference is that while dividends are taxed as capital gains, manufactured dividends are taxed as ordinary income.

This means that the tax rate applied to them will be your ordinary income tax rate.

What Are The Risks Of Stock Lending?

While Stock Lending can provide an additional source of income, it’s important to understand the risks involved.

  • There is no guarantee that your stocks will be loaned out and there is always a risk that the borrower may default on their obligation to return the shares.
  • Additionally, while your loaned securities are protected by cash collateral, there is still a risk that the value of your loaned securities may decline while they are on loan.
  • This means that if the borrower defaults and you need to sell your loaned securities to recover your losses, you may not be able to sell them for the same price you would have received if you had not lent them out.

It’s also important to note that enabling Stock Lending may impact your tax situation.

As mentioned earlier, manufactured dividends are taxed differently than regular dividends, so you may need to adjust your tax strategy accordingly.

It’s always a good idea to consult with a tax professional if you have questions about how Stock Lending may impact your taxes.

Final Thoughts

Stock Lending can be a useful tool for generating extra income from your investments, but it’s important to understand the risks involved before enabling it.

While your loaned securities are protected by cash collateral, there is still a risk of default by the borrower and a potential decline in the value of your loaned securities.

If you’re interested in enabling Stock Lending, make sure you meet the eligibility requirements and understand how it works before enabling it.

Keep in mind that your income from Stock Lending may vary from month to month and that manufactured dividends are taxed differently than regular dividends.

With a little research and careful consideration, you can decide if it’s the right choice for you.

Don't forget to grab your free stock worth up to $200 from Robinhood today!

Article written by Sam Pennington
Sam is a personal finance writer. While in college, he dedicated his spare time to learning about personal finance, investing, and real estate. Sam currently works as a business analyst for one of the top food manufacturers in the world.

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Get 1 Free Stock Worth Up To $200 From Robinhood!

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