Yep! No inventory issues, better tax treatment, easier tax reporting, no PDT rule, what else? Oh yeah, you can really lose your ass but I guess you can do that with stocks too 
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How to short stocks?
- Thread starter HiFreekTrader
- Start date
Quote from gkishot:
I would like to know what broker does not charge interest on short sales. Any retail broker I know would charge you margin interest. Can you recommend one that does not?
Except for "Costs for position borrowing of stocks with special considerations (for example hard to borrow instruments)" Interactive Brokers does not charge interest on short sales.
When interest rates are at normal levels Interactive Brokers pays the customer interest on short sales proceeds over $100K.
Please name reputable brokers that charge the customer margin interest on short sales proceeds. I'll like to know how they justify charging margin interest when no money is being borrowed.
Quote from jeb9999:
Except for "Costs for position borrowing of stocks with special considerations (for example hard to borrow instruments)" Interactive Brokers does not charge interest on short sales.
I'm not sure this is correct. I've got quite a bit of cash in my IB account (presently earning 0% interest) and have had some very small short positions. Just a couple hundred shares of big name stuff. I'm getting some very small margin charges of a couple of $ a day. It has to be coming from the short sales.
u are both correct. the reason is that interest rates rates are low or zero.. to faciltate the transaction you are paying .0025 for the easily available stock. when interest rates go up if the broker is willing you will receive interest.. it is only because interest rates are basically zero which makes for an exception situation.
Quote from jeb9999:
Except for "Costs for position borrowing of stocks with special considerations (for example hard to borrow instruments)" Interactive Brokers does not charge interest on short sales.
When interest rates are at normal levels Interactive Brokers pays the customer interest on short sales proceeds over $100K.
Please name reputable brokers that charge the customer margin interest on short sales proceeds. I'll like to know how they justify charging margin interest when no money is being borrowed.
Interactive brokers does charge the margin interest on the short stock positions:
http://individuals.interactivebrokers.com/en/accounts/fees/interestMethods.php?ib_entity=llc
Read step 3.
If your short position was initially covered by cash but the stock goes against you it means you borrow the difference from your broker. Of course if the position is held overnight. But it would pay also interest on the proceeds from short selling.
Jeb.
When selling stock short the brokerage needs to borrow those shares. The Lender demands collateral for the loan. For US stocks it is typically 102% of the value of the security. This 102% in cash is then reinvested by the Lender's agent and the proceeds from this reinvestment are then split between 1. The Lender 2. The custodial bank acting on behalf of the lender 3. The brokerage firm 4. The client (borrower).
The majority of the income from this reinvestment is returned to the brokerage on behalf of the client. The brokerage then "rebates" a portion of this income to the it's client. Most retail brokerages pay ZERO in rebates.
The above example is mainly for General Collateral names. Then there is the issue of Hard to Borrow (HTB) names or Specials. These names are not easy to find for a variety of reason whether it is a pending corporate event (such as a dividend) or vote or even simple supply and demand. Big names are not immune from this. For example GM and Sears are very expensive to borrow. In these Special stocks the above 102% is again collected from the borrower and reinvested. Nothing is rebated back to the customer in these stocks. In addition there is a commission demanded by the brokerage for finding the stock. This commission is expressed as a negative rebate and you will see it expressed in the Interest component of your brokerage statement. You do not know what the interest rate will be until the stock settles on T+3 after you close the short postion. This negative rebate in very hard to borrow names sometimes exceed 40-50% interest per year. Very expensive.
In today's interest rate environment with rate's so low there is the possibility that even with GC names you will get zero and even have to pay to borrow. This is because the brokerage firms that do pay often pay some benchmark rate -Xbasis points. If the X exceeds the benchmark then the rebate rate goes negative.
With that said I would like to remind you that Single Stock futures and the EFP trade allow users to flip out of stocks paying low rebates and into a short SSF position where they will receive a higher yield on the position.
We post on our website a list of EFP quotes sorted by Highest bids (additional sorts are available) with an indicative rate of interest implied by the quote. These quotes are pulled from our professional Block and EFP trading system and repainted for all to see. During trading hours the screen updates frequently while after trading hours it is just the last pulled data.
http://www.onechicago.com/?page_id=812
In addition the OneChicago calculator allows you to compare shorting the stock or shorting the SSF. Input your variables that you are subject to and the resulting info and graph will help you understand the costs and incomes from the various strategies.
http://www.onechicago.com/calculator.php
Lastly you can help yourself to free SSF quotes from our home page or navigate to
http://www.onechicago.com/?page_id=1289
If there is a posted EFP bid/ask for the symbol you select it will be posted along with the SSF quote.
Best.
Hope this s
When selling stock short the brokerage needs to borrow those shares. The Lender demands collateral for the loan. For US stocks it is typically 102% of the value of the security. This 102% in cash is then reinvested by the Lender's agent and the proceeds from this reinvestment are then split between 1. The Lender 2. The custodial bank acting on behalf of the lender 3. The brokerage firm 4. The client (borrower).
The majority of the income from this reinvestment is returned to the brokerage on behalf of the client. The brokerage then "rebates" a portion of this income to the it's client. Most retail brokerages pay ZERO in rebates.
The above example is mainly for General Collateral names. Then there is the issue of Hard to Borrow (HTB) names or Specials. These names are not easy to find for a variety of reason whether it is a pending corporate event (such as a dividend) or vote or even simple supply and demand. Big names are not immune from this. For example GM and Sears are very expensive to borrow. In these Special stocks the above 102% is again collected from the borrower and reinvested. Nothing is rebated back to the customer in these stocks. In addition there is a commission demanded by the brokerage for finding the stock. This commission is expressed as a negative rebate and you will see it expressed in the Interest component of your brokerage statement. You do not know what the interest rate will be until the stock settles on T+3 after you close the short postion. This negative rebate in very hard to borrow names sometimes exceed 40-50% interest per year. Very expensive.
In today's interest rate environment with rate's so low there is the possibility that even with GC names you will get zero and even have to pay to borrow. This is because the brokerage firms that do pay often pay some benchmark rate -Xbasis points. If the X exceeds the benchmark then the rebate rate goes negative.
With that said I would like to remind you that Single Stock futures and the EFP trade allow users to flip out of stocks paying low rebates and into a short SSF position where they will receive a higher yield on the position.
We post on our website a list of EFP quotes sorted by Highest bids (additional sorts are available) with an indicative rate of interest implied by the quote. These quotes are pulled from our professional Block and EFP trading system and repainted for all to see. During trading hours the screen updates frequently while after trading hours it is just the last pulled data.
http://www.onechicago.com/?page_id=812
In addition the OneChicago calculator allows you to compare shorting the stock or shorting the SSF. Input your variables that you are subject to and the resulting info and graph will help you understand the costs and incomes from the various strategies.
http://www.onechicago.com/calculator.php
Lastly you can help yourself to free SSF quotes from our home page or navigate to
http://www.onechicago.com/?page_id=1289
If there is a posted EFP bid/ask for the symbol you select it will be posted along with the SSF quote.
Best.
Hope this s
Quote from gkishot:
Interactive brokers does charge the margin interest on the short stock positions:
http://individuals.interactivebrokers.com/en/accounts/fees/interestMethods.php?ib_entity=llc
Read step 3.
If your short position was initially covered by cash but the stock goes against you it means you borrow the difference from your broker. Of course if the position is held overnight. But it would pay also interest on the proceeds from short selling.
You have it completely backwards. The IB page you pointed to shows the calculation for the interest that IB PAYS you on your cash balances, not the interest that IB charges you. IB pays you interest on short sales cash proceeds, it does not charge you.
Quote from zdreg:
u are both correct. the reason is that interest rates rates are low or zero.. to faciltate the transaction you are paying .0025 for the easily available stock. when interest rates go up if the broker is willing you will receive interest.. it is only because interest rates are basically zero which makes for an exception situation.
Yes, I agree with you and understand that we have a special situation with current near zero interest rates. If IB has to borrow easily available stock from another broker then the customer has to pay a small daily fee. Under a normal interest rate situation an IB customer would be receiving interest on shorts sales cash proceeds and not paying a daily fee other than for hard to borrow stock.
Quote from jeb9999:
You have it completely backwards. The IB page you pointed to shows the calculation for the interest that IB PAYS you on your cash balances, not the interest that IB charges you. IB pays you interest on short sales cash proceeds, it does not charge you.
In step #3 after subtracting the short stock positions in case you've got a negative cash balance IB will charge you interest on this negative balance.
Quote from gkishot:
In step #3 after subtracting the short stock positions in case you've got a negative cash balance IB will charge you interest on this negative balance.
That only happens for traders that have used up all the cash in their account. If you are only short stocks that cash position cannot be negative because IB would have liquidated some or all of your short positons as soon as you hit the 30% margin limit.
If you are long stocks on margin (in addition to your short sales) then you will be charged interest on the margin money borrowed for your longs.