Margin Account Interest Rates Fee Calculation - Day Trading Stocks

[Sig]

Not what I said at all...
My point was 1) the collateral doesn't need to be cash and 2) it has nothing to do with margin loans.



How about you give it a try right now? I've been trading equity L/S since 2014 and I can tell you this works just fine with no margin loan.

We may be saying the same thing. Imagine you had $1M in your margin account and used it to buy $1M in IBM stock. You are using no margin, but you could borrow against that original $1M in IBM stock to buy up to $1M more IBM stock using margin. Let's say instead you sold short $1M in F stock. You now no longer have the ability buy an additional $1M in IBM stock. In fact you can neither buy or short any more stock in that account, you're margined out.

That is because all your borrowing ability against the IBM stock was used up selling short the F stock. Before you sold short the $1M in F stock, you had $1M in margin available. After you sold short the F stock you had $0 in margin available. Your margin declined by the exact amount you used in the short sale as a direct result of the short sale, therefore the short sale used your available margin.

 

[cruisecontrol]

We may be saying the same thing. Imagine you had $1M in your margin account and used it to buy $1M in IBM stock. You are using no margin, but you could borrow against that original $1M in IBM stock to buy up to $1M more IBM stock using margin. Let's say instead you sold short $1M in F stock. You now no longer have the ability buy an additional $1M in IBM stock. In fact you can neither buy or short any more stock in that account, you're margined out.

That is because all your borrowing ability against the IBM stock was used up selling short the F stock. Before you sold short the $1M in F stock, you had $1M in margin available. After you sold short the F stock you had $0 in margin available. Your margin declined by the exact amount you used in the short sale as a direct result of the short sale, therefore the short sale used your available margin.

Yes, I think I understand the confusion now. You are using the word margin in a different sense. You are just talking about any transaction in the account where something is used as collateral.

When I talk about "margin loans", what I am referring to is literally borrowing cash from the broker, which would require you to pay interest on it if you held the position overnight (in the original context the question was about margin interest).

When you put on a short position, you aren't borrowing cash from the broker and you don't pay margin interest; there is no margin loan. OTOH yes I agree you are using the "margining" function of the account in the sense that some collateral is used to put on the short position.