Short Selling and Margin Accounts

don't be afraid of margin as long as you manage it carefully. Rather than shorting stock. Look into OTM call option credit spread. Or buy ITM put option. Both (all 3) have same market sentiment, you're betting the underlying will go down.
 
Robby Luca said:
Let's say, I have $30,000 in my account and I short a stock 1000 shares of $5. The value is $5,000. Therefore it uses the money I have in my account and that it will only borrow money if I have no more money in my account.
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I guess the words are creating confusion. Shorting a stock means that you sell stock which you don't own. You borrow that stock from somebody else. To follow your example:
You start with 30k cash and borrow 1000 stock from somebody else. Now you sell that 100 stock and receive 5k from it. At this moment you have 35k cash in your account and a debt to the other person of 1000 stock. Sooner or later you have to buy the 1000 stock to give back to the person you borrowed from. Suppose you buy those stock at 4k and give the stock back. Your end result is 31k cash in your account.
At no moment in time are you borrowing money from anyone in this process. All you are borrowing are stock and generally you have to pay a fee for that.
 
HobbyTrading said:
I guess the words are creating confusion. Shorting a stock means that you sell stock which you don't own. You borrow that stock from somebody else. To follow your example:
You start with 30k cash and borrow 1000 stock from somebody else. Now you sell that 100 stock and receive 5k from it. At this moment you have 35k cash in your account and a debt to the other person of 1000 stock. Sooner or later you have to buy the 1000 stock to give back to the person you borrowed from. Suppose you buy those stock at 4k and give the stock back. Your end result is 31k cash in your account.
At no moment in time are you borrowing money from anyone in this process. All you are borrowing are stock and generally you have to pay a fee for that.
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incorrect. if the stock is easily borrow-able there is generally no fee.
"Now you sell that 100 stock" correct your typo you mean 1000 stock.
 
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zdreg said:
incorrect. if the stock is easily borrow-able there is generally no fee.
"Now you sell that 100 stock" correct your typo you mean 1000 stock.
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You are correct about the typo. I meant 1000 stock throughout the example. But it is too late: I can't edit my post any more.
 
traider said:
hat about the short collateral that we are expected to post. If you short 10k, there will be a cash use of 10k based on my understanding. If account doesn't have 10k, it will be charged an interest fee too.
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I'm not an expert on Reg-T. Most of my knowledge is of PMA. That said, this is my understanding, keeping in mind that not all securities are marginable and your clearing firm can be more restrictive.

At the time of the trade, you have an Initial Margin Requirement 50% collateral or $5000.
then in the following days, you have a maintenance margin Requirement of 25% or $2500.
(You can't include the proceeds of the sale in your equity)
http://www.investopedia.com/ask/answers/05/shortmarginrequirements.asp

If you don't have that requirement, you get a margin call. There is no point in time here from a shorts position that you get charged interest on a short. The only fee comes from the borrow of a security you sold but did not own.

Keep in mind, that if you have $10mm in your account and you sell short that same stock worth $10,000, you will still get changed the same short stock borrow rate. It has nothing to do with your equity or lack of it.
 
Robert Morse said:
I'm not an expert on Reg-T. Most of my knowledge is of PMA. That said, this is my understanding, keeping in mind that not all securities are marginable and your clearing firm can be more restrictive.

At the time of the trade, you have an Initial Margin Requirement 50% collateral or $5000.
then in the following days, you have a maintenance margin Requirement of 25% or $2500.
(You can't include the proceeds of the sale in your equity)
http://www.investopedia.com/ask/answers/05/shortmarginrequirements.asp

If you don't have that requirement, you get a margin call. There is no point in time here from a shorts position that you get charged interest on a short. The only fee comes from the borrow of a security you sold but did not own.

Keep in mind, that if you have $10mm in your account and you sell short that same stock worth $10,000, you will still get changed the same short stock borrow rate. It has nothing to do with your equity or lack of it.
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"you have a maintenance margin Requirement of 25% or $2500.
I believe that the above is in error. the maintenance requirement on a short position is 30%. it is 25% for long positions.
 
lylec305 said:
. Look into OTM call option credit spread.[/QUOTE
it is too complicated for most people plus there is a lack of liquidity. the spread kills most beginners on both the buy and sell side. it is a poor substitute for a regular short sale.
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@zdreg, Buying an itm put is as simple as shorting underlying, maybe simpler. Wait until you see what happens during dividend payout for your short position.
If that's too complicated, stop short trading. fyi Less capital is required. Brush up on basic options, you'll see what i mean.
And for anyone trading without options, it is a stacked deck against you.
 
"
Less capital is required. Brush up on basic options, you'll see what i mean."
you should learn how to read a response before responding to something else. learn how to stick to the subject. it will help you in life.

i will repeat my response
. "Look into OTM call option credit spread." this is the quote from you.
my response was it is too complicated for most people plus there is a lack of liquidity. the spread kills most beginners on both the buy and sell side. it is a poor substitute for a regular short sale.

understand now?
 
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