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Small Margin Question
- Thread starter Cyrix
- Start date
Maverick, I don't follow you here. First thought you meant OP has to pay interests on 30K on his short position, because short positions are borrowed on margin (i'm not clear on all the fees charged on short positions yet, which seem to change according to brokers).
If OP has a 50k margin account , ie 50k cash on the account and allowed to borrow 50 more overnight, he wouldn't need to pay interests on long positions below his 50k cash treshold, would he ?
If OP has a 50k margin account , ie 50k cash on the account and allowed to borrow 50 more overnight, he wouldn't need to pay interests on long positions below his 50k cash treshold, would he ?
Quote from luisHK:
Maverick, I don't follow you here. First thought you meant OP has to pay interests on 30K on his short position, because short positions are borrowed on margin (i'm not clear on all the fees charged on short positions yet, which seem to change according to brokers).
If OP has a 50k margin account , ie 50k cash on the account and allowed to borrow 50 more overnight, he wouldn't need to pay interests on long positions below his 50k cash treshold, would he ?
Interest on short stock is something entirely different. We're talking about margin interest here. If one has a margin account, every stock position they enter is margined whether they want it to be or not. You don't get the choice. So if you have 50k in your trading account and you are long long 50k of one stock and short 50k of another stock, you will be paying margin interest on 50k, or the entire amount of cash in your account. Obviously this is an expense one has to account for in their trading plan.
If you are going to engage in those type of trades, you are probably going to be better off giving Don Bright a call. Prop firms will save you a fortune on margin interest. FWIW, IB has very competitive margin rates but obviously less leverage.
Quote from Maverick74:
If one has a margin account, every stock position they enter is margined whether they want it to be or not. You don't get the choice. So if you have 50k in your trading account and you are long long 50k of one stock and short 50k of another stock, you will be paying margin interest on 50k, or the entire amount of cash in your account. Obviously this is an expense one has to account for in their trading plan.
If you are going to engage in those type of trades, you are probably going to be better off giving Don Bright a call. Prop firms will save you a fortune on margin interest. FWIW, IB has very competitive margin rates but obviously less leverage. [/B]
I was quite happy with IB's margin rates after I opened an account with them compared to the ones I was charged by Etrade indeed. The portfolio margin is another plus for bigger leverage. What I meant is if one has enough cash to pay for all their positions, no interests are charged AFAIK - in this instance if OP has 50K cash in his margin account and holds less than 50K of positions (long at least), he won't be charged any interests . That's the way I read my statements at least.
Quote from luisHK:
I'm quite happy with IB's margin rates after I opened an account with them compared to the ones I was charged by Etrade indeed. The portfolio margin is another plus for bigger leverage. What I meant is if one has enough cash to pay for all his positions, no interests are charged AFAIK - in this instance if OP has 50K cash in his margin account and holds less than 50K of positions (long at least), he won't be charged any interests . That's the way I read my statements at least.
That is 100% false. Brokers want you to think that. Margin interest is where brokers make most of their money, not on commissions. They would be out of business if they did not get that interest. It makes no difference if you have enough cash in your account. Re-read your brokerage agreement. They make it very clear, if you have a margin account, every transaction will be margined. There is no way around this unless you open a cash account.
I don't know about IB. But many brokers have automatic swap set up for margin accounts. This means if you don't use your money to buy stocks and hold overnight, your money will be in a money market account earning interest for you. (Though not much these days). If you use your money to buy stocks, it swaps out enough of it to pay for the purchase.
e.g. You have $50k in your account. If you haven't purchased any stocks, your $50k will earn you some interest in the money market account.
If you buy $30k worth of stock1, the broker will automatically swap the $30k out of your money market account. You don't pay magin interest because you did not borrow any money to buy stock1. But you only have $20k left to earn you some money market interest.
Let's say you further use another $30k to BUY stock2. Then you are borrowing $10k from the broker. You don't earn any money market interest. And you will be paying margin interest (at a much higher rate) on the $10k borrowed. You don't pay margin interest on all $60k eventhough you have a 60k position.
This is how I understand it from my past tradings.
What I am not sure is when you use money to short stocks. Because shorting is done in margin accounts. If you have $50k and shorted and held $30k of stock1, will you be paying margin interest on all $30k. You could very well be.
e.g. You have $50k in your account. If you haven't purchased any stocks, your $50k will earn you some interest in the money market account.
If you buy $30k worth of stock1, the broker will automatically swap the $30k out of your money market account. You don't pay magin interest because you did not borrow any money to buy stock1. But you only have $20k left to earn you some money market interest.
Let's say you further use another $30k to BUY stock2. Then you are borrowing $10k from the broker. You don't earn any money market interest. And you will be paying margin interest (at a much higher rate) on the $10k borrowed. You don't pay margin interest on all $60k eventhough you have a 60k position.
This is how I understand it from my past tradings.
What I am not sure is when you use money to short stocks. Because shorting is done in margin accounts. If you have $50k and shorted and held $30k of stock1, will you be paying margin interest on all $30k. You could very well be.