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I've been trying to understand how margin requirements work for short positions (assume Reg-T US) to model for a backtesting software (I don't have direct experience with shorting, yet)

I think I understand how this works for 1 stock, you can find plenty of examples (here's one https://www.investopedia.com/ask/answers/05/shortmarginrequirements.asp), but how do multiple shorts interact with each other?

To illustrate, here's a scenario.

Account has $100,000 cash, no long position, and the goal is not to pay margin interest. Ignore fees (commission, borrowing the stock...), and maintenance margin to keep things simple, I think this can be extrapolated later on.

Sell 1,000 shares of ABC for $50 a share, so this requires $50,000 plus 50% initial margin requirement, so the total margin requirement is $75,000. This is under the $100,000 cash, so not paying margin interest. [Edit: based on @bob-baerker answer to this question, I'm not sure this is even correct, so feel free to correct me here]

So now, how much of XYZ, also at $50 a share can I short without paying interest?

Does the total margin requirement need to be $25,000 or less, or can the $50,000 you get from selling ABC be used to secure the margin, short more, and still not pay interest? Can anyone shed some light on how this would work.

  • if I follow the logic in @bob-baerker answer in the question I referenced, the answer would be more like 3,000 shares of XYZ? The account would then have $300,000, and that's $75,000 reserved for each position, and can not be used to short more (or buy anything either for that matter). Or am I still off base? – Pascal Belloncle Apr 15 at 7:06
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I think I understand how this works for 1 stock, you can find plenty of examples... but how do multiple shorts interact with each other?

Per your Investopedia link, the initial margin for shorting is:

  • Under Regulation T, the Federal Reserve Board requires all short sale accounts to have 150% of the value of the short sale at the time the sale is initiated. The 150% consists of the full value of the short sale proceeds (100%), plus an additional margin requirement of 50% of the value of the short sale. For example, if an investor initiates a short sale for 1,000 shares at $10, the value of the short sale is $10,000. The initial margin requirement is the proceeds $10,000 (100%), along with an additional $5,000 (50%), for a total of $15,000.

In this example, it doesn't matter whether you short 1,000 shares of one stock at 10, or 500 shares of two different stocks at $10 (or any other combination that adds up to $10,000). It's the aggregate total of short sale proceeds and the amount of cash or marginable securities securing the trade. This also holds true for the Minimum Margin Maintenance Requirement.

Account has $100,000 cash, no long position, and the goal is not to pay margin interest. Ignore fees (commission, borrowing the stock...), and maintenance margin to keep things simple, I think this can be extrapolated later on.

Sell 1,000 shares of ABC for $50 a share, so this requires $50,000 plus 50% initial margin requirement, so the total margin requirement is $75,000. This is under the $100,000 cash, so not paying margin interest.

When you short a stock, you are not borrowing money. Therefore, you do not pay interest. The proceeds from your short sale are credited to your account, increasing the cash in your account. You receive interest on the proceeds if your broker pays interest on cash balances. You will pay the borrow fee. If there is a dividend, you will pay it to the lender of the shares if you are short the shares on the ex-dividend date.

A margin requirement of 150% of the value of the short sale at the time the sale is initiated, is a complicated way of saying that the margin requirement is 50% of the value of the short sale. So with $100k in your account, you can short $200k worth of stock.

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  • Thank you @bob-baerker, I think this makes sense. I'll give a couple days before accepting in case someone has a different take – Pascal Belloncle Apr 15 at 23:34

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