# Effect of short selling the stock on the buying power and cash position

Hypothetical situation: If I have 25000\$ cash in my account and the margin offered by broker is 50%. So, the cash I can use is \$25000, my margin amount is \$50,000 and my buying power is \$75000.

I short sale stock worth \$5000. How much of initial cash is now available for buying securities after shorting? What would be my buying power now? What would be my margin amount available now?

The shorted stock is now worth \$10000. How much of initial cash is now available for buying securities? What would be my buying power now? Would would be my margin amount available now?

• Answer will vary by ticker and broker. Feb 12, 2021 at 21:01
• For example, AAPL and Interactive Brokers. Feb 12, 2021 at 21:49
• I'm not on IB, the point is just that the brokerage calculates the risk of the trade you're trying to make and ties up a certain amount of buying power, this video seems to cover it: youtube.com/watch?v=_rjZzFmfq1M Feb 12, 2021 at 22:13

If you have \$25k cash in your account and the margin offered your broker is 50% then you have \$50k of buying power (not \$75k). At 50%, your broker will lend you an amount equal to the total of your cash and marginable securities. Here's the long margin calculation:

`````` Market     Debit    Equity   Margin
Value

50,000     25,000   25,000   50.00%
``````

I short sale stock worth \$5000. How much of initial cash is now available for buying securities after shorting?

The Reg T short margin requirement is 50% of the value of the short sale (\$2.5k). That leaves \$47.5k for margin buying.

The shorted stock is now worth \$10,000. How much of initial cash is now available for buying securities? What would be my buying power now? Would would be my margin amount available now?

Reg T margin maintenance requirement for a short position is 30%. At \$10k, that's \$3k maintenance. Your short position lost \$5k so account value dropped to \$20k (\$40k BP) and with the MMR of \$3k, you'd have \$37k available for long margin buying.

Another way of looking at this is that you started with \$50k of buying power. The initial margin for your short is \$2.5k. When the short doubles to \$10k, you have to add another \$5.5k to meet MMR. That's \$8k. With the \$5k loss of equity, that's \$13k. \$50k - \$13k equals \$37k of buying power.

`````` Short Sale    Initial    Total
Value      Margin     Marg Req

5,000       2,500     7,500

Short Sale    30% Maint   Total     Margin
Value       Margin     Marg Req    Call

10,000       3,000     13,000      5,500

``````

Note that brokers can require more margin than Reg T.