For example, if I deposited $3000 into the account, and I short sell $3000 worth of VXX(a non-dividend paying etf). Do I need to pay any interest on my short sell position in this case?
1Yes, you would pay interest on the position size for each day you hold it overnight, however, if you were in a country that allows trading in CFDs you would not pay interest on short positions held overnight (you would actually get paid interest if interest rates were higher), you would only pay interest on CFD long positions held overnight.– VictorJul 31, 2014 at 23:53
Yes, you pay interest, but the interest is applied to the price of the underlying shorted not the amount of cash proceeds of the sale since the underlying is what's borrowed not underlying. The interest will increase the value of the short liability and will contribute to a diminishing maintenance margin.
The cash is posted as collateral, so the net of interest charged by borrowing the underlying less the interest received from the cash collateral is what's paid. Sometimes, when there is no demand to short a particular underlying, and a broker passes these rates through less a fee, the loan balance can actually decrease because the interest received from the cash collateral exceeds the interest paid on the underlying.
While interest is charged and applied daily between brokers, the broker may charge this on nearly any basis they please.
Shorting ETF may not be allowed because your broker does not own it for you to borrow. When you short, usually your credit payments are on daily or weekly basis.