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Let's say I am going to use short selling as a way of hedging. For example, I will buy $100 of GOOG stock and short sell $100 PNQI.

Let's say my broker wants 200% margin on short sells (100% my own money, and 100% of the short proceeds).

This means, in total, I will spend $100 on GOOG, get $100 from PNQI, but then put $200 in margin, for a total of $200 of my own money.

My question is if instead of putting $200 in margin, I put my $100 of GOOG in and $100 of proceeds from PNQI.

This would mean I would spend $100 on GOOG, get $100 from PNQI, put that $100 in the margin, and then put the $100 of GOOG in the margin. This would only be $100 of my own money.

Is this possible? Of course it is a little riskier for the broker (he has to worry about both PNQI going up and GOOG going down), but he would just charge some more fees, and it would generally be an increase in my leverage.

If this isn't possible with short selling, is there anyway to do this with some other instrument?

Note: Feel free to edit this post to make the terminology better. (Don't worry, I am not actually putting $100 in the stock market. I'm only playing a simulation.)

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  • usually broker will use a % of stocks value as margin based on how much of it you own and the quality of the underlying company.
    – Ross
    Oct 27, 2015 at 17:25

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200% margin for a short sale is outrageous. You should only need to put up 150% margin, of which 50% is your money, and the 100% is the proceeds.

With $100 of your money, you should be able to buy $100 of GOOG and short $100 of PNQI.

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  • It was just an example. (The simulation uses 300% actually.)
    – PyRulez
    Sep 26, 2015 at 22:17
  • Brokers have the right to require a higher margin than Reg T. FWIW, leveraged ETFs are different than equities. The higher the leverage, the higher the margin requirement.
    – Bob Baerker
    Jan 2, 2020 at 15:39
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Let's say my broker wants 200% margin on short sells (100% my own money, and 100% of the short proceeds).

If you have to collateralize at 100% of the value of the shorted position then you are not on margin.

My question is if instead of putting $200 in margin, I put my $100 of GOOG in and $100 of proceeds from PNQI. This would mean I would spend $100 on GOOG, get $100 from PNQI, put that $100 in the margin, and then put the $100 of GOOG in the margin. This would only be $100 of my own money.

This is what would happen if you are in the USA where the Reg T margin rate is 50% (and the broker is not requiring more).

If this isn't possible with short selling, is there anyway to do this with some other instrument?

If the stock offers options, you can trade a synthetic short which mimics a short position in the underlying (sell an ATM call and use the proceeds to buy an ATM put).

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