Will anything happen if I don't cover my short? Is there a time limit for when the bank forces me to cover it? Will they close my account if I don't cover? Thanks
In the US, the margin requirement under Regulation T for shorting stock is 50% of the value of the shares. The minimum margin maintenance requirement is 125% of the current market value of the short sale. Some brokers require more than 125%.
If the value of your short position breaches the 125% level, you will be required to deposit additional margin in the account if your broker is willing to extend you that courtesy. Most brokers will immediately liquidate any or all of the securities in your account and they will not work the order to get you a best execution price. It will be done at the market, often at unfavorable prices.
If the security does not rise in price such that you are forced into a margin call, you could, in theory leave it open indefinitely, however you could still be asked to "buy to cover". Schwab says the following:
- When do I have to buy the shares back?
There are no regulations that limit the amount of time a short position can be open. However, some conditions may cause a short position to be closed:
Shares are no longer available to borrow. When a client borrows shares to short sell, the lender retains the right to recall the securities at any time and without notice. If the shares are recalled by the lender, Schwab will try to re-borrow the securities on the client's behalf. However, if shares cannot be obtained, Schwab would be forced to cover the client's short position at the market price at the client's expense and potentially without notice.
Margin call. Just as long positions in accounts with margin calls are subject to liquidation at the discretion of the Margin Department, a short position is also subject to possible closure when a margin call exists.