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Example of my etrade account: I have $3k cash and $0 margin debt and my account net balance shows $50k. I then sell to open a $4k position in XYZ how does this impact the cash, margin and net balance?

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The FRB's RegT requires 150% of the value of the short sale. So if you short $4k of stock XYZ then you need $2k of cash in order to execute the trade. This is a more complicated way of saying that you need 50% of the value of the short position to open it. Brokers have the right to require a higher amount of margin.

The minimum required level of margin for the position is 25%. Again, brokers have the right to require a higher amount of margin. If you only had $2k in the account then for your short position, the minimum margin maintenance level would be $4,800.

With $3k in the account then you have additional buffer. Whether the remaining $47k of equity is marginable depends on what that equity is from (options with less than 9 months remaining until expiration and stocks under $5 are not marginable).

  • im still confused... as far as the values of the 3 parameters i gave, what would be their values on the monthly statement after this short.. it seems that my $3k cash is showing as 0 and im also showing $1k addiotional in margin debt. this equals the $4k i needed to 'borrow' the shares im selling to open. my account shows $4k more as a line item ? but the 'net account value' seems to take the $50k + $4k - $3k (cash) - $1k (margin debt) = $50k of actual net value. am i misreading this? thx – Cool Pontiac Aug 20 '18 at 3:55
  • I don't know how E*Trade's statement appears since I don't use them. The short answer is that if you short $4k then your cash should increase + $4k and there should be a - $4k short equity offset. You should see an increase of $4k cash from the short proceeds and a line item depicting the position as minus "X" shares or an "S" for short or something similar with a negative value of $4k to represent the unchanged cost of buying the short position to close. Either way, your account value should be $50k. – Bob Baerker Aug 20 '18 at 13:27
  • thank you Bob. an add on Q for clarity...during the period that i am holding the short position (ie before I close it and take a gain or loss), am i being margin debt? – Cool Pontiac Aug 20 '18 at 14:23
  • If you have $3k of cash in the account and you have shorted $4k of stock then you have a margin position of $1k. If not already aware of it, you will be charged an annual percent borrow fee which varies as well as being liable for dividends if you are short on the ex-dividend date. – Bob Baerker Aug 20 '18 at 14:47
  • thanks. im trying to understand the logic of it. in this case, I "borrow" the $4k of stock and have to pay that amount for it. thus they take my $3k cash and give me 1k of margin debt? effectively am i "buying/paying for" the stock even though im shorting it. while I have the position open, if the stock goes up... does my margin debt increase or was it only based on the price when i opened the position. while my position is open, my $3k of cash is gone? thx – Cool Pontiac Aug 20 '18 at 22:16

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