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?


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).

| improve this answer | |
  • 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

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.