Registered: Aug 2006
04-09-12 01:48 PM
Quote from sf631:
I don't think that's quite right, but maybe IB-AN can confirm. If you had a $10K account, long 10K and short 10K, your cash balance would say 10K, but when you back out the $10K cash generated from proceeds of the shorts, your cash balance would be 0. They could hypothecate 1.4x of 0, so you'd be OK
If you ran more like 200% and 200% (assuming portfolio margin here), then on a 10K account you'd be -10K in cash after backing out the 20K cash proceeds from the short sales. They could hypothecate 14K of your longs, so you'd still potentially be able to take advantage of it, but the key point is that IB cherry picks the most attractive lending opportunities and you only get anything over and above that.
In my case this means I occasionally see a few pennies here and there, but it's usually exactly a few pennies because some of my longs are HTB some are not
IB-AN, did I get this right?
When you sell stock short, you are effectively borrowing. It's not cash, as is the case when purchasing stock on margin, but shares, and the lender of those shares requires that the transaction be fully collateralized to secure their return at the conclusion of the loan. The loan collateral is in the form of cash, with the cash originating from the proceeds of the short sale. These cash proceeds are therefore not available to support the purchase of other securities and are subtracted from your net cash balance to determine what amount, if any, you are borrowing on your long shares.
For example, assume you have a Reg T account with net liquidating equity of $5,500 comprised of the following: net long cash of $5,500, long stock of $10,000 and short stock of $10,000. Note that you'd need to have equity of at least $5,500 to meet the exchange maintenance margin requirement of 30% of the short stock market value and 25% of the long stock market value. In determining the amount of long stock the broker has a lien on for hypothecation purposes, you would back out the market value of the short stock from your net cash balance. If the result is a credit, then you have not borrowed money to purchase those long shares and they must be segregated. If, it's a debit as it is in this example ($5,500 - $10,000 = $4,500), then the broker has a lien on 140% of that debit balance ($4,500 * 1.4 = $6,300) and has the right to loan or pledge shares up to that amount. The remaining long stock balance ($10,000 - $6,300 = $3,700) is not available for the broker to loan or pledge and must be segregated unless you enter into a special agreement to allow this. IB's Yield Enhancement Program is one such example.