can i use proceeds from short position to buy treasury bill?

Discussion in 'Fixed Income' started by trend2009, Nov 26, 2019.

  1. let's say I short 1000 shares of spy, my position is -1000 shares+320K cash. can I use 320K cash to buy bonds? the bond rate is 2%, the borrow rate of spy is 0.25%. any other hidden fees?
     
    Nobert likes this.
  2. bone

    bone

    AFAIK you would have to close out your short position first and “realize” your profit before you used the entire profit to purchase bonds.

    I used to keep T-Bills in my futures account - but it comprised one half of my account equity.
     
  3. why do i have to close out short position first? the treasury bill has zero risk.
     
  4. bone

    bone

    Call IB or TD Ameritrade and ask. You’ll typically require some amount of cash liquidity to maintain margin for a substantial open position.
     
    jys78 likes this.
  5. Snuskpelle

    Snuskpelle

    More than zero margin however so likely broker does not agree about zero risk. (Hint: It does not have zero risk if it needs to be liquidated before expiry since the price varies all the time.)
     
  6. bone

    bone

    I called a broker to check and the answer is no if you keep your open short position. The proceeds of the sale of short stock do not belong to the client and is collateral for the shares lent out to make delivery to the buyer. The clearing firm can and does earn interest on some of those funds by doing repos.
     
    taojaxx and Snuskpelle like this.
  7. thank you. that is too bad, and unfair to the trader.
     
  8. bone

    bone

    And you’re living in a fantasy world if you think that a short position never marks against you - requiring more margin. And in the world of commission-free trades of course brokers are going to try to make a very modest amount of money loaning out customer funds in the Repo market.
     
    taojaxx likes this.
  9. zdreg

    zdreg

    You should have known that answer without calling a broker.
    Depending on the size of your account there are a very few brokers who will share the interest with you. In addition, if you are charged a fee for locate on a hard to borrow security, the contra party, the lender of the security, will receive part of fee. In this case also unless you are a hedge fund etc. the broker will keep the fee for themselves.

    Short selling in itself is not shady, but the way stock loan departments operate would make mafia loan sharks feel they are in a comfortable milieu.
     
    Last edited: Nov 26, 2019
  10. bone

    bone

    I trade futures and the OP specified a short SPY position. Nothing wrong with being certain in a post.

     
    #10     Nov 26, 2019