For my own understanding of what I am trading, I am trying to figure out what are the real, actual margin equations being used. For the sake of example, let's use AAPL. 1. For short selling, what price is used for margin calculation? Bid, Ask, Last or something else entirely? 2. My broker (E*trade currently) claims that the short requirement is 30%. This is clearly different than the 50% that other sites around the Internet (including FINRA) say. I thought the house can increase margin requirements, not reduce it?! 3. The Bid/Ask/Last for AAPL are $128.61/$128.70/$127.14. The margin requirement (in their calculator) says the margin will go up by $32.18. This is very close to, but not exactly 30% of any of the above numbers. It's close to 25%. I can't tell what other number could possibly be used here. 4. When buying on margin, I am borrowing cash to buy securities. However, when short selling, I am borrowing securities to sell for cash. The Margin interest is always quoted in dollars, but I am borrowing shares. How do I figure out what the interest will actually be? If its based on the cash value of the security, does that mean my interest rate changes per day? And again, when and how how is the price decided? (and a meta note: where the heck do I find this documentation? My other brokers don't seem to have clear, straightforward equations on what *exactly* is going to happen.) 5. My (admittedly weak) understanding of accounting is that assets = debt + equity. I am having a very hard time finding out how people do accounting for their stocks and margin. Every time I search for it, everyone talks about the margin of the company itself, rather than the trader. What exactly is my equity when I short sell (or buy on margin) ? If there are any books I could read on this subject, or even and Excel spreadsheet showing an example, it would help me figure this out. There seems to be hardly any websites out there that go into the detail of what's going on, instead repeating that same "50%" that everyone else does. I did do some searching before I asked here! (I've read Finra rules 4210, which seem to be lofty ideals for how much margin you can use, but which no broker actually is able to reach.)
This is my understanding, and your broker can ask for more but not less. 1-At sale, your price, next day, Last sale of the primary-I think 2-They are telling you the Maintenance Margin requirement and not the Initial requirement. Day one is 50% and day 2 is 30%. If your equity drops below Maintenance, you get a margin call to get back above Initial. https://www.investopedia.com/ask/answers/05/shortmarginrequirements.asp 3-See #2 4-There are 2 types of "borrow" fees. If your long stock +long options-short options value exceeds your equity, you have a debit balance that needs to be financed. E.G. At end of day your equity is $30K and that value is $35K, you are borrowing $5K. Short stock is not part of that. If overnight you are short stock, your clearing broker needs to borrow that stock to make good delivery, as you sold stock you do not have in your account. They charge a fee to borrow that stock. One is a borrow fee from loaning you cash and one is a borrow fee from loaning you stock. 5-Not sure what you are looking for here.
Re 3: I don't think the question came across right: Even if the maintenance margin is 30%, the quoted number from the broker isn't 30% of the price. The margin for 30% of $127.14 is $38.14, not $32.18. Either they are not quoting properly, or they are quoting something different than the margin equity required. Re 4: I can't find where this fee is listed in the fee schedule. I can't seem to find this borrow cost on the IB's site either. Is there a word this borrow fee is called so I can look it up? Re 5: I want some software that tell's me how much equity / margin / assets I have. It seems like most brokers talk about "buying power"; is that the same thing? Why would they give me a free lunch though?