is it legal to close a long position in another account?

Discussion in 'Order Execution' started by trend2009, Apr 27, 2011.

  1. I have two accounts. one is with IB and the other is with Genesis. Suppose I have 1000 shares of SINA in the IB account, now I am going to sell the 1000 shares. Can I sell short the 1000 shares of SINA in genesis account instead of IB account? The benefit of the action is to hide my trading intention.
     
  2. luisHK

    luisHK

    Nobody replied so i'll give it a shot :

    why should it be illegal ?? Yet this will reduce your BP in both accounts, you will have to pay margin interests on your short and possibly on your long as well if your first account balance is negative .
     
  3. I do not know if it violates the wash sale law.
     
  4. luisHK

    luisHK

    Sorry, no idea about that.
     
  5. Anything is arguably legal until you are convicted in a court of law.
     
  6. LeeD

    LeeD

    Wash sale is about paying tax... not actual trading. So, as long as you file tax paperwork right, this is not a problem.

    On the other hand, wash trade is when a trader sells to him/herself in order to mislead the market by creating trade volume. First, this is not a serious risk for a small-time trader. Second, I understand a trade in the second account is used to close a position.

    If a long and short positions in the same instrument in different accounts are open simultaneously (especially if at the same price), this may fall under wash trade rules.
     
  7. I think a lot of hegefunds do it to secure borrow in a name they want to ultimately short but don't want to short now.
     
  8. the question is if the same instrument has long and short position in a different account of the same person.

     
  9. LeeD

    LeeD

    For this hedge funds don't need 2 accounts, or selling to themsleves. They can just borrow a security for a specific term and sell it later at their convenience (or not sell if the fund manager changes his/her mind).

    It's in a retail account where in order to borrow stock one has to sell the stock. However, in this case any stock borrowing is overnight, which defeats the purpose of borrowing in advance.

    Big boys can borrow stock outright and they don't have to sell the borrowed stock immediately or at all.

    In fact, there were cases where a large amount of stock was borrowed (to the tune of 30% of shares oustanding) without an intention of entering a short position. Instead, the borrower used the borrowed stocks in order to vote in a shareholder meeting.

    One legitimate use of doing opposite trades in 2 different accouns (not simultaneously) is emergency planning. If a broker is experiencing technical difficulties and a trader is an a position, the trader is at a risk of substantial loss as the trader can't close teh position with the broker. One of the solutions is to unwind the position via a different broker, which will leave the trader with 2 offsetting positions.
     
  10. cstfx

    cstfx

    You cannot be long and short the same security in the same account. You will be flat.

    You can be long AND short the same security in different accounts with different (or even the same) broker. You will be net long in one and net short in another.

    You can be long and short in sub-accounts of a master account at the same time, as is allowed in IB sub-accounts in their prop-account setup, but that just leaves the master account flat as everything goes thru the master.

    As someone said, the only time this becomes an issue (according to what you are asking) would be for tax purposes.
     
    #10     Apr 28, 2011