Well, I don't think 1% is too outrageous of a differential, IMO. Regarding retail brokers, the short stock is treated the same, regardless, it's just the cash that the short sale generates that seems "wrong" to me. A "differential" is one thing but keeping 100% seem a bit usurious to me. But this whole "making money on the money" is something we've been preaching to investors for years...and is obviously where most of the retail brokers money is being made. (Makes it so they can let you trade commission free) Reminds of Goldman Sachs a couple years back...I went through the hassle of reading (nearly) the entire year end financials. After all their departments, all the IPO's, all the Ibanking, and with zillions of employees....their entire profit matched exactly to their "interest income" LOL. Don
I tell you what is "rape"....Let me ask you Don...if a Guy has 500K in his type 2 account and goes home FLAT every night....do you pay credit int. equal to the money market rate ( right now around 4.5%).....now if you are Not classified as a PDT....you earn interest...but if your are classified you get 0%
I'm not sure what you mean by a "type 2" account, but if you mean what our traders receive. Of course we pay that rate, and 5% on short stock interest. Thanks for sharing the PDT info, I did not know that...makes things even better over here it seems (if I'm reading you correctly). Don
as in the Margin account. Type 1= cash type 2=margin...most systems and firms will not offer credit int. on flat balances in PDT accounts....even though they can utilize that $$ for other reasons overnight.
I've never "traded" in a retail account, and have to rely on others for all the "details" etc. So, basically you're saying you have a "line of credit" available (which is all "margin" is anyway) and you pay 10.25% when you use it, even though it's secured by the underlying stock shares....is that correct? They can "sell you out" and recover the "margin call" anyway, still seems like a pretty rough deal. Don
Its partially secured....25k gets you 100k intraday 50k overnight....the scary thing is when they have oh say GOOG as their 25k in equity and they are borrowing 75 k to buy say FMT....until they pay off the 75k yes they get charged interest.....the worst fear in the world is that the stock gets HALTED...that's when the real fun starts:eek: ....the loan is due immediately and since there is no value allowed for the halted stock...you coudl be left with 75k debt and 25k worth of stock to cover it..ie your f*cked.
Well, in my 30 years in trading, I can't remember seeing a stock gap down 50% mid-day - close maybe, but that would be extremely rare. Don't get me wrong, I understand the risks (I have to babysit a few hundred traders every day, LOL)...it's just that I think there are better avenues for traders to take than PDT or retail in general (of course I'm biased)...my brother and I started on the other side of this whole equation, so we see it from both sides. Don
And this is why I'm afraid to use any margin with scottrade... say I buy 300 shares of CAT at 67.00, that's 20,100.00 which puts me about 5,100 over ..give or take. 10.5% on 5100..thats 535.50 A DAY they'd charge me! no wonder I trade small..dont have a choice!..gay!. cm69
*sigh* Interest rates are quoted as annual, not daily. If you kept that $5100 loan for a year they'd charge you the amount you indicated. -Raystonn