My question is about shorting a $10 stock with IB. I have $10,000 in my account......IB's webpage says my maintenence requirement will be $5 for every share I short (because this stock is between $5-$17)....if I short 2000 shares at $10, the maintenence in my account would be $10,000 ($5X2000).....in this case, if the stock falls to $9.99 then my position is liquidated?<p>Am I understanding this correctly? Please everyone, help, I'm totally confused! Thanks!
In that case, IB would automatically sell enough shares to get your maintainence value equal to your equity. Solution here is to sell less than 2000 shares initially. Give yourself some breathing room.
Let's say I short a $5 stock --- 2000 shares --- I have $10,000 in cash in my account to begin with --- IB's maintenece requirement is 5X2000 = $10,000, so, I would immediately be liquidated.............this must be wrong............. How am I to understand IB's requirement that I have $5 in my account for every share that I am short?
This is a case where the initial margin is the same as the maintainence margin. This happens because of the $5 margin rule.
If I have $10,000 and I short a stock is at $5 , 2000 shares , and the stock goes to $5.01 then I'm liquidated? If the stock moves to $5.01 and I'm short 2000 Cash in account = $9999 Maintenence = $10,000 ($5X2000)
In that previous example, I didn't even borrow any of IB's money to short shares initially.....but IB says I have to have $5 of equity for every share of stock at all times? Is this really the rule? If so, how can you guy bother trading with IB at all?
Before you blame IB, you might want to check out the NASD regulation which states that the minimum maintenance for shorting any stock trading $5 and above is $5 or 30% whichever is greater.
Actually, you did borrow money from IB. All short trades are by definition margin trades. You are selling something you don't own and thus you need to put up margin. Of course there is no restriction if you are long $5 stocks. BTW, I doubt you'll find any other broker with better rules.