Shorting Stock Question

Discussion in 'Trading' started by AlphaGeneration, Jan 23, 2010.

  1. I've never shorted a stock (always bought inverse ETF's). If I short a stock on a margin account, can I invest the money that I receive from the short sale? If yes, is there a certain amount that I cannot short, based on minimum maintenance requirements?

    Thanks in advance
     
  2. No, the proceeds from an open short will not count towards your account equity, so you won't be able to use the proceeds to enter new positions, etc.

    For example, if shorting proceeds are say $10,000 from shorting 100 shares, this amount will be held by your broker towards buying the stock back when you close the position.

    On top of this, from your account equity you will also need to post additional margin to cover you (or more accurately, your broker!) in the event that the stock rises before you can cover your short position.

    For an unleveraged ETF, this margin intraday might be 30% for a short (or 60% for a 2x leveraged ETF, or 90% for a 3x leveraged ETF).
     
  3. No, you cannot use the short sale proceeds.

    However, if the stock declines in value, your margin will increase and you will be able to use the excess loan value (take cash, sell more stock, do nothing)
     
  4. LOL. Wouldn't it be fantastic if you can do that?

    Imagine selling what you don't own. Take the proceed to lend to other people and collect risk free interests.