I shorted a stock that I think is going below $5 soon. It is at $6 now. When it goes below $5 and stays down there can I still hold it? Can I hold it to 20 cents? When I look at Scottrades site I see that the margin interest is 7.5% for the amount of this short ~20K Does this mean that every month I am paying 7.5%/12 worth of interest on this 20K? Thanks, UT
ouch. This is a stock- you would never pay to be short, its not a bond. You can short a stock to zero... bankruptcy... I would spend about 30-50 bucks on books that discuss shorting. http://www.amazon.com/Sell-Short-Wiley-Trading/dp/0470181672 I don't own it but it has a good rating.... will save you money in the short term and provide you with ideas in the long term... http://en.wikipedia.org/wiki/Short_selling
ignoring the interest part... you can hold a short as long as you want, as long as your lending house does not require you to buy it back in. this sometimes happens on stocks with a high short interest, usually 20% or higher. the $5 part is irrelevant. some brokers (esp. those which clear through penson) do not allow you to initiate (ie. start) a short if the stock is under $5. as of october, 2006, scottrade was in this group. however, those firms will allow you to maintain a short as long as it's not called in.
Yes... they are all correct you can hold the short position as it falls below $5, you just cannot create a short position on a stock that is trading below $5. As for the margin interest charge that is on a 360 day basis, not monthly. To get your daily rate just divide by 360. The margin interest that you are charged on a daily basis is posted to your account once a month though. Also you are only charged interest on that short if you are borrowing funds on margin and only if the stock moves against you.