Shorting stocks that end up falling < $5

Discussion in 'Trading' started by urrterrible, Dec 23, 2008.

  1. 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?


  2. gaj


    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.
  3. 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.