What else are you paying for when you short the stocks? Is it true that when you short a stock you have to pay interest on the money daily? Or is it the other way around?
No, technically you should be getting interest cause you're getting money for selling the stock short. But most brokerage don't pay interest.
the interest and financing components are important for anyone doing arb or basket trading (and there are brokerages that offer interest on shorts )
speaking of CR interest on short stock: IB offers Libor-125 basis points. Seeing that the Libor rate is now hovering in and around 1.40% that would mean IB customers are getting a mere .15% interest on their shorts. IB has maintained this credit interest on shorts since it was introduced. However, with rates decreasing is there any chance that the calculation might be changed to a certain percent of the rate or to reduce 125 basis penalty?? If not, would IB begin to charge customers DR interest on their shorts if the Libor rate fell below 1.25%??
I'll bring it up to the CFO and ask them to check to make sure the code has is capped at zero interest. I wouldn't be too optimistic on the rates as the banks in general aren't reducing their spreads.
i'd laugh, but this happened before. one of the exchanges we trade accepts margin in a few currencies - including Yen. a while back the exchange took a haircut of 2% (yes it was a crime) off of interest paid on the margin deposits. Naturally it made sense to fund in Yen and avoid the haircut. (for obvious reasons it didn't last long)