Say I have a 50k Margin Account, and long 30k of Stock1 and short 30k of Stock2. What is the balance that I will be paying margin cost on? Is it 10k, or 0 (since the long and short are offsetting each other)?
I don't think so... Long and short are on different stocks. They don't offset each other. You need to pay margin interest on the $10 borrowed. Even if Stock1 and Stock2 are indentical... sometimes it happens because some trade mechanisms did a "short" instead of "sell", or "buy" instead of "buy to cover"... you have a boxed position - both long and short on the same stock, same share size. You still need to pay margin interest because the computer thinks you borrowed money. It could be resolved by calling your broker to flatten your position.
30k. It does not matter if you are long or short, your margin is 50% of the position. If you buy 30k of stock, you have 15k in margin. When you then short 30k in stock, you have another 15k in margin for a total of 30k. They don't offset each other as you are not trading in a pooled account. This is a customer margin account and each position must be margined independently.
Say what? A short position pays out interest on the cash position. Also interest != risk. Depending on the broker's risk models the margin requirement could be anywhere. Interest payments should be over the $0 net borrowed (so $0). Edit: Forgot to take into account interest paid to the owner of the short sold shares, however also forgot to take into account dividends paid by long shares. If you do it right the dividend should be more than the short interest paid, thus only exposing you to relative price.
The OP asked a very simple REG T margin question and I gave him the correct answer. Interest has nothing to do with the answer. These are federal requirements, not broker requirements hence the term REG T.
All right, I skipped over the part where it said "Margin account" so you are right. Interest and dividend part should still be taken into account though because with this kind of trades that's where the returns are most likely to be had. By the way I don't know much about Reg T but paying margin rate on $30k for this trade sounds like it won't be helpful in gaining returns, or am I missing something?
Cyrix, call your broker on Monday and he will tell you 30k. Take that to the bank. This is assuming you have a "margin" account. If it's a cash account where you put up 100% of the money, then no interest would be charged.