Margin on short sales of common stock - basic rules
A short sale must be done in a margin account. Any stock, regardless of price, may be sold short provided that the brokerage firm will permit the transaction. Regulation T, NYSE, and NASD will permit you to short a $2.50 stock, but Merrill Lynch will not. If you can find a firm that will let you short stocks under $5.00 a share, the margin requirements are extremely high. We'll review them below.
In the examples below, I'm using the 50% current requirement for Regulation T, but remember that if your firm has imposed higher requirements on a particular stock, the higher requirements always apply.
In fact, one basic margin rule is that, in calculating margin, you must calculate the Reg T initial margin requirement, then the NYSE/NASD maintenance requirement, then the firm's requirement, and the higher of the three will always apply in calculating initial margin.
In other words, the initial margin required may be a combination of Reg T, NYSE maintenance, and firm requirements. The calculation is always subject to the $2,000 account minimum equity requirement, or whatever higher margin account minimum the firm may establish. |
