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Strategies & Market Trends : Pump's daily trading recs, emphasis on short selling
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To: ChrisJP who wrote (3486)7/8/2001 5:43:06 PM
From: RockyBalboa  Read Replies (1) of 6873
 
Sorry for not delivering answers in first place.

But here are some additional points re margin use:

$2.50 is the minimum margin requirement for short sales for low priced stocks. (< $2.50). See:

(IB):

Initial margin requirements:

For a short sale of stock the greater of:
50% of the sale price; or the short sale maintenance margin requirement (see below):

Maintenance margin requirements:
To prevent an automatic liquidation, the account must meet minimum maintenance requirements.

For short stock sales:
30% for underlying stock priced $17.00 per share or more; or $5.00 per share for stock priced between $5.00 and $16 7/8 per share; or
The greater of 100% or $2.50 per share for stock priced less than $5.00 per share;
$2,000 minimum account equity for all margin transactions

(Datek):

Maintenance Requirements:

For short positions priced at $5.00 or higher the margin requirement is 30% of the current market value, or $5.00 per share, whichever is greater. If the stock has a special maintenance requirement (such as 50%) use that figure instead of 30%.
For short positions priced under $5.00 the margin requirement is 100% of the current market value, or $2.50 per share, whichever is greater.

--------------------------------

The logic behind short sales of non-marginable securities is unclear. For example, Datek never allowed to open a new short in stocks < $5, but it appears that this is the exception amongst most brokers.

In general marginability of stocks is not necessary for short selling. If a stock is marginable then this only means that it is good to have a part of the purchase price credited against the ownership of the stock.

Short sales are a different thing. Your own creditworthiness decides over the ability to enter and sustain a short position, not the quality of the company whose stock is being shorted.
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