Anthony @ Equity Investigations, Dear Anthony, Message Board

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Strategies & Market Trends : Anthony @ Equity Investigations, Dear Anthony,

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To: Jeffrey S. Mitchell who wrote (95460)	9/20/2006 10:41:10 AM
From: Patchie	Read Replies (1) of 122087

Jeff, You miss the general principles of short vs. long trades. There are no margins calls on a long trade because that trade is paid in full at the on set. profit or loss is at the discretion of the long shareholder. In the case of a short, by selling first and obtaining a distribution of funds, you have not yet purchased that security and thus the "liability" rests with the brokerage firm should you simply walk away from your account. Margin calls are risk mitigation for the firms. Are you suggesting that an individual that shorts a $5.00 stock, and that stock moves to $20.00, that the broker should take no action to protect their liability? Imagine the free-for-all that would create. Short sellers on the wrong side of a losing bet would be walking away from these bets in droves leaving the short liability and $15.00 loss with the broker-dealer. A margin call is insurance which is also why the members have minimum net capital requirements.

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