[ Liars and Cheats at WebStreet ]
In the message to which I am responding, I was wondering why WebStreet withdrew cash from my money market fund when I made a short sale. Yesterday, I called WebStreet and spoke with Ryan. I assume that Ryan is the same person who was touting WebStreet on Silicon Investor, without disclosing that he works for WebStreet:
exchange2000.com
It is the industry standard that the proceeds of the short sale are kept in the short side of the account, and the customer does not receive interest on this cash. However, Ryan explained that WebStreet wants to keep the cash balance on the short side at $5/share higher than the cash required to cover the short. Since I shorted 3,000 LIPO they took $15,000 out of my money market fund, and placed it in the non-interest bearing short side. This costs me about $2/day in lost interest.
In my other brokerage accounts (NDB and Datek), I am about 90% long and 90% short. If I did the same thing at WebStreet, there would not be enough cash to put an extra $5/share in the short account. Then, they would force me to borrow the cash at over 8%, so that I can keep that cash in the non interest bearing short side. For a typical short of 5,000 shares held for one month, the margin interest would cost me $170. Of course, the commission would be $0. Obviously I'm better off with NDB and Datek, since they charge me a small commission but don't debit my real cash when I make a short sale.
I explained to Ryan that this was not a very good deal for the customers. The cash is not physically spent on anything, so why do they take it away? Ryan explained that "The cash is used for us to buy the shares so that you have them to sell short". What a hoot! When he doesn't know the real answer, he makes something up.
I asked Ryan why NDB and Datek don't do this. Ryan explained that WebStreet is following the industry standard, but promised to call around and check on this. Only a minute later he called back, and explained that he called Datek, and Datek does the same thing as WebStreet. Ryan lied. I called Datek, and Datek verified that they do not remove any real cash from the MMF when a customer makes a short sale. I verified the same information at NDB. At both Datek and NDB, they were howling with laughter. They had never heard of any brokerage debiting a customer's real cash in order to make a short sale.
I have discovered one significant hidden cost at Webstreet, and assume that there are others. I'd prefer that they be upfront with all the costs. If not, they should at least admit to the hidden costs when I asked about them. What really gets my goat is Ryan's claim that he called Datek. Datek did not remember Ryan, did not remember anyone else calling with this question, and had never heard of WebStreet.
Well, I covered the LIPO short today, and will be closing my account. I can't sleep well with my money in the hands of liars and cheats.
Beware of WebStreet ! |
