Momentum Daytrading - Tricks of the Trade Message Board

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Strategies & Market Trends : Momentum Daytrading - Tricks of the Trade

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To: Mama Bear who wrote (732)	3/18/1998 12:29:00 PM
From: peter michaelson	Read Replies (2) of 2120

Barbara et al: I have also had difficulty figuring out the interest on short sales. Can you help? I think there are two aspects, n'est-ce pas? Correct me where I'm wrong, please. First, it is required that there be enough equity in the account to cover the amount of the short sale. If there is enough cash to cover the full amount, then no borrowing is required. If borrowing is required then margin interest would be charged on the amount borrowed. Second, cash comes into the account as a result of the short sale. One would initially believe that interest should be earned on this amount, but it seems not to be the case. I believe that one does not earn interest on cash derived from short sales. Why would one not earn interest? The broker borrows the shares from another account cost-free, I think. The lender of the shares is paying interest on any borrowing he/she undertook to purchase those shares. The loan costs the broker nothing, gets cash from the sale thereof, but pays no interest to the short seller. Broker gets interest-free loan and earns interest on it. Is this correct? Is it fair? Sorry if this sounds confused. It is. thanks in advance peter

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