Yiwu Zhang, in your example you are missing something.
1) $20,000 cash + $10,000 long marginable stock.
2) short $50,000 worth of stock.
Result:
a) long stock is actually irrelevant
b) $50,000 proceeds from short sale is irrelevant
c) Datek demands $50,000 collateral irrespective of short proceeds; you have $20,000 so you must borrow an additional $30,000 ie $20,000 - $50,000 leaves net -$30,000.
d) you pay 7% interest on $30,000
Note that with the same starting conditions, if you short only $10,000 worth of stock, then $20,000 - $10,000 = $10,000 on which you would get 4%. |
