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Pastimes : Asensio** King of the Shorts - LET'S RUMBLE!
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To: Mama Bear who wrote (212)1/14/1999 12:36:00 AM
From: Q.  Read Replies (2) of 257
 
Barb, re. <<by their very nature all short sales are on margin>>

Well, that's not quite right.

You do not borrow money to sell a stock short, the way you do to buy a stock.

In fact, your margin account and your short account are entirely different.

Here's an example of what happens. You sell the stock and you get the cash proceeds. Suppose you sell 100 shares of National Fish Wrap short at $10. Your short account then has a $1000 cash credit, which is offset by a $1000 equity debit. So there's no net effect on the value of your account. You do have to have a margin account, though, but only because the shares won't stay at $10 forever. If the shares of National Fish Wrap go up to $11, the broker needs to come up with $100 from somewhere to put into the cash credit for your short account, to make the cash credit equal to the $1,100 equity debit in the short account. The place where he gets that $100 is by taking it from your margin account. If necessary, he makes you take a margin debit (i.e. a loan) to do it.
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