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Pastimes : Asensio** King of the Shorts - LET'S RUMBLE!
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To: Daniel Chisholm who wrote (231)1/15/1999 2:19:00 PM
From: Q.  Read Replies (1) of 257
 
re. <<"But why should a margin account be required for shorting?">>

I'd guess two reasons:
1 the margin account provides a mechanism for the margin call
2 it involves a loan agreement.

1. If the broker used an account with nothing but cash in it, as you point out, something analogous to a margin call would still be needed, if your equity goes below a certain threshold. But even if that were built into the account, there remains the problem of what happens when the total equity in your account goes below zero. Which leads us to the second point, re. a loan agreement.

2. With a margin account, isn't it true that you sign a loan agreement, so that the broker is a genuine creditor if you can't pay what is owed him?
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