When you short a stock if the value of the stock goes above a threshold you will get a margin call. Is this threshold dependent on the total value of your held stock + cash or just available cash? I'm assuming if the shorted stock goes above your buying power you will get margin call?
Asked
Active
Viewed 95 times
1 Answers
2
Is this threshold dependent on the total value of your held stock + cash or just available cash?
It depends on the equity in your account, which is based on the market value of all securities and cash.
From "Short Selling: The Risks and Rewards" (Schwab)
If the value of the collateral in your margin account drops below the minimum equity requirement—usually 30% to 35% of the value of the borrowed shares, depending on the firm and the particular securities you own—your brokerage may require you to deposit more cash or securities to cover the shortfall immediately. [...] If you fail to meet the margin call, your brokerage firm may close out open positions to bring your account back to the minimum requirement.
Example
[Y]ou enter a short position on 100 shares of stock XYZ at $80[.] [A]s long as your 100 shares of stock XYZ remain at $80 per share, you'll need $2,400 in your margin account—assuming a 30% equity requirement ($8,000 x .30). However, if the stock suddenly rises to $100 per share, you'll need $3,000 ($10,000 x .30)—requiring an immediate infusion of $600 to your account, which you may or may not have.
0xFEE1DEAD
- 9,353
- 2
- 23
- 31