Assume an investor goes long on X1 and simultaneously short on X2 both of which cost $1. With margin rate at 50% he is required to deposit 0.5 + 0.5 = $1 margin to make the transaction. My question how much he has to borrow for this transaction. The trading house will sell X2 and keep the proceeds of $1 by itself. Can this money be used to cover the remaining $0.5 on the long transaction of X1?. If someone has a clean mathematical formula for margin calculation in margin accounts I would very much appreciate to know about it?
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In the US, the Reg T margin requirement for a short position in a marginable security is 150% of the sale price. The proceeds from the short sale can be applied to the margin requirement so effectively, the margin requirement is 50%. Therefore, the proceeds from the short sale cannot be used to cover the margin requirement on the long transaction.
Bob Baerker
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