Short account
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For selling stock short
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Opening sale, sell stock before buy shares
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Closing purchase, buy stock back, cover short sale
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Profit when price decreases
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Credit balance, sale proceeds
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When borrowed stock sold, customer must deposit
Reg T to increase credit balance
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SMV (Short market value)=Credit balance (Cr) –
Equity (E)
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SMA = Equity –(Market value x 50%)
Short account SMA increase
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Market value decrease
Short account SMA neutral
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Market value increase
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Stock value decrease because of stock
dividend/stock split
Long account SMA increase
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Market value increase
An investor has a short margin account with 3 different
stocks in it. If one of the stocks goes down in value, what happens to the
equity of the short account?
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Equity increases
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Market value go down, equity go up
Short account minimum maintenance requirement
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Minimum
maintenance = Short market value (SMV) x 30%
Short account Maintenance Margin call
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Maintenance Margin call= Credit (Cr)/130%
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Market value increase, equity decrease
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Minimum maintenance is 30%
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Credit balance can not < 130% of market value
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Investor shorted stock, don’t want stock
increase because investor pays > for stock
Minimum Maintenance vs. Maintenance Margin call
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Minimum Maintenance, market value neutral,
credit balance go(es) down
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Maintenance Margin call, credit balance neutral,
market value go(es) up
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SMA=Equity – (SMVx50%)
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MM= SMV x 30%
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Maintenance Margin call = Credit balance/130%
An investor has a short margin account with a market value
of $80,000 and a credit balance of $130,000. At what point would there be a
FINRA maintenance call for the account?
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130/130%=$100,000
