Do you get charged interest when you short a stock through a broker?
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Answer:
I'm not sure exactly how it works at Scottrade, but probably similar to TDAmeritrade. When you short the stock, the amount you sell it for (let say $10000) goes into a separate "short balance". After the trade settles (3 business days), they automatically move money in and out of the "short balance" every day so that you always have enough to pay for buying the stock back. They do not charge interest or pay interest on that money.
If the stock goes down, since you need less to buy it back, they move money out of the "short balance" to your cash or money market. But if the stock goes up, you need more money to buy the stock back, so they take money out of your cash or money market balance and move it to the "short balance". If you don't have enough in your cash or money market account, then the extra amount needed comes from margin and you have to pay interest on that money for as long as you have that loan. The interest rate is per year, so for each day, it will be about 1/365th of the amount for a year.
When you short a stock you are charged a regular $7 commission, just like when you buy a stock.
You're not necessarily borrowing money when you short a stock--that depends on how much cash you have in your account. You borrow money when you trade more assets than you have cash in your account (like if you put $10,000 in your account and buy $12,500 worth of stock).
And when you do borrow money (anytime your cash balance is negative), you're charged 10% on an annualized basis. So if you borrowed $2500 to buy a stock, you'd be charged $250 only if you never sold that (or any other) stock for an entire year and you never deposited any more funds. Say you had a $2500 negative balance for one month--you'd be charged around $20.
When you short a stock, you are actually borrowing the stock and having your brokerage company get the stock for you. You do pay interest for borrowing the shares. Once the brokerage company sells your borrowed shares, money goes into your account which should accrue interest to you.
The 10% figure you were quoted is an annual rate, so if you short stock for an entire year then you are charged $250.
Don't sell short a stock, this is very risky, and you could lose a lot of money. Instead get approved for options trading, and buy put options, this is much more safer than selling stock short.
1) Yes.
2) Yes.
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