Preet

I am trying to get a handle on which fees are charged for shorting an equity and how they are broken down. I understand that the inventor/speculator as always charged the standard commission when sell a short position, just like he would if selling a long position.

My understanding is that if an inventor sells short a triple-leveraged fund in the US, he has to put up 90% of the cost to cover the short position. For example, if the inventor sells short $10,000 worth of a triple leveraged fund, I am under the impression that he has to have $9,000 worth of cash collateral in his account. If the equity increases in value, e.g., so that it would now cost $11,000 to cover the short position, the inventor would need $9,900 in money collateral. I thought that if the investor had enough cash in his account, the brokerage simply, took money out of his account and held it in trust. For example, if the investor holds a short position that could be covered by paying $10,000 and holds $25,000 in an interest-bearing money market account with his brokerage, the brokerage would take $9,000 out of the $25,000 in the money market account and hold it in trust. The inventor would then not be earning any interest on that $9,000.

Is this how brokerages handle short sales? Obviously if the investor doesn’t have sufficient money in the money market account, the brokerage would then borrow the $9,000 on the margin and charge margin fees for doing so.

I guess I just am not clear of the source of the 1.68% interest rate in your example.

I would have expected a little better from IB…

Hmmm… want to start up a securities lending shop with me? :)

If charging this “interest” for short positions is typical, then it makes no sense for retail investors to ever short anything where the expected returns are over a period of months or more.

Questrade has no hard-to-borrow fees, just interest on debit positions which is prime + 1.5%, or 3.75% right now. The spread is still a big money maker, no matter what.