Now that you understand the purpose of the short position, you need to know how to account for it in terms of market value.

The current initial Reg T requirement is the same, long or short: 50% of market value. Essentially, the investor must deposit half the proceeds of a short sale into the margin account: for example, if he wanted to short $100,000 worth of shares, he would have to put $50,000 of that directly into the account.

Let's see how that works:


$100,000 Long Market Value
$50,000 Debit Balance
$150,000 Credit Balance

Exam Tips and Tricks
For your exam, remember that on the short side, a margin account will always have a credit balance.


The credit balance and the equity are the same only on the long side. To come up with the equity on the short side, you have to subtract out the short market value, which is the total market value of all securities sold short through the margin account, as of the previous close. In our example, that initial amount would be $100,000, the sale proceeds. Thus, the equity initially would be $50,000, the cash deposited to meet the margin requirement.

As you know, the short seller takes a loss if the stock price goes up after the transaction. Unless the transaction constitutes a wash sale, the investor is allowed to take the loss for tax purposes.



Costs And Fees Associated With Investments

Related Articles
  1. Investing

    Short Selling Risk Can Be Similar To Buying Long

    If more people understood short selling, it would invoke less fear, which could lead to a more balanced market.
  2. Managing Wealth

    Value Investing & Short Selling Are Like Oil & Water

    To be a good value investor, you need to find and buy bargain stocks but more importantly, you have to stick to the trade until the market recognizes the worth of these securities.
  3. Investing

    Why Short Sales Are Not For Sissies

    Short selling has a number of risks that make it highly unsuitable for the novice investor.
  4. Investing

    The Truth About Naked Short Selling

    The media demonizes naked short selling, but in most cases it occurs in a collapse, rather than causing it.
  5. Investing

    Using Short ETFs to Battle a Down Market

    Instead of selling your stocks to get gains, consider a short selling strategy, specifically one that uses short ETFs that help manage the risk.
  6. Trading

    Guide to Short Selling

    Want to profit on declining stocks? This trading strategy does just that.
  7. Trading

    Difference Between Short Selling And Put Options

    Short selling and put options are used to speculate on a potential decline in a security or index or hedge downside risk in a portfolio or stock.
Frequently Asked Questions
  1. What are Common Examples of Monopolistic Markets?

    Discover what causes real instances of market monopoly, how it persists and where monopoly privilege is most common in the ...
  2. What is the gold standard?

    The gold standard is a monetary system where a country's currency or paper money has a value directly linked to gold, but ...
  3. What's the most expensive stock of all time?

    The most expensive publicly traded stock of all time is Warren Buffett’s Berkshire Hathaway.
  4. What is a "socially responsible" mutual fund?

    As the name suggests, socially responsible mutual funds invest exclusively in socially responsible investments.
Trading Center