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.
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
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