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. Investing

    Why Short Sales Are Not For Sissies

    Short selling has a number of risks that make it highly unsuitable for the novice investor.
  3. Financial Advisor

    Why You Should Never Short a Stock

    Short selling a stock means you are betting on the stock decreasing in price. Before taking on this investment, you should fully understand the risks
  4. Trading

    Short Interest: What It Tells Us

    Whether you agree with the overall sentiment or not, short interest is a data point worth adding to you overall analysis of a stock.
  5. Trading

    The Short Squeeze Method

    The short squeezed strategy can be risky - but also very rewarding - for those who master it.
  6. 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.
  7. 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.
Frequently Asked Questions
  1. What's considered to be a good debt-to-income (DTI) ratio?

    Your debt-to-income ratio helps lenders determine your credit worthiness. Find out how to calculate your score and how to ...
  2. What is the difference between a loan and a line of credit?

    Learn to differentiate between lines of credit and standard loans, and determine when you are likely to use each method of ...
  3. What does a Chief Financial Officer (CFO) do?

    A CFO is responsible for accurate reporting of a company's financial information, investing the company's money and identifying ...
  4. How did George Soros break the Bank of England?

    George Soros pocketed $1 billion by betting against the British pound, cementing his reputation as the premier currency speculator ...
Trading Center