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Bob,
Your concern isn't only the treatment of the margin.. it is the tax treatment of the
long/short position. Make sure you talk to a tax expert first. Under the last
revision I'm almost positive long/short can't be done in an individual account. The
short immediately triggers a taxable event in the long. Consult an expert to make
certain and be sure they are familiar with the May 1997 tax amendments.
Good luck,
Bob Young wrote:
> I intend to implement a hedged portfolio strategy in common stocks. I will hold in
> my account approximately equal dollar values of long and short positions,
> making me net market neutral.
>
> For this I require a margin account with a stockbroker. I will be trading quite
> actively, so low commissions are important, but another consideration is the
> treatment of margin interest. Suppose I were to open an account with 100K in
> cash. Then I buy a basket of stocks long, using the whole of the 100K, and at
> the same time sell short a basket of stocks to the same value. I should have no
> debit balance, and so pay no margin interest. However, one broker I have
> contacted informs me that I will be charged margin interest on the entire short
> portfolio, while another says I will not be charged unless I have a debit balance,
> but, they charge a much higher commission. Can anyone recommend a broker
> with both low commissions, and the correct treatment of margin interest?
>
> Another consideration is the interest on the cash received form the short sale of
> stock. I woul hypothetically own 100K worth of stock, plus have sold short
> another 100K, for which 100K in cash has been received. None of the brokers I
> have contacted is willing to pay me interest on this cash. Does anyone know of
> a broker who pays interest on cash recieved from the short sale of stock?
>
> Thanks for any advice
> Bob Young
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