moneylearner: Why do brokers “mark to market” for stocks?
I sold short one stock and bought another stock. My broker keeps the short position in a separate account so these trades were in two separate sub-accounts. A day later in account activities I saw a “Mark to Market Adjustment” followed by a dollar amount. Both sub-accounts had this adjustment but in equal in opposite directions (eg. a +$ 100 adjustment for the short account and a -$ 100 for the long account). What’s the point of this?
I think only the short sale caused these adjustments to appear, and the purchase is not related.
Answers and Views:
Answer by richard t
you sold short and put up some money.maybe 100% probably less…………….the balance borrowed from them………….
If the short stock goes up in price,,,,,,,,,,,,,,you owe money…………..if it goes down, you made money (on paper till you cover the position)………if it doubles you owe 5100………..the broker does not take the risk,you do………….
You were marked to the market in your margin account (the only way to sell short) You have to maintain a a percentage of equity in that account. The stock went up so you owed money. They withdrew money from the long position and placed it the short position. This has as much to do with Reg T as it does with your brokerage firm. I would suggest reading about the Federal Reserve Board regulation T.
BTW: All of this should have been explained in full to your before you were allowed a short sale. That has to be with Rule 144
Leave a Reply