Series 27: Short Selling Rules

Short Selling Rules

Like purchases on margin, short sales are protected in a margin account. For purchases, the initial margin requirement is 50% of the current market value of the security. The customer owns the purchased security, and the lender extends credit for the balance of the payment.

With short sales, however, the customer enters a riskier transaction, by selling a security it does not own. The initial margin requirement for short sales is 150% of the security’s market value. This is because the borrower must fully collateralize the