Scottrade - Short Sale and Buys - what is the "real" equity left?

Question

Ok so for example I have a 1000$ account.

I short sale 500$ worth of stock and I buy 500$ worth of stock (different security).

My purchasing power is still 1000$ according to scottrade. This can't be true? Other wise I could buy 1 million $ and short 1 million $ and it would still say a have 1000$ in equity?

Anyone run into this?

Answer 1

It is true! In a margin account under SEC Reg T you are working on only 50% margin, so they allow you to borrow and equal amount of money for buying shares from your broker.

Answer 2

STOCK SNIFFER - the International Hedge Fund Manager, before youy give information, you should make sure your on solid ground.   Regulation T IS NOT a SEC rule

Margins guidlines are under the jurisdication of the Federal Reserve Board.  Regulation T is part of their rules, as is REG X, M, S etc

Answer 3

When you short stock, they have the cash in your account on hold.  In your question, you seem to be mixing the terms "purchasing power" and "equity".  Buying or selling something doesn't change your equity.  500 worth of stock or 500 worth of cash is still 500 in equity.  Your equity will change with price changes.

Your purchasing power is not "still" 1000.  When you had cash only, you would have been able to purchase 2000 because margin accounts allow 2-to-1 leverage.

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