Using cash from shorts to long other stocks. Fee?
Using cash from shorts to long other stocks. Fee?
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DJ Unknown · External communityPost link
External question — Personal Finance Stack Exchange
Author: DJ Unknown
Original post: https://money.stackexchange.com/questions/169245
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Suppose I have a $1M long position in SPY that I hold indefinitely. Separately, I sell short $1k of SQQQ and immediately use the $1,000 in cash proceeds to purchase QQQ.
How is the fee calculated? Is it ONLY the borrowing fee of roughly 2.5%-3% of $1k? Or, is it borrowing fee (2.5%-3%) + margin interest rate (5% on Robinhood)? Is it very different across the brokers? Thanks for your help!
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Bob Baerker · External communityPost link
External answer — Personal Finance Stack Exchange
Author: Bob Baerker
Original post: https://money.stackexchange.com/a/169257
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Margin interest is charged when you borrow money from your broker. There is no borrowing when you short a security.
There is a borrow fee when you short a stock. I have several brokers and there is little variance between their borrow fees. I can't speak to Robinhood but I do know that they have a tendency to screw their clients so compare them to other brokers.
Shorting the SQQQ is an interesting way to hedge but it has some pitfalls. Assuming close correlation (that's iffy over various periods of time), you're adding a 3x bear position and an equal sized 1x bull position in QQQ. For $25 per year (2.5% borrow) per $1000, that's inexpensive hedging (less costly than options). A fly in the ointment is that leveraged ETFs tend to have high expenses and decay.
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Quoted from Forex.com.bd-Editorial External answer — Personal Finance Stack Exchange Author: Bob Baerker Source score (net votes, not local likes): 0 Original post: https://money.stackexchange.com/a/169257 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Margin interest is charged when you borrow money from your broker. There is no borrowing when you short a security. There is a borrow fee when you short a stock. I have several brokers and there is little variance between their borrow fees. I can't speak to Robinhood but I do know that they have a tendency to screw their clients so compare them to other brokers. Shorting the SQQQ is an interesting way to hedge but it has some pitfalls. Assuming close correlation (that's iffy over various periods of time), you're adding a 3x bear position and an equal sized 1x bull position in QQQ. For $25 per year (2.5% borrow) per $1000, that's inexpensive hedging (less costly than options). A fly in the ointment is that leveraged ETFs tend to have high expenses and decay.
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