Same stock in same account

[jini]

Hi,

Im a beginner at trading and have just opened an account. I asked my broker if I am able to trade both long and short in the one account on the same stock, the reply I got was you can't. When pressed for a reason one was not given, searched around and yet to find a reason why this is not allowed.

Can anyone answer this beginners simple question?

 

[Lodian1019]

Not at the same time you cannot. Its like going both red and black on roulette. I think thats the reason anyway.

Lodian

 

[Masquerade]

You can bet red and black on roulette if you like. Don't know why you'd want to but they'd happily let you

 

[jini]

Not at the same time you cannot. Its like going both red and black on roulette. I think thats the reason anyway.

Lodian

Thanks for the reply lodian but Im actually looking for a reason why?

 

[wackypete2]

If you already own the stock, tell your broker you want to "short against the box". It's legal so if your broker won't do it then it's your broker's rule.

You can't go the other way around as far as I know. If you are already short I don't believe you can buy into another position. Purchases are considered closing positions when you are short a stock.

For more info: http://www.sec.gov/
Peter

ADDED: This is for USA stock markets only. I don't know about other stock markets. Sorry if that was confusing!

 

[jini]

If you already own the stock, tell your broker you want to "short against the box". It's legal so if your broker won't do it then it's your broker's rule.

You can't go the other way around as far as I know. If you are already short I don't believe you can buy into another position. Purchases are considered closing positions when you are short a stock.

For more info: http://www.sec.gov/
Peter

ADDED: This is for USA stock markets only. I don't know about other stock markets. Sorry if that was confusing!

thanks for the info. However I still couldn't find anything substantial on legalities and why most brokers don't seem to allow it? You say its legal, if so why would a broker prevent a client from opening such a position?

Any ideas would be greatly appreciated.

 

[shortsell]

for what possible reason would you want to be long and short of the same stock?

actually, don't answer that.

there is no reason for you to engage in this practice. it will heighten your transaction costs and has no practical purpose.

if it is because you are running losses on a long and you want to 'hedge' rather than 'close', then you need to close your account - for 2 reasons;

1. if you don't understand that by being long X shares of ABC Corp and short X shares of ABC Corp you have effectively closed your exposure anyway, you are not cut out for trading

2. if you can't handle taking a loss when you no longer like a position, you are not cut out for trading.

blunt, but true - unlike most of the answers you will get on here.

 

[tomorton]

Hi shortsell - People do sometimes want to hedge (temporarily) a stock that is well into the money, though they don't want to exit completely yet because they see a minor retracement, followed by a resumed rise. This is a practice favoured by long-term buy-and-hold investors who value the dividend and face high transaction charges (and emotionally hate selling).

But that's not trading and so I agree with you - a trader should buy or sell but if you can't take the pain of a bad decision and get out, stop trading.

 

[shortsell]

hi tomorton.

i don't agree (not that we have to on these things of course).

if they value the dividend income then why be long and short over the ex date - they will effectively receive nothing as they will 'pay out' the dividend on their short leg.

if they suffer high transaction fees then they should be keen to avoid doubling them by taking opposing trades.

if they think the stock will retrace they should close (or part close) and re-open after the retracement.

if you are long X and you sell X, you have 0.

your final point is the one i agree with - an emotional inability to sell. i would just iterate that in my opinion people who suffer such weaknesses should disengage from the financial markets.

just my opinion of course.

 

[wackypete2]

shortsell,
There are tax implications here in the USA that also would cause one to have opposing trades. Different tax rates for holding periods...long term vs. short term and what the SEC calls "wash" sales.

Like you and tomorton, it's not something I would do, but some traders/investors may have their reasons.

Peter

 

[shortsell]

That is a completely valid point and one I overlooked so thank you for correcting me on that Pete.

so my new stance is; with the exception of manipulating tax loopholes/holding periods, there is no reason to be long and short of the same product in the same account simultaneously.

 

[wackypete2]

so my new stance is; with the exception of manipulating tax loopholes/holding periods, there is no reason to be long and short of the same product in the same account simultaneously.

LOL, manipulating isn't exactly what I meant, but I got a good laugh out of it!

Peter

 

[jini]

That is a completely valid point and one I overlooked so thank you for correcting me on that Pete.

so my new stance is; with the exception of manipulating tax loopholes/holding periods, there is no reason to be long and short of the same product in the same account simultaneously.

I have no interest from a tax perspective, tmorton touched on my thoughts alittle. Anyways its irrelevant why i want to do it.. so lets get back on track. Are there any pro traders who can provide an annswer to this seemingly tough question?

 

[wackypete2]

I don't understand what exactly you want? What I described is allowed in the US. I gave you the link to the sec but i guess you don't want to search a little. Try this: http://www.sec.gov/answers/shortbox.htm

It's the sec regs on shorting. You have your answer. It's allowed. If your broker won't allow it then no one here can answer why, only your broker can. Ask to speak to a manager or switch brokers.

Try doing some legwork. It's not a tough question.

Peter

 

[jini]

I don't understand what exactly you want? What I described is allowed in the US. I gave you the link to the sec but i guess you don't want to search a little. Try this: http://www.sec.gov/answers/shortbox.htm

It's the sec regs on shorting. You have your answer. It's allowed. If your broker won't allow it then no one here can answer why, only your broker can. Ask to speak to a manager or switch brokers.

Try doing some legwork. It's not a tough question.

Peter

I did check the link and have been doing lots of groundwork. What you provided was helpful. i think Im not wording my question clealy, what Im after is why my broker and 4 others I have contacted refuse my request to trade like this, yet there is no reasoning behind it. So if it legal than why am I being prevented from doing it?

 

[new_trader]

what Im after is why my broker and 4 others I have contacted refuse my request to trade like this, yet there is no reasoning behind it. So if it legal than why am I being prevented from doing it?

I wanted to buy a commodity futures contract and take physical delivery but my broker doesn’t allow it because they only settle all contracts in cash. So, even though it is legal to take physical delivery of a commodity, my broker doesn’t allow it. I could probably hazard a few guesses as to why they don’t allow it or I could do as you have done and ask for an explanation in this forum. The end result is I had to search for a broker that does allow me to take physical delivery and I was surprised by how difficult it was finding such a broker. My conclusion: Brokers are not necessarily obliged to allow you to do things which are legal.

 

[jini]

nice reponse new_trader. I haven't had much luck finding a broker, if you know of one I would appreciate it. I know of a guy who is able to do this through a loop hole in their platform, his broker doesn't allow it but occationally turns a blind eye as he trades considerable size. Every now and then he risks having one side flattened though.

I prefer not to go with such a broker. Its legal... so there has to be a broker that allows it.

 

[bburkin]

This is called "short against the box" You just need your account set up for this from your broker. Most brokers will be able to do this. However, you can also short by using some other vehicles like options, single stock futures, etc.

 

[jini]

Nope. None of the 8 brokers I contacted will do it. Also shorting options or futures isn't the same thing as what I mentioned.

 

[bburkin]

It is a fairly antiquated thing and I haven't looked into it since I got my series 7 in 1997. I bet you will need a full service broker to get this account setup anymore. Good luck