TD Ameritrade is charging 9.25 interest on margin (including collateral margin where I have already got equities that I pledge to the broker), according to the documentation on the website. Actually, that is the base rate and the actual margin can be slightly different depending on the margins that a customer usually takes.
Assuming that 9.25% interest is there on the margin and a trading strategy on say S&P 500 requires one to go along for a cumulative total of six months in a year and short for a cumulative total of rest of 6 months, then boot to the interest, we lose 4.625% while shorting the index. That is quite a bit of money to make up in the gain some shorting. So I wonder how are people making money when money is being used on the margin. (Of course, I do understand that in this particular example, one could have used an inverse ETF. But I'm just providing the example for the illustration for cases where there are more inverse ETF available)
I was actually hoping that if I provide my equities to the broker, then hopefully there is minimal loan interest on the money that I get in exchange of the equities which is already provided to the broker.
Can people please advise if there is a any possibility like that from a broker or am I not understanding this 9.25% interest requirement properly.
Submitted December 02, 2018 at 11:30AM by ramana2887 https://ift.tt/2E0OLmP
