Selling Short Initial Margin Deposit

Short selling is basically a process wherein investors sell those shares which they usually do not possess. This is done when the investor speculates that the value of the shares will decline in the future and he will take benefit from the fall of value. This strategy basically works in a very simple and straight forward manner as investor sells the shares which he or she does not posses. When the investors sell the shares, he actually does not possess it and the investor, at the time of settlement he will actually repurchase the same at the current price. Short sell, therefore, works on the basis of reciprocity wherein shares sold by the investors are purchased at a later date under short sell. The investor earns profit in this strategy on the assumption that on settlement date he will repurchase the shares. Any dividends paid during this period are paid to the original owner of the shares.
buying shares on margin requires that the investors can buy the shares on the credit by pledging the same shares as collateral for the borrowing made. Margin trading is often done in order to take advantage of the leverage offered by the brokerage houses so that an investor can increase his exposure despite the fact that he or she may not have the required funds in cash to pay for the shares otherwise purchased in the ready market. An investor has to pay a certain rate of mark-up on the funds borrowed therefore profit is paid after netting off the mark-up or cost of funds borrowed by the investor. An investor normally takes advantage of the margin financing in normal course of business. If shares purchased through margin finance cover the interest must cover the remaining amount is the profitability of the investor.
An investor will receive a margin call when the value of the shares held in investors’ portfolio against margin borrowing fall below a particular threshold level. Normally brokerage houses require initial margin to be placed with them in order to cover the losses incurred as a result of the decline in the market value of the shares.&nbsp.