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Since the time your credit card statement was printed, you may have made purchases, payments or other transactions that changed your outstanding credit card balance. These transactions are reflected in the current balance. The current balance could be higher or lower than your statement balance depending on the transactions you've made. For example, if a payment has posted to your account since your billing statement was printed, your statement balance will be higher than your current balance. Or, if you made purchases since your billing cycle was printed, your statement balance will be lower than your current balance.
There are two types of investment accounts used to buy and sell financial assets—a and a. A cash account is a basic trading account in which an investor can only make trades with his available cash balance. If an investor has $500 in the account, then he can only purchase shares worth $500, inclusive of commission—nothing more, nothing less.
A margin account allows an investor or trader to borrow money from the broker to purchase additional shares, or in the case of a short sale, to borrow shares to sell. An investor with a $500 cash balance may want to purchase shares worth $800. In this case, his broker can lend him the additional $300 through a margin account. While a has a, a margin account with only will show a credit balance. The credit balance is the sum of the proceeds from a short sale and the amount under Regulation T. In, an investor essentially borrows shares from his or her broker and then sells the shares on the, hoping to buy them back from the open market at a lower price at a later date, and then return the shares to the broker, pocketing any excess cash.
When the shares are first sold short, the investor receives the cash amount of the sale in his or her margin account. Since the shares being sold are borrowed, the funds that are received from the sale technically do not belong to the short seller.
The proceeds must be maintained in the investor's margin account as a form of assurance that the shares can be repurchased from the market and returned to the brokerage house. In effect, the funds cannot be withdrawn or used to purchase other assets. Since the risk of loss from short selling is high, given that the price of a share can increase indefinitely, a short seller is required to deposit additional funds in the margin account as a buffer in case the stock increases to the point of loss for the seller. Some brokers stipulate the margin requirement on short sales to be 150% of the value of the short sale. While 100% of this value already comes from the short sale proceeds, the remaining 50% must be put up by the account holder as margin.
The 150% margin requirement is the credit balance required to short sell a security. The short seller is required to deposit additional margin in the account when the margin falls below the total margin requirement of $18,000. When the price of FB shares increases from $180 to $250, the of the shares increases by $14,000, which reduces the margin to $4,000 ($18,000 – $14,000).
Also, the margin following the price increment now falls below the Reg T 50% requirement since $4,000/$50,000 = 8%. This is the basic principle of short selling—a short seller’s equity will fall when the stock price increases, and the equity will rise when prices decrease. Remember that short sellers hope that the stock’s price will drop so they can buy back the borrowed shares at the lower price to earn a profit. Looking at the table, you can see that a price decrease or increase did not change the value of the credit balance.