Originally Posted by hooty888
Okay I've been practicing with going Short on the simulator and I'm still confused as to what really goes on.
I bought 1000 shares of DBRN at 15.35 for 15,369.99 and I wait to see if the stock is going down so I sell short at 14.65 so im about $700 dollars down.
I wait for about a week and the price has gone down to 10.67 so it should be a diffrence of $3,280.
Okay I buy to cover and it says account value $10,670 so where the hell did the $3280 go? Am I missing something?
What you have done is called a short against the box. You just did it incorrectly. This practice is not done much at the retail level so lets clear it up a tad.
To make this work on the retail level, you either need two accounts or a seperated contract account. Two accounts are less expensive.
You have two accounts. One for long term holds. One for derivatives. No margin required for a long account.
Your margin account is strictly for derivatives and shorts.
Buy 1000 long in your "cash" account.
If you believe that the stock is showing signs of weakness in the short term, but still feel confident in its long term prospects, you can short from your margin side. No need to locate, you already own the cover shares. Stock tanks 35% in a week from a bad earnings report. You buy to cover from the margin account and pocket the difference.
If the short goes against you to the degree that a margin call is made, you cover from your long account and kick yourself in the azz for a bad play.
There are other ways to cover a bad play, but you should get the idea.
This is not a good technique for emotional, new or poorly financed traders.
Splitting the difference between being a trader and an investor is difficult at best, a disaster in the making at worst. The two disciplines require totally seperate approaches that many find hard to master.