Stocks & Commodities V. 24:1 (44): Q&A by Don Bright
SINCE YOU ASKED
Confused about some aspect of trading? Professional trader Don Bright of Bright Trading (www.stocktrading.com), an equity trading corporation, answers a few of your questions. To submit a question, post your question to our website at http://Message-Boards.Traders.com. Answers will be posted there, and selected questions will appear in a future issue of S&C.
INTEREST RATES & STOCK SALES
With interest rates on the rise again, I am concerned about how brokerage fees affect traders. My firm already charges a hefty fee for debit balances, and I am
confused about the cash that comes in from short stock sales—is that something my firm should consider?
Excellent questions. Let me try to help find some answers. When you buy securities, your broker allows you to buy on margin (in most cases), charging you that “hefty fee” you mention. The best way around that is to keep more money in your account to cover purchases,
but you have to consider what you’re giving up as well. You’re forgoing the interest that you could be earning
in an interest-bearing account, and this number is part of your “cost of carry” calculation that you must consider
in all stock purchases. For example, if you could get a 6% return from a government-backed security (basically
risk-free), you first have to anticipate that you will overcome that with either stock appreciation or dividend yield, or a combination of both.