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yeah that explains alot, thx for giving us info without making us feel stupid, much appreciatted. I guess i was wrong about te shorting, i thought they could take any1's shares and lend them if if they have a margin account, but that makes me feel better knowing they cant. I think it was demian who i heard this from, so blame him haha
If you have a margin account and your shares are not locked up, your shares can be lent out to others for shorting by your broker......
That is a fact...
This guy, Douglas A. McIntyre, really bugs me because he has bashed with inaccurate data about SIRI for awhile now - inflating the debt numbers etc. He has an obvious agenda on the short side with SIRI...
http://www.bloggingstocks.com/2009/0...d-toward-zero/
Stock prices headed toward zero
Posted Jan 24th 2009 6:01AM by Douglas McIntyre
As each month passes, more and more companies get into the kind of trouble that pushes them toward Chapter 11 or insolvency. Some of the companies that hit that point several months ago include Sirius XM (NASDAQ: SIRI) and Charter Communications (NASDAQ: CHTR).
Douglas A. McIntyre is an editor at 24/7 Wall St.
You are going to have to back that statement with something...Quote:
Originally Posted by Demian
When you buy shares with a margin account you are buying shares with borrowed money but the shares can not leave your account without your consent (unless they lose value and your broker liquidates them)... If they do then your broker is violating SEC rules.
http://www.investopedia.com/printabl...securities.asp
Do you have a margin account with your broker? If so, did you know that the shares you have purchased may be lent out to other parties without your knowledge or granted permission? When opening up a margin account you are essentially giving permission to the brokerage firm to lend out the securities in your account even if you don't realize it.
How Margin Accounts Work
A margin account is a way to leverage the capital and securities you own to purchase additional investments without having to invest any additional capital. You simply borrow from your broker to buy more securities. The broker will charge you interest on the borrowed money and use all the securities (those already in your margin account and the ones you just bought) as collateral Note that the risk of trading on margin is greater than trading in a cash account because you can, in theory, lose more money than you started with in your account. (To learn the basics to margin, check out How Does Your Margin Grow?and Leveraged Investment Showdown.)
What Becomes of the Securities in your Margin Account?
The securities in your margin account may be lent out to another party or used as collateral by the brokerage firm at any time without notice or compensation to you when there is a debt balance (or negative balance) on the account where you have accessed the margin funds. If the account is in a credit state, where you haven't used the margin funds, the shares can't be lent out.
The borrowers of stocks held in margin accounts are generally active traders, such as hedge funds, who either are trying to short a stock or need to cover a stock loan that has been called in. Also, investment firms that need an underlying instrument for a derivatives contract might borrow your margined stocks from your broker. The brokerage firm may also pledge the securities as collateral for a loan. (Keep reading about this in When To Short A Stock and our Short Selling Tutorial.)
Also, if your margined shares pay a dividend but are lent out, you don't actually receive real dividends because you aren't the official holder. Instead, you receive "payments in lieu of dividends", which don't qualify for the 15% dividend tax rate. However, you will only have to pay the high income tax rate if the firm clearly states that the dividend income was payment in lieu on the Form 1099-Div - if it isn't stated you will receive the lower 15% rate.
Back to Cash?
If the above doesn't sound too appetizing to you and you're adamant about retaining your vote and want to avoid a potential dividend tax hassle, the easiest solution is to transfer your shares from a margin account to a cash account. Shares held in a cash account can't be lent out, which removes the voting and dividend issues.
However, if you are willing to give up some of the above and take on the additional fees to access the greater capital in a margin account, you will need to ensure that you keep your account in a credit state around important voting times (as the brokerage firm will need to return the borrowed shares).
Share Lending
Shares held in a cash account can be also be lent out if you give the brokerage firm permission, which does present a potential source of additional gain. This process is called share lending.
There can be a lot of demand by short sellers and hedge funds to borrow securities, especially on securities that are typically hard to borrow. Similar to a margin account, when you borrow capital or securities, you are required to pay interest on the amount borrowed.
Depending on market rates and the demand for the securities, the exact amount of interest charged for borrowing securities will vary (the harder to borrow, the higher the interest). The most attractive securities to lend are those that are hardest to borrow for short selling, which usually means small caps or thinly traded stocks as well as shares that are already heavily shorted or have fallen a lot in price.
And this demand presents an attractive opportunity for investors with the securities in demand. If you have a cash account with securities in demand you can talk to your broker and let them know that you are willing to lend out your shares. If there is demand for these shares, your broker will provide you with a quote on what they would be willing to pay you for the ability to lend these shares.
If you accept, your broker will lend your shares out to a short seller or hedge fund for a higher rate and pocket the difference as well as satisfy another customer's demand and generate some commissions. For example, they may give you 8% interest on the loaned shares while lending out at 13%. Depending on the size of your position, it can be a nice additional source of return. This method also allows you keep your existing long position in the security and benefit from its upward movement.
Depending on the broker, they may or may not provide this service. They may also require a minimum number of shares or dollar amount. (To learn more about risky trades, check out Is Pressing The Trade Just Pressing Your Luck? and Scalping: Small Quick Profits Can Add Up.)
Conclusion
Investors should always be evaluating everything on a risk/reward basis from the stocks they invest in to the accounts they open. Margin accounts can be attractive as you can generate a large return by using a brokerages capital. However, there is a greater risk of loss and investors can also lose voting power.
Alternatively, while a cash account may seem boring as there is no leverage, through the practice of lending securities, investors can increase their returns with another source of income.
Tripp...WOW.. I cant believe what I started with what I thought was gonna be a simple answer...And the time Its cost everyone to explain and compare notes...Its very impressive on the combined intelligence on the website...And It confirms my belief that Sirius is a good bet...Thanks & LONG SIRIUS
Ya, you troublemaker! lol I bet Tripps didn't evern sleep last night.Quote:
Originally Posted by Sworntwofun
lol i slept like a baby :O
Slept like a baby?Quote:
Originally Posted by trippingthespeculatingpos
You mean you wake up and cry every hour?
okay i slept like a 60 year old man lol