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When is interest charged on a margin account?
If I place a credit spread, which requires a margin account, is the interest charged at the time of placing the trade or only if the trade goes against me.
Answers
788 points
DaveDiggz answered one year ago …
Margin interest only accrues if you don't have enough cash in your account to settle the trade - it's the same deal with shorting stocks. As long as the brokerage firm isn't LENDING you money, then you don't pay interest.
Now, let's say they are lending you money (e.g. you shorted a stock and the position went against you so much so that the cash in your account couldn't cover the repurchase of the shares). Then (and this depends on your broker) you'd likely be charged a monthly interest rate that compounds daily and it would start to accrue on settlement date.
314 points
Ifly answered one year ago …
Another slant is : when you place a credit spread the broker will lock the amount of funds equal to the maximum risk of the trade. eg if you place a $10 spread for a credit of $100 your maximum risk is $1000-$100=$900. You will need at least this amount in your account to be able to place the trade and your broker will not let you use this money until you close the trade. Because this is held in your account there is no interest charge.
That is why a credit spread is really no different to a debit spread in terms of usable money.
Cheers
Ifly
