I am by no means an expert in shorting, but to me your description of the mechanics of shorting appears incorrect.
That's not really how it works. Shorting is similar to buying. You place your order and if they can fill it, it happens. In the background they borrow shares for you to sell short, they then place your order to sell, and if both have happened, they then put the money they receive for the short sale into your account. At this point, a portion of the funds received will be subject to a margin and unavailable to you.
BUT, even based upon my limited experience shorting, THE CONTRACT IS NOT FOR A SPECIFIC PERIOD OF TIME as you appear to suggest. It's an open ended contract that can be called by your broker if necessary (such as if the original shareholder of the borrowed shares sells his/her shares (or just wants his/her shares back) and the broker was unable to borrow replacement shares). Also, if the stock price goes up, your margin requirements go up, and you might have to place additional funds, even beyond those you received, into your brokerage account to cover the margin, or they will buy shares on your behalf to cover the borrowed shares, and auto deduct (and to the extent necessary, bill you for the remainder) for the purchase plus all amounts owing from the margin loan.
However, your statement as to "being forced to pay the new interest rate to maintain" your position is more or less correct, as the margin interest rate will vary based upon the market rates and your margin agreement with your broker. And, your statement that if your "account is a margin account, they have the right to lend [your] shares out for interest" is correct.
Quote:and I would have to cover or return those shares in a month or two weeks, whatever the contract was for, by buying back those shares at whatever price they were at, even if the price was higher than what I borrowed them at....
At the end of the contract, say 2 weeks after i borrowed the shares, if I pay the 130% interest, the brokerage may give me the option of re-shorting, or re-borrowing the same shares, if I again agree to pay the 130% interest rate for the next 2 weeks and again allow me to borrow the same number of shares, this time from the new starting price which may be higher than or less than the original borrow price so I wouldn't need to cover or buy back the shares.
That's not really how it works. Shorting is similar to buying. You place your order and if they can fill it, it happens. In the background they borrow shares for you to sell short, they then place your order to sell, and if both have happened, they then put the money they receive for the short sale into your account. At this point, a portion of the funds received will be subject to a margin and unavailable to you.
BUT, even based upon my limited experience shorting, THE CONTRACT IS NOT FOR A SPECIFIC PERIOD OF TIME as you appear to suggest. It's an open ended contract that can be called by your broker if necessary (such as if the original shareholder of the borrowed shares sells his/her shares (or just wants his/her shares back) and the broker was unable to borrow replacement shares). Also, if the stock price goes up, your margin requirements go up, and you might have to place additional funds, even beyond those you received, into your brokerage account to cover the margin, or they will buy shares on your behalf to cover the borrowed shares, and auto deduct (and to the extent necessary, bill you for the remainder) for the purchase plus all amounts owing from the margin loan.
However, your statement as to "being forced to pay the new interest rate to maintain" your position is more or less correct, as the margin interest rate will vary based upon the market rates and your margin agreement with your broker. And, your statement that if your "account is a margin account, they have the right to lend [your] shares out for interest" is correct.
2
