Short Selling Ban - A word of warning

[rkc3]

Be absolutely aware that any sales of financial stocks this week will put a stop on your ability to trade in any other stock.

Currently, one of my accounts is blocked from trading because the sale of Fannie Mae stock yesterday was considered a short sell. I made some profit on the stock this week and decided to cash in. Not realizing that the 800 shares I sold would bring down the entire economy, I sold anyway.

The account says I have money, but I am unable to buy any other stock - financial or not. My money is likely to be held hostage until October 2; unless the ban is extended.

I hope none of you get stuck like this.

[JohnnyRingo]

1. Locking money out doesn't sound healthy for the market.

I always assumed Wall Street, but for all the greed, was still smarter than Washington, and I'm confused as to why selling your position was considered a short.

Maybe it's punishment designed to keep money in the game?
Thanx for the warning btw.

[TechBear_Seattle]

2. I bet you were trying to free-ride, not short

The ban that is in place involves only short selling on margin. That is where you borrow stock at X dollars with the plan of selling it at X-Y dollars. You then repay the loan based on the selling value of the stock, and pocket the difference. Very few casual investors have margin accounts, so very few casual investors have to worry about the short selling ban.

I bet you were attempting to free-ride. That is where you buy a stock, then sell it before you have actually settled the trade; the idea is to use your profit from the sale to settle the purchase. For a couple of years now, since the meltdown of the day-trading markets, that tactic has resulted in a 90 day suspension of the account in which the trades were made.

[rkc3]

3. Nope.

Bought the stock at market value on Tuesday and resold near the end of the day Thursday.

Not done on margin - I might buy Fannie Mae during this upheaval, but I'm not gambling like that. And it certainly wasn't a free ride.

[Schema Thing]

4. hmmm, I'd like more details.

this does not describe what I thought they were banning: short selling.

[rkc3]

5. That's exactly what I thought.

I bought the stock outright - account showed possession for 2-3 days - then sold. The account shows the piteous amount of money left in it but I have no access to that money.

Again, no naked short selling, margin or free-ride.

[TechBear_Seattle]

6. If you bought the stock on Tuesday, it won't settle until Friday

It takes three business days for a stock trade to settle. You made the purchase on Tuesday, so the first day is Wednesday, second is Thursday, third and settlement is Friday. Because you sold before settlement, it can be classed as a free ride.

[rkc3]

7. So I screwed myself without even knowing it - good times.

Thanks for the heads up.

[TechBear_Seattle]

8. This is exactly the kind of situation where having a broker can help

You save money by doing the trading yourself, but that's kind of like owning a house without getting homeowner's insurance. Things may go well for years, but once something goes wrong, you kind of wish you had been paying premiums. I wish there was something that could be done, sorry.

You may want to find a financial advisor (someone who has a Series 66 or 67) and "put them on retainer" as it were. While they of course prefer that you have your accounts with them, many are happy to provide a consulting service for self-directed investors. This will cost, of course, but usually a lot less than working through a full service broker.

And yeah, I'm kind of beating a drum here: I work (in IT) for a brokerage company and have the Series 7 and Series 66 licenses myself (company policy, everyone eventually gets licensed so as to understand the business.)

[rkc3]

9. I'm reading the warning posted on the site.

It says purusant to SEC order "any existing open orders to sell short these securities have been or will be cancelled."

Now it looks like the trade will not go through. Even better - I might be on the hook for a stock that could go into free fall.

Again, thanks for the insight. Something to keep in mind the next time I play with money.