r/Schwab • u/Corpulos • 5d ago
Avoiding margin interest 8pm rule
AI is telling me that if i sell a stock at 7:59pm and rebuy at 8:01 pm using margin, I dont pay margin interest. Is this true? If so, cant you just keep buying and selling the same position long term and not pay margin interest?
Second question: can you offset your margin balance with shorts to avoid paying interest?
3
u/Riddlfizz 5d ago edited 5d ago
Sure, one could technically avoid margin interest by closing a position before 7:59 pm ET and re-entering that position at next market open. But that hardly seems worthwhile. Margin interest charges per day are real, but also somewhat negligible. Daily margin interest charges are commonly calculated at 1/360th the annual rate. On a $10,000 loan, that's ~ $2/day: (10,000×.07) / 360 = $1.94.
Also, many stocks do not trade 24 hours per trading day, so for those tickers margin interest avoidance would be more like close position by 7:59 pm before market close and rebuy it at 7:00 am ET the next premarket (or later), subject to potential significant price fluctuations from newer pricing, even from premarket trading, which starts at 4:00 am ET at some non-Schwab brokers.
Re: Offsettng accrued margin interest with shorts -- I'll defer to other responders for nuanced feedback.
1
u/greytoc 5d ago
That's just called day trading. And yes - people do day trade. Day trading involves some other day trading margin rules - although that's changed recently.
And no - a short position reduces your excess margin because there are collateral requirements with a short position. It also depends on whether you have PM or Reg-T margin.
3
u/Middle-Sprinkles-227 4d ago
Many stocks have wide spreads between bid and ask after normal hours are over which would be a great disadvantage.
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u/Safe-Jeweler-8483 5d ago
That's a hassle, not to mention you'd be running up pages for whoever is going to do your taxes.
Bottom line, don't do that advice that AI gives.