# Shorting and arbitrage

Hi to all,

I have a practical question. We often admit that in the scope of an arbitrage opportunity we can short and use the proceeds of that operation to reinvest the amount to buy an another asset.

But I used to short a lot especially on stocks and at no time I had the possibility to use the proceeds for another investment.

Can someone help me to solve that question?

Thanks

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For arbitrage the amount of the short sale is typically invested at the risk-free rate, which is what I would expect that you would receive in a margin account.

Am I missing something here?

Simplify the complicated side; don't complify the simplicated side.

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Thank you very much again S2000magician. You mean that the difference between the margin needed to take the short position and the amount that is short could be put aside in an interest bearing account? Besides when I go short a stock I also to have to pay an interest because I borrow those funds. And this interest is greater than risk free rate. What I mean is that I need initial amount of money to be on the long side. I just write about a true operation of arbitrage with stocks for example. I just cannot understand how it can be done without needing an initial amount of money. I am sure I misunderstand the operation.

Thanks.

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Do you perhaps mean that you’re charged interest to borrow the

?stockYou’re correct: the curriculum tends to ignore the cost of borrowing the asset you’re shorting.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams

http://financialexamhelp123.com/

Hello,

Yes I am. Shorting means borrowing on the stock market. I will look at real operations of arbitrage because I am wondering how a real transaction takes place.

Thank you again and have a nice day.