During the backtest simulation ,a very interesting question has aroused… Namely, when we deal with simultaneous Long and Short positions within the same Broker account(one Portfolio).
We opened SHORT deal - selling securities of the Company A for 20 000 USD (100 stocks * 200 USD). Finally, the stock prices raised up and we had to close the SHORT position buying securities for the price of 400 USD per 1 stock (instead of 200 USD). As a result, we lost 20 000 USD which was taken out from our Cash Account.
But what might have happened if the SHORT position is opened altogether with the LONG position at the same time taking into account that the LONG position consumes all our Cash Account 20 000 USD and for the SHORT position there is no money to cover it.
We opened the first SHORT position (Company A) with 20 000 USD (100 stocks * 200 USD) and at the same time we opened the second SHORT position with amount of 10 000 USD (Company B) (100 stocks * 100 USD). Later on, the stock prices of both companies began to raise up and we started to owe 30 000 USD for the first deal and 20 000 USD for the second deal. And finally we have an empty Cash Account.
What is the workflow between the SHORT and LONG positions?
It seems that we can’t open one LONG and one SHORT position at the same time for two different companies as there might be a conflict with Cash Account if we open two different position simultaneously. Looks like that broker won’t allow us to do this.