Understanding Margin Webinar Notes
- Margin: Borrowing money to purchase securities. The Margin Loan is the amount of money that an investor borrows from his broker to buy securities. The Margin Deposit is the amount of equity contributed by the investor toward the purchase of securities in a margin account. The Margin Requirement is the minimum amount that a customer must deposit and it is commonly expressed as a percent of the current market value.
Margin Loan + Margin Deposit = Market Value of Security
Margin Deposit >= Margin Requirement
- Regulation T: US rules governing margin accounts.
- Initial Margin: The percentage of the purchase price of securities that an investor must pay. Reg T calls for initial margin of up to 50%.
- Maintenance Margin: The minimum amount of equity that must be maintained in the investor's margin account. Reg T calls for a maintenance margin of at least 25%.
- Margin Call: When the balance in a margin account falls below the maintenance requirement, the broker can issue a margin call requiring the investor to deposit more cash, or the broker can liquidate the position. There are no margin calls at IB.
IB Real-Time Margining
- Applies maintenance margin requirements throughout the day to new trades and trades already on the books.
- No margin calls.
- Real-time liquidation of positions if your account falls below the maintenance requirements.
- Lets you see your trading risk at any moment of the day.
Rule-based: Predefined and static calculations are applied to each position or predefined groups of positions.
Risk-based: Exchanges consider the maximum one- day risk on all the positions in a complete portfolio, or subportfolio together.
IB Margin Accounts
Reg T Margin: Margin requirements are computed in real-time under a rules-based model, with immediate position liquidation if the minimum maintenance margin requirement is not met.
Portfolio Margin: Margin requirements are calculated based on a risk-based model. Customers must maintain account equity of USD 100,000.
Integrated Investment Account
- A single account for trading and account monitoring.
- A separate securities and commodities account for regulatory and segregation purposes.
- If there is a margin deficiency in either your securities or commodities account, cash will be transferred to cover the margin deficiency.
- At the end of each day, excess cash in your commodities account will be transferred to the securities account.
IB Margin Calculations
IB applies margin calculations to Reg T Margin accounts as follows:
- At the time of a trade.
- In real time throughout the trading day.
- At the end of the trading day.
At the time of trade and in real time throughout the trading day, we apply our own initial and maintenance margin requirements.
At the end of the trading day, IB applies the Regulation T initial margin requirement.
Time of Trade Margin Calculations
When you open a new position, we apply:
- Initial Minimum Equity Requirement
- Time of Trade Initial Margin Calculation
- Time of Trade Position Leverage Check
Initial Minimum Equity Requirement
- Minimum of $2,000.00 or USD equivalent of securities equity with loan value or commodities net liquidation value required to open a new position.
IB Initial Margin Calculation
- When you submit an order, we check your real-time available funds.
- The order is accepted only if available funds after the order request would be greater than or equal to zero.
IB Initial Margin Calculation – Securities
Initial Margin Calculation
Percentage depends on asset type. For example: IB Initial Margin for a Long Stock Position =(30% * stock value) or $2,000, whichever is greater.
*Our Margin pages list Initial and Maintenance Margins for all IB asset types.
IB Initial Margin Calculation – Commodities
Position Leverage Check
- Checks the leverage cap for establishing new positions.
- Helps prevent situations in which there is little or no apparent market risk in holding very large positions but there may be excessive settlement risk.
Position Leverage Check
Real-Time Margin Calculations
- Real-Time Maintenance Margin Calculation
- Real-Time Position Leverage Check
- Real-Time Cash Leverage Check
- Decreased Marginability Calculations
- Soft Edge Margining
- Real-Time SMA Calculation
IB Maintenance Margin Calculation – Securities
IB Maintenance Margin Calculation – Commodities
Real-Time Position Leverage Check
Real-Time Cash Leverage Check
Decreased Marginability Calculations
For Reg T accounts, IB increases the margin requirement for stock positions exceeding 1% of the published shares outstanding from its default margin requirement up to 100%. At 5% concentration, positions have a 100% margin requirement.
Soft Edge Margining
we calculate Soft Edge Margin (SEM) during the trading day. From the start of the trading day until 15 minutes before the close of the trading day, Soft Edge Margin allows for an account’s margin deficit to be within a specified percentage of the account’s Net Liquidation Value, currently 10%. When SEM ends, the full maintenance requirement must be met. When SEM is not applicable, the account must meet 100% of maintenance margin.
If an account falls below the miniumum maintenance margin, it will not be automatically liquidated until the it falls below the Soft Edge Margin. This allows a customer's account to be in margin violation for a short period of time. Soft Edge Margin is not displayed in Trader Workstation. Once the account falls below SEM however, it is then required to meet full maintenance margin.
SMA and End of Day Margin Calculations
- SMA = Special Memorandum Account
- IB calculates SMA in real time throughout the trading day but...
- ...only applies the Regulation T initial margin requirement to securities at the end of the trading day (3:50 PM).
- If SMA balance is less than zero, your account is subject to liquidation.
“today's trades initial margin requirements” = US Reg T Initial Margin requirements
Overnight Margin Calculations
Stocks and futures have additional margin requirements when held overnight. IB applies overnight initial and maintenance requirements to futures as required by each exchange.
Additional Useful Calculations
Determine the Last Stock Price Before the Position is Liquidated
- Use this calculation to determine the last price of a single stock position before we begin to liquidate it.
How Much Stock Do We Liquidate?
- Use this calculation to determine how much stock equity IB will liquidate in your Reg T Margin account to bring your Excess Liquidity balance back to zero.
- Available in Report Management menu in Account Management.
- Shows margin requirements for single and combination positions.
- Available for the previous 90 days.
- Only place to view margin requirements for combination/spread positions.
- The Account Window
- Margin What-Ifs: Order Preview Window
- Margin Warnings
The TWS Account Window
Displays color-coded messages in the Account window and pop-up warning messages to notify customers that they are approaching their margin limits.
Margin What-Ifs – Order Preview Window
Tips and Tricks
- Use your Paper Trading Account to experiment with margin.
- Find IB Margin Requirements on our web site.
- Display the Trader Dashboard with Cushion.
- Use the Order Preview window to see how a trade will affect your margin.
- Liquidate Last setting in the Account window.
- Quickly close a position from the Account window.
- Set up Margin Alerts.
Use a Paper Trading Account to Experiment with Margin
Find IB Margin Requirements on Our Web Site
Use the Trader Dashboard
- Cushion = (Equity with Loan Value - Maintenance Margin) / Net Liquidation Value
- When Cushion falls to 5% (0.05), you get a popup warning and a yellow margin warning in the Account window.
What-If Margining: The Order Preview Window
Liquidate Last Setting in the Account Window
Quickly Close a Position from the Account Window
Set Up Margin Alerts
Set up alerts based on the state of your margin cushion:
- Conditions: Add the condition that will trigger the alert.
- Actions: Define what happens when your alert triggers:
- Message: Create a text (SMS) messsage or email alert.
- Orders: Create orders that will be submitted when the alert triggers.
- Audio: Select a sound event when the alert triggers.
- Duration: Specify how long the alert will remain active.
Any symbols displayed are for illustrative purposes only and do not portray a recommendation.
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