The margin required of a portfolio of fully-paid securities would generally range from between 15% to 50%, allowing a loan ranging from 50% to 85% of the market value. The factors which determine the actual margin requirement and loan value are as follows:
- Margin Methodology - U.S. brokers are allowed by regulation to offer clients two different types of securities accounts: Reg. T and Portfolio Margin. Under Reg. T, a 50% overnight initial margin requirement applies. Under Portfolio Margin, the margin requirement for stocks may be as low as 15%.
- House Requirements - Brokers typically impose margin requirements greater than that prescribed by regulation by assessing risk at the security level and at the account level.
At the security level, some of the factors used to calculate the margin requirement can include:
- Primary Listing Exchange of the security; for example, PINK Sheet and OTCBB listings are subject to a 100% margin requirement and receive no margin loan.
- Total Market Cap of a security; securities below $400 million in market cap are subject to higher margin requirements, and those with market cap below $250 million receive no loan value.
- Security liquidity; the daily trading volume (over the previous 20 trading days) is reviewed and margin adjustments may be made based upon the findings.
- Volatile securities, or securities which have increased substantially over the prior year, may observe higher margin requirements.
- When trading volatility-related products (e.g. VXX, UVXY, TVIX, etc), we are deriving the margin based on a scenario assuming a decline of 10% in the market index SPX and a consistent increase in the market volatility At the account level, margin is determined by analyzing the risk and aligning the margin requirement to the holdings in the account. Generally, account-specific factors that may result in higher margin requirements include:
- A concentrated position in a low cap stock.
- A large position in relation to the average daily trading volume, which may result in a higher initial margin requirement
- A position which is 1% or more of the shares outstanding.
In addition, in the case of Portfolio Margin, IBKR imposes additional stress tests for position concentrations, shifts in option implied volatility and extreme price moves for deep out-of-the money short options. Portfolio Margin incorporates Value-at-Risk principals. While the actual requirement is dependent upon the specific holdings in a portfolio and their relationship to each other, a diversified portfolio, a well-hedged portfolio, and/or a portfolio that is made up of securities with an historically low volatility, are more likely to be subject to the regulatory minimum of 15%.
- Client Classification - regulations impose higher margin requirements and, in certain instances prohibit extending any margin loan, on securities held by insiders or control persons.
IBKR offers a free trial account which offers the ability to enter a portfolio and determine the margin requirement. For more information, please visit the Interactive Brokers website.