Confused by IB's overnight Reg T margin requirement (Equities)

Discussion in 'Retail Brokers' started by eugenie98, Apr 15, 2008.

  1. I'm at a loss for how IB's overnight margin requirement works for non PM accounts.

    If I have $100k in my account, and at 2 PM I purchase say 2,000 shares of XYZ at $100/share, and at the end of the day XYZ has dropped 1% to $99/share, my equity is $99*2000-$100k = $98k.

    If RegT Initial Margin is calculated at end of day prices, it will be $199k*0.50 = $99k, I will trigger a margin call ($98k<$99k) based on not satisfying RegT Initial, and shares will be sold off

    If RegT Initial Margin is calculated based on time-of-trade prices, it will be $200k*0.50 = $100k, which I satisfied at the time of the trade (my equity was $100k at the time of the trade execution), which is what RegT Initial Margin is intended to cover.

    I ask this because I often trend trade over a period of a week. If RegT is traded using end of day prices, then a small 1-3% fluctuation intraday at 2:1 will cause margin calls at the end of the day, even if RegT is satisfied at the time of the trade.

    Contrast this with TDA, where, the above situation would not trigger a margin call unless the price drops to the point where I'm at 30% equity (in the scenario above that would be a 28.5% drop)

    Am I misinterpreting IB's Margin Rules?
     
  2. Tums

    Tums

    if you have to worry about margin call, you are overleveraged.
     
  3. Gee thanks for that insightful response.

    Except..the point is I shouldn't be worried about margin calls @ 2:1 overnight unless there's a 20%+ drop rather than 1-3%... it has nothing to do with being overleveraged, it has to do with how RegT Initial Margin is calculated, maintenance is set by SRO's at 25%, house maintenance is 25%-30% usually.

    Also, is RegT Initial re-calculated every day at 3:50 PM for each trade, or just on the opening day of a trade?
     
  4. Tums

    Tums

  5. I've traded equities on AMTD and now TDA for 4 years, who are you to tell me I'm not ready to use IB? I've also traded NYMEX & ICE futures for 2 years. Princeton has consistently placed in the IB trading olympiad.

    I think I've earned the right to ask these questions and would prefer it if you weren't so patronizing. I'm asking these questions because IB's margining system is unique compared to TDA

    I've already read that page numerous times. IB calculates margin in real time but switches to RegT rules for one's positions at 3:50 PM, according to http://www.elitetrader.com/ch/transcripts/ib_chat.cfm

    1) Does this mean they impose the initial RegT margin requirement of 50% every single day at 3:50 PM on a trade that has been open for multiple days, or just on the opening day of a multi-day trade? As in, do they treat each end-of-day as a time at which an account has to meet INITIAL RegT margin regardless of when a position was initiated?

    E.G. I purchase $200K of XYZ on Monday @ 2PM @ $100/share, 2,000 shares, with $100k of equity. Share price remains constant through 3:50 PM and the next morning. Then during that second trading day the share price drops to $99/share. At TDA nothing would happen, I'm far far away from the 30% house maintenance margin requirement. At IB at 3:50 PM would IB value the overnight RegT margin at 2,000*$99*0.5 = $99,000

    whereas my equity would be $2,000*99-$100k=$98,000

    and a margin call triggered (i.e. some liquidation) since $98k equity<$99k margin req
     
  6. I've got one egg called BSC and wanna put two eggs in my basket.
     
  7. Scrambled Eggs?
     
  8. wenzi

    wenzi

    eugenie98,
    You have traded futures for two years, and I assume you are still at Princeton. I think you are overthinking this. It is quite simple if you have been trading futures.

     
  9. For ICE and NYMEX Futures margins are fixed at some dollar value per contract regardless of contract price, and halved during the day

    So for natural gas 10,000 MMBTUs/contract there's overnight initial and overnight maintenance, say $8k and $6k, and then daytime initial and daytime maintenance, which would be $4k and $3k (1/2 overnight margin).

    If a client has $14k they can initiate a 2 contract position during the day (2*$4k daytime initial = $8k, $14k>$8k) and hold it overnight, assuming the client's equity is over $12k ($6k overnight maintenance*2) at 2:15 PM (say their equity is $13.9k at 2:15 PM), even though they don't meet overnight initial margin requirements ($8k*2=$16k, $13.9k<$16k)

    My limited understanding of equities margining is that with equities we have daytime initial @ 25% equity, daytime maintenance @ 25% equity, RegT overnight initial AND maintenance @ 50% equity

    The margin requirement page at IB states:

    Reg T End of Day Margin Calculations (Reg T Margin and Cash Accounts Only)
    At the end of each US trading day (15:50-16:00 ET), a Special Memorandum Account (SMA) is checked to ensure that it's > =0. If it is negative, the account is subject to liquidation. In addition, no cash withdrawal will be allowed that causes SMA to go negative on a real-time basis. SMA is calculated for all securities (stocks and options) regardless of country of trading as follows:

    Special Memorandum Account=Maximum ((Equity with Loan Value - initial margin requirements), (Prior Day SMA +/- change in day's cash +/- initial margin requirements))

    In the demo system I started with $500,000 in equity, purchased $998,000 in stock ($500k equity, $498 margin loan), which decreased in value to $993,000 over the course of a few hours, making the SMA= RegT Equity with Loan Value - RegT Margin = $495k-$496.5k=-$1,500

    So at 3:50 PM, my understanding is that there would be some liquidation of stock until the SMA was positive.

    So am I understanding this correctly, that RegT overnight initial AND maintenance are at 50%? Otherwise, analagous to the futures example above, if we had say RegT 50% initial and 30% maintenance, which is what we have at TDA (see http://www.tdameritrade.com/forms/ATI086.pdf), at 3:50 PM the check would be SMA = Equity with Loan - maintenance margin requirement (i.e. 30%) which would certainly have been positive in the above example: SMA = $495k - $297.9k = $197.1k
     
  10. OK, so it seems that RegT is tested only on the transaction day
     
    #10     Apr 16, 2008