double ETF requirements change tommorrow

Discussion in 'ETFs' started by dtrader98, Nov 30, 2009.

  1. Anyone have any thoughts on the impact.
    With the brokers and institutions having knowledge of this event, I would be kind of surprised to see them push the markets up, knowing many traders are going to get forced liquidations (unless maybe the majority of liquidations are going to be on the short side).

    I get this sneaky suspicion a lot of trader accounts are going to get a surprise liquidation. If anyone is sitting on any 2-3x
    positions, make sure to verify your status before that happens.
  2. "Prior to the change, the maintenance margin for any long ETF was 25% of its market value and the margin for any short ETF was 30% of its market value. Under the new rules, these margin requirements will increase by a percentage commensurate with the leverage of the ETF, not to exceed 100% of the value of the fund."

    ETF Type Old Margin New Margin
    200% Long 25% 50%
    300% Long 25% 75%
    200% Short 30% 60%
    300% Short 30% 90%

    Very interesting thought -- I wonder how many traders/investors are holding leveraged positions that cannot meet the new margin requirements.

    Thanks for the heads up
  3. AND, to make it worse... some brokers are being more conservative than the rule (tighter).
    For instance schwab is moving to 60% 2X
  4. S2007S


    The broker I use already has it set for 50% requirement, I heard etrade also had higher requirements than the standard.
  5. Market correction coming down the pipe line? They should be asking 100% marging on a 2-3x ETF. Especialy commodity ones. Leveraged futures contracts being sold to leveraged brokers being sold to retail investor/traders = the fulcrum is to far away from the capital.

  6. I'm sorry I don't follow the logic to your conclusion.

    Leveraged etf's simply keep the same proportional leverage with it's changing asset base.

    Doesn't sound too complicated to me.

    Volatility of this magnitude does not lend itself to buying on margin.
    It takes a genius to figure this out?
  7. i]Quote from Index piker:[/i] Volatility of this magnitude does not lend itself to buying on margin.

    I agree with this.

    What does seem odd though is that even using margin with leveraged EFTs is probably less "leveraged" than trading futures on margin ... so why pick on ETFs?

    I suppose the futures lobby (who must be chortling away to themselves now!) is stronger than the ETF lobby ...