suppose i buy X shares SPY ,, ans sold Y shares QQQ , where the net is $0, how does IB calculate my margin??
I can't speak for IB. I put the position into the OCC calculator close to $ nuetral. SPY +6762 QQQ -14,089 The required margin was $66,906. If the positions were separate, the margin would be: SPY: 75,863 QQQ: 95,354 Total: 171,217 I did it quickly and hope I entered it correctly. This off course is for CPM not Reg-T.
thanks, which broker you are referring to? and what if: based on your example assume: 1.my account size is $90k 2.i bought x6762 SPY @mkt 3. shorted x14809 QQQ @mkt required margin is $66,906 as you mentioned. after this i exited my SPY position, now my QQQ position requires $95,354, and my account size is only $90k, will i get margin call in this example? thanks.
This calculation is the OCC TIMS margin calculation for portfolio margin accounts. Any broker can charge a higher haircut from risk, but not lower. You can go to http://apps.theocc.com/pmc/pmc.do and do the calculations yourself. If your platform does pre-margin checks, it's possible it might block the trade either on the set up or unwind, because the legs would give you a margin call. You have to contact your broker. We use broker neutral platforms that don't work that way. Currently depending on your account size and other factors, it's my expectation that both our prime brokers would use this margin calculation for a position like this. It's possible, that if you use your entire haircut on one trade, their might be a risk premium from a high concentration of risk in one place. One more note, you can't have a portfolio margin account under $100K, the SEC minimum. Our minimums are much higher. (Sorry, I can't discuss our minimum account sizes here) BTW: I use the term "haircut" and "margin". For any position, your required margin is the haircut calculation. So, haircut=margin. Bob
To avoid increasing risk as you exit this trade, you (or your broker in the case of an automatic liquidation) would have to close both sides of the trade in equal parts simultaneously. Otherwise, as you point out, the risk increases substantially and your margin requirement would suddenly jump higher than your net value.
If you don't get any relief for offsetting long-short, you'd be better off just doing it with futures.
I traded for 25 years as an equity MM on the floor of the AMEX. I no longer trade. If I were starting in the business right now, I would only trade futures, options on futures and cash settled index options. IMO, that's where the money is right now and there are tax advantages if your profitable. Bob
i am only talking about arbitraging different stocks.. if you compare the spread, i.e. SPY vs ES, SPY spread is less, which give more chance to make more money or lose less. liquidity on most stocks are more than single stock future, liquidity is needed to exit fast at any cost.. these factors makes the quick strategy a winner... and by quick i mean from 1 second to 15 minutes. if you talk about trading that lasts few hours or days, i agree, trading futures, is better, if your trading for days, i would go for options also... thanks