I had a couple questions about PM for IB. I currently have Reg T, but plan to switch over to PM. Reg T follows the general guidelines with 50% on margin, but I want to increase my leverage. I heard with PM I can leverage to 5x. I currently have a portfolio of 30+ preferred stocks and would like to diversify and buy more. However, I heard IB changes margin requirements daily. So even by staying this diverse, can IB significantly increase margin to lets say 50% or something ridiculous. I will consider PM as long as IB doesnt increase requirements more than 25%. Any of you guys use PM? What are your thoughts on this?
Reg-T offer 50% margin as you said and only changes if an equity becomes non_marginable. Reg-T for most equities offer 15% margin. That is the maximum any broker can offer you, except for indexes like SPY and IWM. IB or any other broker, can offer less leverage and often do. They might offer lower leverage if the Stock is: -non_marginable -small cap -illiquid -your position is large vs daily volume -your position is highly concentrated in similar securities or, anything else that they come up with that they feel deserves it.
You mean PM has 15% minimum? And yea, i understand it changes based on risk, but I am hoping to diversify alot with dividend stocks and preferreds, but its annoying that I would have to keep checking it everyday to see what the margin updates are. I am hoping to have my portfolio always maintaining a 25% minimum, but I dont want IB to come out and all of a sudden raise it to 40%.
I looked at portfolio margin when they first offered it but decided it didn't work for me as long as I was mostly long stocks. I think it works better if you're both long and short. You can experiment with pmdemo/demouser.
Yea i opened the demo, but there were no instructions on how to find out what the margin requirement would be for me.
As noted above, some of your preferreds might not be marginable at all. I had a handful of preferreds in an IB account and most of them were marginable but I remember one - WLFCP/Willis Lease Finance Corp; recently called - was not. If some of your preferreds are issued by small companies and they're very thinly traded, you might experience the same thing.
Yes, for equities 15% or about 6:1 leverage is the most you can get. This is the OCC guideline. It 'shocks" your portfolio up and down 15% to see how much money you would lose and places that margin requirement on your account.Then your broker can require more at anytime but not less. http://apps.theocc.com/pmc/pmc.do 1245
I'm not sure why anyone would leverage Preferreds at 4:1 at a 5 year high... Sure you might be yielding 25% for a while... But such a strategy is way too simplistic to work in the long run. Way, way way back in August 2011 PGF dropped 15% in 3 days... Which would have forced you to liquidate and take a 60% loss... But that could never happen again... Not with the Fiscal Cliff amicably resolved in a bipartisan spirit. Unless you are going to run a professional trading operation... And everything that entails... You might as well just hold some ETFs till it all blows.