L / S cash-neutral portfolio exceeds margin

Discussion in 'Risk Management' started by nijshar28, Mar 30, 2020.

  1. Hi everyone. I posted this in the Strategy Building forum but could be more relevant here (not sure). Anyway, I am testing out a systematic, cash-neutral, long/short strategy in a paper trading account with Interactive Brokers. Each day, an algorithm tells me what my target portfolio should look like in terms of relative position sizes. So, I multiply these target percent positions by 97% of my account value to yield target dollars amounts. I then divide these dollar amounts by the last close in order to get the target number of shares, take a difference between my currently held positions and these target positions (in shares), and send the corresponding orders to the broker. The problem is that I constantly run out of Excess Liquidity when I try to place these orders (i.e. I exceed my maintenance margin). This happens even though my account value generally does not move by more than 0.5% in a day (it is a diversified, cash neutral portfolio). I trade a lot of low price stocks (under $5 and under $2.5 so these might have increased margin requirements) but I feel there must be a bigger reason why this keeps on happening. Should I try keeping more cash in reserve, i.e. target positions to 90% of account value instead of 95-97%? Or am I completely off base and the problem is elsewhere? Any advice is appreciated. Thanks!
  2. xandman


    You can probably configure a daily report of your margin requirements via email. If your trading stocks at those prices, you should find ones with increased margin requirements.
    nijshar28 likes this.
  3. Thanks, I will look into that. I can also just dig into the book and try to figure out which stocks have what margin requirements (as per IB margin rules). I just thought there could be a simpler explanation for all this. But maybe not
  4. Here's a screenshot of my accounts:


    What seems odd to me is that the Current Excess liquidity account is close to 0, even though the SMA account is highly positive. I also don't quite understand why the current available funds are negative, even though the cash account is close to $1M.