Line of Credit For Day Trading Margin Calls

Discussion in 'Risk Management' started by ryleg, Apr 20, 2008.

  1. ryleg


    We've been trading a strategy that is very volatile in the amount of buying power it uses. We have optimized it so that we very rarely go over our allotted buying power. There are no other safeguards we can add to our system to prevent this problem. All we can do is to be more cautious to never go over our allotted buying power, but that will hurt our returns drastically, as it will lower our returns on every day we trade, not just the days that require higher amounts of BP.

    Occasionally we get day trading margin calls, which means we have to wire money to our broker immediately, and they have to hold onto it for 2 days before they'll let us have it back (we can not cover these calls by liquidating positions--we have to wire in new funds). We now have all of our money in this fund, so the next time this happens, we will be in big trouble. Eventually they will eliminate our day trading buying power if we don't meet the call.

    What we want to do is acquire a line of credit so that we can cover these calls. We would just need to borrow the money for 2 days occasionally and could pay a high interest rate on it. BUT, the money needs to be available whenever we need it, with only one day notice. Our strategy is relatively stable and consistent in other regards (no big losing days). Is there a solution to our problem--perhaps some service a bank would offer? We would want to have $2m available to us, but less would be better than nothing. I have found articles that mention brokers being busted for making loans like this to their clients, so that doesn't seem to be an option.

    Thanks for any advice.
  2. Ideally you would have to use:

    1. Other securities
    2. Real Estate
    3. Business

    As collateral to secure any line of credit you would need to take-out for trading margin call purposes.

    No legitmate broker in their right mind is going to extend you a line of credit with something (perferable tangible equity, like solid real estate) to back it up.

    Good luck.
  3. Maverick74


    You need to be trading in a JBO. You would never have this problem. This is by far the simplest and easiest solution.
  4. Hmm, Joint Back Office.

    I haven't a clue of how it works, you'd probably better know it inside-and-out before you do.
  5. ryleg


    Thank you, this seems like a good idea. I will ask my broker about this, but I am skeptical that they offer this type of service. Switching brokers will be difficult for us, so if there are any other ideas, I would like to hear them.
  6. Maverick74


    There is no other way. It is illegal for any other entity to lend credit for the purpose of satisfying a margin call to a retail account.
  7. Only other option would be real estate holdings.

    As far as I can see ... that's it. Anything else would be smoke and mirrors.
  8. ammo


    if you owned or leased a seat and had an acct as a floor trader,your margins and commissions would be lower
  9. Maverick74


    It's a little bit more complicated then that. Plus, all he has to do is join a firm with a JBO and he gets all the benefits of a floor trader without paying the 5k a month lease fee.
  10. ammo


    as long as that jbo is honest,with the seat you have total control of your money,make sure with the back office that you are not partially at risk if they lose more than their acct and gsax or whoever they are clearing thru doesn't pool the money from everyone in the group and make u liable,go in with your eyes wide open, and if u do a slightly under the table deal that goes bad ,know that u have little recourse to recoup your funds
    #10     Apr 21, 2008