T-Bills as futures margin

Discussion in 'Financial Futures' started by erlewine, Apr 3, 2006.

  1. Just a few general questions on how brokers manage margin requirements when T-Bills are involved. Assume your brokerage lets you apply 100% of face value to margin requirements (no haircut).

    You open an account at XYZ Futures brokerage by depositing $10k in T-bills; you have no cash balance. You go long one ES (assume margin requirement $4000 initial/$3000 maintenance).

    a) Can you initiate that long position without having any cash balance?

    b) Next day, ES drops such that you incur a $1000 paper loss, but you're still comfortably within maintenance margin requirements. As I understand, your broker has to mark-to-market and settle with the exchange in cash at the end of each trading day, even though the position is open. Where does the $1000 in cash come from since you're physically invested in T-Bills?

    c) ES continues to drop, now you have a $2000 paper loss and decide to liquidate. What is standard operating procedure for the broker here - do they call you to cough up the cash, or do they just automatically "break" your T-bill position?
  2. Excellent questions - I'd like to hear from any brokers here on this. From my experience, the T-Bill option is only made available when you have "excess" collateral in your margin account. In other words, it's discretionary by the broker based on your trading patterns and margin account size. My broker and I have "split" the difference. Some margin money goes in T-Bills and I get interest on the rest (but at a lower rate than T-Bills by a few basis points).
  3. range


    IB allows you to earn short-term interest rates on all funds over $10K. Avoids all the machinations involved in moving funds into/out-of T-bills. Customer-friendly model, IMHO.
  4. I've heard the advantage to putting Tbills into your account is that the Tbills are in your name in case the brokerage firm goes under.
  5. That is an excellent point.

    The answer the first posts question, If you don't have the cash to meet your loss, you will get a TBill call, and if you don't put in more cash, they will break your Tbill to cover.
  6. My experience... 1st there is a call from the broker asking if I want to deposit additional funds *immediately* or break the T-Bill... my choice.
  7. Surdo


    RJO/TS gives you 3 days to either put up more dough or break the Bill.
  8. Not that I'm naive enough to believe there isn't some way to get screwed out of your money, but I thought segregated customer accounts provide very good protection if a firm goes under. According to press reports, the Refco futures customers' money remained intact through the problems (except for Jim Rogers). Would t-bills provide any additional protection?
  9. Losing your money is indeed a really worst case scenario, only if your broker is so bad nobody wants to buy his customers base.

    T-bills, like stocks or bonds are protected by SIPC up to $500,000, I believe. Cash is not (or very small protection)
  10. You should not buy t-bills with all the cash balance. 70% may be ok, assuming your loss would be no more than 30%.
    #10     Apr 5, 2006