Welcome to NexusFi: the best trading community on the planet, with over 150,000 members Sign Up Now for Free
Genuine reviews from real traders, not fake reviews from stealth vendors
Quality education from leading professional traders
We are a friendly, helpful, and positive community
We do not tolerate rude behavior, trolling, or vendors advertising in posts
We are here to help, just let us know what you need
You'll need to register in order to view the content of the threads and start contributing to our community. It's free for basic access, or support us by becoming an Elite Member -- see if you qualify for a discount below.
-- Big Mike, Site Administrator
(If you already have an account, login at the top of the page)
I just got portfolio margin on my interactive brokers account, which offers 15% leverage.
If I have 100 K on my account and buy stocks for 200 K, how much would my portfolio be allowed to decline before I would have lost my money.
Can you help answer these questions from other members on NexusFi?
I am not sure I understand the question. I have never heard of 15% leverage, that said, when your 100,000 accounts loses 100,000 you will have lost all your money. IB is by far the fiercest risk department in retail, there is NO WAY the scenario that you outline would happen with them.
Right now IB does not even make a "telephone" margin call...they just sell you out of your positions. They do not care which positions or what your history is, they sell you out, period. You will get notification to make a deposit or execute a liquidating transaction to meet margin prior to the cutoff time.
15% leverage means you need to put up just 15% of the value. You can buy 1000 shares of a $100 stock and still have 85K to trade others. Keep in mind, once your value of stocks exeed 100K, you will be charged margin interest. IB claims they have the least interest rate among its competitors which is about 3% i think.
Portfolio Margin at IB will allow risk to be identified across all positions within the portfolio, where you might have a set of positions that reduce risk when combined -- and therefore your margin or buying power would be increased by using portfolio margin
I am trying to find out how much my portfolio can decline, when I buy twice the amount of stocks than cash, eg. leverage 2. My broker lets me have a 1 to 6 leverage.
Lets say I deposit 100 K and buy stocks equal to 200 k and does not do anything afterwards. (leverage =2).
If my portfolio now drops 40 %, My stocks will be worth 120 K, and my leverage will be 1-5.
So in conclusion my portfolio can decline a little more than 40 % before I get a margin call.
Think of it this way. You bought 100K stock with your $$s and 100K stock with Broker's $$s. You lost 40% which means, you lost 80K of your money. You will owe the broker $100K with interest, which leaves you with $20K of your capital. You can now calculate what is the % of leverage you have. You are margined big time and you are below the portfolio margin limits leaving you at the standard 1 to 2 margin level. Not a good place to be.
You will not get a margin call only if your original capital is atleast $500K with 100% margin and then dropping 40% which leaves you with a net liq of 100K, that is above the portfolio margin requirement.