Big time newbie question

B

billb2112

I'm thinking of applying a semi automated trading system and I only had one concern. I did notice on one day (Sept 21) over a 3 year backtest, that nearly 20% of my picks for the system were flagged as buys. Now this would surely deplete my buying power in a hurry even if I'm using 10%-20% capital per trade.

My big stupid question is this ... if this were to happen again, while being rare, but possible ... what happens? After you've depleted your buying power, will the trades be rejected or will the broker hit you up for more cash? I have a feeling the trade will be rejected, however, will there be any sort of penalty or "red flags" set on my account for trying to trade w/o sufficient capital? I guess I'm equating it to trying charging over your limit on a credit card. They'll let you do it and they'll take you to the cleaners later.

Just a little CYA. Thanks (and stop laughing at me!) (hehe)
 
You should ask your broker if you want to be sure exactly what they'll do. Different brokers have different risk control policies and procedures. But I would expect that if you enter an order and you don't have the available buying power for the order, your order will be automatically rejected.
 
Originally posted by billb2112
will there be any sort of penalty or "red flags" set on my account for trying to trade w/o sufficient capital?
More...

Most brokers should have a feature to not allow you to exceed your bp. However, sometimes one may fall through the safeguard. Sometimes it does not count open orders as a position, so if you have 25k bp, you can still enter multiple orders to buy 25K worth of stock, then get filled and get a margin call.

The previous poster is right, ask your broker. But regardless of what they may tell you - "Don't worry! Never happens!" - if you get a margin call you will still have to meet it.
 
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