How to maintain 4:1 leverage overnight?

[wizardx]

spreadgod, i'm sorry but i don't seem to be following you.

if a person has $50K equity and $200K position, will he be liquidated at EOD to 2:1? or is 4:1 just fine and the position will be carried overnight?

can you walk through it step by step so i can see what happens exactly? thanks.

 

[prt_systems]

Quote from wizardx:

spreadgod, i'm sorry but i don't seem to be following you.

if a person has $50K equity and $200K position, will he be liquidated at EOD to 2:1? or is 4:1 just fine and the position will be carried overnight?

can you walk through it step by step so i can see what happens exactly? thanks.

You will be liquidated prior to the close to maintain a 2:1 overnight ratio. Liquidations usually occur 10 minutes (or more ) prior to the close.

This is the problem - or the benefit - of trading equities. For a new trader contemplating holding overnights ensuring a limit of 2:1 is not a negative.

 

[joesan]

I just noticed this 4:1 margin . I remembered in the past, the margin ratio is 2:1 on my IB account. When did they begin to make it as 4:1 ?


Also, it may sounds a very naive question, but what does this margin ratio mean to a futures trader? And as IB margin for intraday futures trading is 50% of the margin amount issued by the exchange. Is this 50% intraday margin already accounted for in the 2:1 ( or currently 4:1 )margin ratio ?

For example, say I have HKD100,000 in my account to daytrade HSI futures contract. HKFE (exchange ) initial margin is HKD43000 at the moment . Then how many contracts I can initiate during the day ( but before the 50% intraday trading margin cutoff time ) if the margin ratio is 2:1 ?

int(100000*2/43000)=4 contracts of HSI

or

int(10000*2/(43000*50%))=9 contracts of HSI ?

 

[MTE]

Quote from joesan:

I just noticed this 4:1 margin . I remembered in the past, the margin ratio is 2:1 on my IB account. When did they begin to make it as 4:1 ?


Also, it may sounds a very naive question, but what does this margin ratio mean to a futures trader? And as IB margin for intraday futures trading is 50% of the margin amount issued by the exchange. Is this 50% intraday margin already accounted for in the 2:1 ( or currently 4:1 )margin ratio ?

For example, say I have HKD100,000 in my account to daytrade HSI futures contract. HKFE (exchange ) initial margin is HKD43000 at the moment . Then how many contracts I can initiate during the day ( but before the 50% intraday trading margin cutoff time ) if the margin ratio is 2:1 ?

int(100000*2/43000)=4 contracts of HSI

or

int(10000*2/(43000*50%))=9 contracts of HSI ?

This only applies to equities. If you day trade stocks then you get 4 to 1 margin. Futures are not part of this.

 

[kjkent1]

Quote from wizardx:

...how can someone maintain 4:1 on overnight positions?

Easy. Buy four shares of stock for every one share that you intend to trade, and then just hold the other three shares as inventory. You will never be liquidated and you will never pay a penny in margin interest.

And, if you think what I've just suggested is silly and risky, then consider the silliness/risk of the alternative of trying to maintain 4:1 leverage overnight, and paying interest for the privilege.

 

[Ebo]

What is so difficult about understanding this concept?


http://www.cybertrader.com/GettingStarted/AccountTypes/MarginAccount.aspx

 

[wizardx]

Quote from prt_systems:

You will be liquidated prior to the close to maintain a 2:1 overnight ratio. Liquidations usually occur 10 minutes (or more ) prior to the close.

If this is true, then how does this relate to the maintenance margin call?

Say you currently have 2:1 leverage in your account. Your positions move against you so leverage becomes higher than 2:1. As I understand the way maintenance calls work, you will not get a margin call or have your trades liquidated until you reach the maintenance margin. However, based on the above, your positions will be liquidated as long as you go above 2:1.

 

[prt_systems]

Quote from wizardx:

If this is true, then how does this relate to the maintenance margin call?

Say you currently have 2:1 leverage in your account. Your positions move against you so leverage becomes higher than 2:1. As I understand the way maintenance calls work, you will not get a margin call or have your trades liquidated until you reach the maintenance margin. However, based on the above, your positions will be liquidated as long as you go above 2:1.

Yes ... if conditions warrant an after market liquidation could still occur .... its up to your clearing house/brokerage ....

 

[science_trader]

And if you maintain a 2:1 leverage between 15:50 and 16:00 and then open a new position in after hours market ?

 

[spreadgod]

Quote from wizardx:

spreadgod, i'm sorry but i don't seem to be following you.

if a person has $50K equity and $200K position, will he be liquidated at EOD to 2:1? or is 4:1 just fine and the position will be carried overnight?

can you walk through it step by step so i can see what happens exactly? thanks.

I can't speak for every brokerage firm, but they all definitely do not calculate Reg-T amounts 10 minutes before the close the same day of the trade. They can't know if you're going to close out after that...or even in the afterhours. That is still considered the same day. It's also due to the fact that there is a three day settlement. I said 5 days in my earlier post because that is the last day before a trade has to actually be paid for by the initiating firm. If there are extenuating circumstances, they can request an extension of that time, such as the check is in the mail but hasn't arrived yet.

But that's beside's the point. Here's an example for you wizard:

You open a position for $40,000 of Ebay. You started the day with maintenance excess of $10,000 so you've got the required buying power to daytrade the position. For some reason, you don't get to sell the stock that day.

The next morning, there will be a Reg-T (fed) call in the amount of $10,000, since you were supposed to have $20,000 to place a $40,000 overnight order. Some firms will restrict you from placing any orders online while there is an outstanding call, but you still have 3 days to pay for the stock. If you don't do it by the 5th day, then they will usually liquidate the stock.

Again, every firm is different and some may require you to sell it the next morning if you tell them you don't have the money to pay for the call. Most will also restrict you 90 days from online trading if you have to liquidate to meet the call, as I said in the earlier posts. This is whether you or the firm liquidates the position.