How to maintain 4:1 leverage overnight?

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.
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I'm not trying to sound like I know everything about this industry, but you could probably tell which department I work in on the street. You're confusing the 2 requirements.

Maintenance requirement is different from Reg-T initial requirement. 2 to 1 applies to the latter. You're required to deposit 50% of the initial purchase amount by the third day after the trade (T+3).

Once you place the trade though, the ratios are based on your debit balance, the amount you are actually borrowing in cash. You are given some leeway for the stock to fluctuate. The minimum brokers are required to maintain is 25% of the value, though most hold more such as 30%.

Using the Ebay example above:

You bought $40,000 but had exactly $20,000 in cash, enough to hold it overnight. (Say 950 shares at $42.10) Regardless of what the stock closes at, you had the required amount for the initial purchase. You are also borrowing $20,000.

If your firm's maintenance requirement for Ebay is 30%, the value of the Ebay position has to drop below $28,571 before you will have a maintenance call and have to worry about liquidation. This comes out to around 30.07 a share. An easy calculation is Debit Balance ($20K) divided by 70%. This gives you the loan value of the security of $20,000, which is how much you're already borrowing.

If you bought $80,000 and sold it the same day, you are fine. If you held it overnight, you need to deposit $20,000. It doesn't matter what the stock closes at today, tomorrow, or the fifth day as far as the $20,000 is concerned. It will not change.
 
The answer to many of these procedural questions is different for different brokers. You need to check with your particular broker to see how they do things.

By "maintain 4:1 overnight", I believe the original poster meant, and most respondents understood, "put on a trade with 4:1 leverage and keep it overnight" - speaking of initial margins only.

If you're under 25K, you can never put on the 4:1 trade to begin with - you only get 2:1.

If you're over 25K, you can put on the trade but, at some point before the "end of the day", you will have to liquidate down to 2:1 to meet Reg. T. How/when this happens is different at different brokers.
 
Quote from spreadgod:

Everyone's right about the overnight 2 to 1 margin and I know that was the original question, so it's been answered. However, if you are under 25K you CAN still daytrade with 4 to 1 margin. What you DON'T want to happen is to be classified as a "pattern day trader".

This happens if you make 4 day trades in a 5 business day period. If you keep from becoming a PDT, you are fine daytrading while your equity is under 25K. If you become a PDT, don't have 25K equity, and then daytrade, most brokers will have to close your account. There are no exceptions to this.

Also, brokers will not automatically liquidate you if hold the 4 to 1 overnight. You will just be subject to a Reg-T call. If you cannot meet this by the 5th day, you will then be liquidated and a restriction may placed on your account from online trading. Most firms are 90 days.

If you have daytraded and have overspent the 4 to 1, that's a day trade call. If you can't meet that call, you'll also be restricted. But for that restriction, you no longer have 4 to 1 margin for daytrading. You will only have 2 to 1, just as a normal purchase. But, you can only use the 2 to 1 ONE TIME during the day to day trade. When using 4 to 1 normal day trading buying power, the amount is calculated only on the highest amount you had open at any one time during the day. This can make a huge difference.

Hope this helps.
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That's f'n brutal. Since I'm in Canada I can trade the US markets without being bound by the PDT. How come you let your freedoms to trade be traampled by the govt? Those rules are brutally repressive. A 90 day suspension for daring to make a few trades in a week? Unreal.
 
IB extends 4 to 1 buying power to all margin accounts. We also follow Regulation T, however, we also take SMA into account which may allow you to purchase at 4 to 1, and hold the positions overnight at 4 to 1.

SMA works in the following way.

Consider an account that deposits 25k. That account is extended 4 to 1 buying power. The first day of trading the account purchases 100k worth of US stock.

The 25k deposit would give the account 25k in SMA.

SMA is to enforce REG T calls or 50% of the stock purchased at the end of the day. In the case above you would take 50% of the total stock purchased and deduct that from SMA.

25,000.00 SMA - (100,000.00 USD (stock purchased on the day) * 0.50) = -25,000.00

All our margin rules and requirements are on our website under Trading >> Margin

joesan - the 4:1 discussed above has nothing to do with futures. For our futures margin requirements and the daytrading margin cut-off times, please go to the website and look under Trading >> Margin >> Futures and Futures-Intraday


In this case the account is in a 25k deficit and would be liquidated at 15:50 EST. 50% of the liquidation value would be credited back to SMA, so the account would close the day with 25k in cash 50k in stock.

The reason SMA is so customer friendly is that SMA is credited when positions in your account appreciated, but is not debited when positions lose value. Over time you will build up SMA. As long as SMA is positive you will not be subject to a REG T call.

Provided you had enough SMA you could purchase 4 to 1, and hold the positions at 4 to 1.
 
Quote from Steve_IB:



joesan - the 4:1 discussed above has nothing to do with futures. For our futures margin requirements and the daytrading margin cut-off times, please go to the website and look under Trading >> Margin >> Futures and Futures-Intraday



Steve, thanks for the explanation.
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Quote from Steve_IB:

In this case the account is in a 25k deficit and would be liquidated at 15:50 EST. 50% of the liquidation value would be credited back to SMA, so the account would close the day with 25k in cash 50k in stock.
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do you mean 25K in SMA and 50K in stock?

continuing with your example, say something fabulous happens and the stocks in your account double overnight. at next day's open, you have $100K in stocks. your equity is $75K. what is your sma?

you then buy up to 4:1 and you have $300K of stocks. what happens to your account at EOD and your SMA?
 
The account would have 0.00 SMA at the end of the example Steve gave (50k in stock x .5 = 25k) which is what the account started with. If the stock doubled in value the account would have 50k in SMA the following day (full value of the gain) and would be able to hold an additional 100k in stock over night the following day. Any purchase exceeding the 100k would be liquidated at 15:50 EST on that day.
 
Salvatore: in your example, the additional $100K would make total stock value = $200K. your equity is $75K, so leverage is 2.66x isn't it? Steve from IB (def) said in his example it is possible to hold 4:1 overnight. Can you give an example of how this is possible?

Also, if the stock doubles you have $100K in stocks and $75K in equity. At 2:1, the max allowable holdings is then $150K. Is this correct?
 
Quote from risktaker:

Nothing more to clarify!

2:1 overnight
4:1 daytrading

Want more leverage, move to futures or get a series 7.

Why even bother to get into this crap business nowadays?
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The PDT provides for 4:1, and no this is not enough, however, it was designed to provide significant competition for all the other day trading firms attracting new stooges, although getting licensed.

The simple answer to maintain greater than 4:1 leverage is through equity/index option tradind in tandem with your core position or through the nearest ETF or Index (basket) that represents your core positions.
 
If the stock value dropped on the third day back to 50,000.00 USD the account would not lose the 50,000 in SMA it gained on the second day.

On the third day you could purchase another 50,000.00 in stock extending to 4 to 1 and hold the position. You would be in the same margin situation as the first day with the additional SMA gained on the second.

You would have deposited 25,000 USD in cash and purchased 100,000.00 in stock.

The SMA would be reduced on the third day to 25,000.00.

50,000.00 SMA on 3rd day - (50,000 new purchase *.50) = 25,000.00 USD new SMA

I apologize for not explaining this in my first post.
 
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