IB - Portfolio Margin have higher requirement than Reg-T!!!
- Thread starter ofinance
- Start date
I would definitely opt for Portfolio Margin. That's just me however and this might not be the best choice for everyone, especially for novice traders that have yet to develop their risk management chops. My background is in building portfolio risk systems for large institutional investors so I'm strongly biased toward tightly risk controlled trading strategies.
I was a portfolio manager for a quantitative equity long/short market-neutral hedge fund for over two years and we used Portfolio Margin. The fund consistently had leverage of around 6-to-1, held about 200 positions, and yet our risk was - by design - always about half that of the S&P 500. This wouldn't have even been remotely possible without Port Margin.
What's interesting is that the risk of our portfolio would have increased substantially had we lowered the portfolio's leverage level. In contrast, if we could leverage up to 10-to-1 or beyond, our risk would have gone down even more substantially.
It might seem like a mind-bender for some, but less leverage does not always equal less risk. In fact, with certain trading strategies higher leverage equates to less risk.
I think that if everyone uses a high percentage of their leverage with either Reg-T or PM on a consistent bases the market in general would have bigger swings in both directions. Since many accounts are cash, IRA, 401K or other funds that use no leverage at all, I don't think it's an issue. Also, a lot of leverage from PM is used for hedging which reduces risk. I can have a long portfolio of stocks I like, and short the SPY against it, as one example. This is hard to do with Reg-T.
That's very true. But my example was not dispersion trading. It was an example of a Long portfolio that was hedging out market risk. Dispersion trading is buying the options of a basket of equities and selling the similar index options at a higher implied vol. You need PM for both if your trading as customer.