Margin/leverage in the auctions

[Robert Morse]

Bob - Thank you, that's very interesting. Is that ability to not calculate DT margin in real time for large accounts (>$5mm) the same thing as what Occam mentioned in his post or is it something else?

I think what he is referring to is the ability to enter orders outside the market where you can't get a call if they are all executed. An example would be a scale order in AAPL to buy at 10 price levels and then sell at 10 price levels. Each order removes from buying power but if you do all those orders, you can't use all that margin because 1/2 are offsetting.

In practice, this can be hard to use if offered, because some orders will be miss-tagged. E.G. buy 100 AAPL at 139, 138.90, 138.70 and sell 100 at 139.50, 139.60, 139.70. If you have no position before this, the sell orders must be sent SELL SHORT. Then, if you buy 100 shares, the first SS order is miss-marked and needs to be cancelled and replaced with sell long.

In general, we have a responsibility to prevent margin calls so we don't have a system in place to offer more orders that your BP, unless the account is over $5mm. Then it is allowed on a case by case basis based on risk, not margin.

 

[d08]

d08 - Interesting, why 30 minutes? Do you mean that the margin corresponding to those positions is considered freed up once the MOC orders have reached the point where they can no longer be cancelled? That is typically 10 or 15 mins prior to close depending on exchange

In any case, I'll try playing around with it in TWS as you suggested.

I don't know why it's 30 minutes nor do I recall if it was exactly 30 minutes but it was roughly that. I'm aware that the auction cutoff is far later near the close. You might query IB again but my guess is, they won't know the specifics.

 

[cruisecontrol]

Revisiting this topic with a slightly different angle.. does anyone know how it works when a position is reversed in an auction (from long to short or vice versa)?

e.g. I am long $500K of X and I have no buying power left at all. Can I reverse the position using a MOC order to sell $1M = 2 x $500K ? In theory such an order should require zero buying power and have zero margin impact - but is that how it works in reality?

It seems like a stronger possibility than the scenario I mentioned in the OP, because the margin decrease & increase are truly simultaneous in this case.

 

[Robert Morse]

Revisiting this topic with a slightly different angle.. does anyone know how it works when a position is reversed in an auction (from long to short or vice versa)?

e.g. I am long $500K of X and I have no buying power left at all. Can I reverse the position using a MOC order to sell $1M = 2 x $500K ? In theory such an order should require zero buying power and have zero margin impact - but is that how it works in reality?

It seems like a stronger possibility than the scenario I mentioned in the OP, because the margin decrease & increase are truly simultaneous in this case.

Rather than use your example, I’ll offer another one that might help you understand.

Day-Trading Buying Power is set over night. If you had an account with $500,000 and your PM requirement from your clearing firm is $499,999. You have no regulatory call but you only have 6X $1.00 of BP or $6.00.

If you buy and sell more than $6.00 of the same security, you will get a DT call the next day that must be met with cash. If your clearing firm allows you to trade, you can do anything they let you do that is not a DT of more than $6.00. If the following day your PM requirement is still under your overnight liquidating equity, you will not get a regulatory call.

Does that help. Keep in mind that retail brokers that allow PM accounts under $150,000 must have systems in place to try and prevent calls, so many retail brokers will not let you increase your requirement before you reduce first. You should be able to reduce, then increase unless your broker has rules against that.

Bob

 

[cruisecontrol]

Day-Trading Buying Power is set over night. If you had an account with $500,000 and your PM requirement from your clearing firm is $499,999. You have no regulatory call but you only have 6X $1.00 of BP or $6.00.

If you buy and sell more than $6.00 of the same security, you will get a DT call the next day that must be met with cash. If your clearing firm allows you to trade, you can do anything they let you do that is not a DT of more than $6.00. If the following day your PM requirement is still under your overnight liquidating equity, you will not get a regulatory call.

My broker (IB) does not use the terms "Day Trading Buying Power", "DT Call", "Day Trading Call", "Overnight liquidating equity" anywhere on their site. I spent a fair bit of time reading IB's margin documentation and I can't tell if any of this actually applies to me or not.

Keep in mind that retail brokers that allow PM accounts under $150,000 must have systems in place to try and prevent calls, so many retail brokers will not let you increase your requirement before you reduce first. You should be able to reduce, then increase unless your broker has rules against that.

So does reversing a position with a single order count as "reducing, then increasing"? That is the question. Are you saying it could be allowed according to regulations, but in practice will depend on how the particular broker's pre-trade checks work?

 

[Robert Morse]

I expect that IB will not let you enter the second order before you reduce. You can't do both on the open or close.

 

[cruisecontrol]

Are you saying that if I'm long 100 shares and want to be short 100 shares instead, I'm going to need two MOC orders to accomplish my desired position? I'm having trouble believing this - can you provide a citation?

 

[Robert Morse]

I expect you can't do both on the open or close if you have no BP. You should ask IB. I expect one has to come before the other.

 

[cruisecontrol]

You're kind of begging the question... I said I didn't yet believe the part about needing two orders. With one order there is no "both" and no "one before the other". Would love to see a cite on needing two orders to reverse a position as I've never heard of anything like that before.

 

[cruisecontrol]

I tested all 4 combos in a live account:

reversing long -> short at open
reversing short -> long at open
reversing long -> short at close
reversing short -> long at close

Every trade was successfully executed with a single order. (screenshot attached)

What were you talking about "You can't do both on the open or close" ?