Margin Question

[djf123]

As far as I can tell the most an online broker will let you borrow on margin for trading stocks and ETFs is 4 times your current cash balance and even less when you short. But are there any other online brokers out there that allow you to borrow more than this for trading stocks and ETFs? I can't seem to find any that do. Also are there any that allow you to get 4:1 leverage when shorting a stock?

 

[rmorse]

Portfolio margin accounts offer up to 6.6:1 for equities and more for broad based indexes. That is the max but most clearing brokers have certain restrictions to lower risk.

 

[noddyboy]

Portfolio margin accounts offer up to 6.6:1 for equities and more for broad based indexes. That is the max but most clearing brokers have certain restrictions to lower risk.

How do hedge funds get 20:1 leverage?

 

[rmorse]

How do hedge funds get 20:1 leverage?

They don't. The highest I've heard of from banks in the UK is 10:1 and that is using derivatives. That is only for hedged long/short portfolios from a fund with a large balance sheets.

Prop firms can give excess leverage during the day because of their JBO relationship with their Clearing firm. Also they can give you extra leverage because other traders are not using the leverage.

Customer accounts in the US are limited to Reg-t or PM.

 

[djf123]

Portfolio margin accounts offer up to 6.6:1 for equities and more for broad based indexes. That is the max but most clearing brokers have certain restrictions to lower risk.

rmorse, can you list some of the names of the online brokers that offer 6.6:1? I want to go check out their websites. I've been searching around online, but I can't seem to find any of these 6:1 brokers. All of the common online brokers I have been encountering so far, speedtrader, interactivebrokers, optionshouse, etc., only offer 4:1 at best.

 

[rmorse]

You are looking at reg-t not pm. PM has a different margin requirement that the occ provides. Typical for equities is a shock of 15% which is about 6:1. A clearing broker can offer less but not more. We don't work with online brokers. We offer PM accounts at Apex Clearing and Merrill Lynch Professional.

 

[noddyboy]

Portfolio margin accounts offer up to 6.6:1 for equities and more for broad based indexes. That is the max but most clearing brokers have certain restrictions to lower risk.

Thank you for your reply. Actually, my partner has spoken to you before several years ago, but I dropped the ball and didn't follow up.

What protects a client from unreasonable deleveraging? What was the worst case in 2008? For example, if someone was short 6 x LEH, it would not work if the margin was cut to 2x at the worst moments and forced to liquidate at the wrong time.

I am interested in getting 8:1 leverage on an intraday basis, with at most 3:1 overnight. Liquid equities. Not hedged positions, but stops will be placed to limit losses. Market-on-close to eliminate risk at EOD, and so I can't live with the uncertain situation where Interactive Brokers autoliquidates at 15:50 and I get double filled with MOC.

 

[Occam]

Portfolio margin accounts offer up to 6.6:1 for equities and more for broad based indexes. That is the max but most clearing brokers have certain restrictions to lower risk.

Practically speaking, what is the difference between a below-$5million and above-$5million account in the context of portfolio margin? I've heard various things over the years about this and I'm not quite sure what to make of it.

 

[noddyboy]

Practically speaking, what is the difference between a below-$5million and above-$5million account in the context of portfolio margin? I've heard various things over the years about this and I'm not quite sure what to make of it.

I read the regulations once and if it is under $5mn, basically the broker has to monitor risk intraday and auto-liquidate, like IB.

 

[rmorse]

Thank you for your reply. Actually, my partner has spoken to you before several years ago, but I dropped the ball and didn't follow up.

What protects a client from unreasonable deleveraging? What was the worst case in 2008? For example, if someone was short 6 x LEH, it would not work if the margin was cut to 2x at the worst moments and forced to liquidate at the wrong time.

I am interested in getting 8:1 leverage on an intraday basis, with at most 3:1 overnight. Liquid equities. Not hedged positions, but stops will be placed to limit losses. Market-on-close to eliminate risk at EOD, and so I can't live with the uncertain situation where Interactive Brokers auto-liquidates at 15:50 and I get double filled with MOC.

Can you send me an email reminder who that was? You are looking for 8:1 with equities, it won't happen in a customer account in the USA. We don't have auto liquidation to protect against margin calls. The only way I expect you would get auto-liquidated with us, is if you had a risk call and you were not compliant. Margin calls are not against any regulation. Online firms like IB, TD etc, set up their written supervisory procedures (WSP) to be able to handle MANY accounts. Also, if the can set up their systems to prevent margin calls, it provides some advantaged to them beside the added responsibility of getting the funds and the risk involved.

http://www.finra.org/industry/portfolio-margin-faq

Minimum Equity
In reviewing a member firm's application to offer portfolio margining to customers, does FINRA require minimum equity to be maintained in individual accounts? (Updated 06/08)

Due to the additional leverage afforded to customers by portfolio margining, firms must establish minimum equity requirements. These requirements vary based upon the strength of the firm's risk management systems and procedures, and its ability to capture intra-day trading and market activity.

If a firm has a real-time intra-day monitoring system whereby an account can be recalculated real-time (i.e., all trades, activity and price movements) whenever an order is entered and the firm has the ability to reject an order if the account does not have enough maintenance excess to meet the maintenance requirement, then $100,000 will be the minimum equity requirement.

Prime brokerage and introduced accounts where trades may be executed away from the clearing firm must maintain $500,000 in equity, even if the firm has the intra-day capabilities described above. This requirement is consistent with the minimum net equity requirement outlined in the SEC's prime broker no-action letter dated January 25, 1994.

Firms that do not have the intra-day capabilities as described above, but do not have any trades executed away, will be required to impose a minimum equity requirement of $150,000.
- See more at: http://www.finra.org/industry/portfolio-margin-faq#sthash.ckNnF2Tb.dpuf