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Portfolio margin
- Thread starter DayTrader101
- Start date
Quote from gkishot:
The interest is charged only if the cash account balance is negative. Other brokers don't settle stocks every day as cash. Stocks are not marked to market.
The only value that changes every day is the total net liquidation value of all long and short positions.
If you sell stock short its proceeds are added to the cash balance and it stays unchanged whether stock moves up or down.
The broker does not have to charge the interest on short positions if he uses the total portfolio value as collateral. That's what the marginable securities are for.
they are required to mark to market. it may not show up on your statement but it is done internally.
extreme example. you have 1million in fully paid for securities in your account.
you short 1000 shares at $30. the stock triples overnite to 90. you will be paying interest on a $60,000 debit balance immediately.
Quote from blackjack007:
if you have $50k cash and you buy more than $50k worth of stocks, you will be charged interest. it doesn't matter if your account is pm or reg-t.
pm lets you borrow more but it is not interest-free!
Suppose initially I have $100K, and my account is enabled for pm.
I then buy $200K value of diversified stocks, and short sell $200K value of another set of diversified stocks.
How will ib charge me interest?
Quote from gkishot:
It will charge you on 100k margin.
Cash Account = 100k ( initial cash account ) - 200k ( long stocks ) + 200k ( short proceeds ) - 200k ( short positions )
= -100K
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Thanks. Let me see if I can construct a portfolio to long QQQQ without paying interest here with higher leverage.
Suppose I short $600K of QID.
Cash account = 100K (initial cash) + 600K (short proceeds) - 600K (short positions).
So I don't have to pay any interest for a porfolio with roughly 12x QQQQ. Am i right?
Quote from yip1997:
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Thanks. Let me see if I can construct a portfolio to long QQQQ without paying interest here with higher leverage.
Suppose I short $600K of QID.
Cash account = 100K (initial cash) + 600K (short proceeds) - 600K (short positions).
So I don't have to pay any interest for a porfolio with roughly 12x QQQQ. Am i right?
You are right, but if qqqq moves down and qid moves up to let's say 800k worth of value you will have to pay interest on 100k.
Cash account = 100k + 600k ( short proceeds ) - 800k ( short position adjustment ) = -100k.
This is just an example of how margin interest is calculated. As far as I understand they will also pay interest on 600k proceeds.
Short position adjustment is updated daily based on the market price moves.
Quote from gkishot:
You are right, but if qqqq moves down and qid moves up to let's say 800k worth of value you will have to pay interest on 100k.
Cash account = 100k + 600k ( short proceeds ) - 800k ( short position adjustment ) = -100k.
This is just an example of how margin interest is calculated. As far as I understand they will also pay interest on 600k proceeds.
Short position adjustment is updated daily based on the market price moves.
I understood that. Any movement of the underlying will change the cash account, and it will affect the interest charge.
You mentioned short position is MTM. Is it true that pm is MTM? IOW both long and short positions are MTM.
Quote from gkishot:
So you are saying only short stocks are required to be marked to market?
What about other long stocks that might have settled with $60,000 profit and erased all those losses?
Does IB adjust up the cash balance by the long stocks market value?
all stock is marked to market to meet margin requirements. there is no change in your cash position for long stock as a result of the increase or decrease in the price of stock.
when you make money on your long position you increase the amount of stock
u can be long or short.
cash balances are only adjusted for short sales.