Buying on Margin / Margin Trading

moneybags2009

Hi

I've been day trading on the US market for a year or so using interactive brokers (working very well btw) now playing with $10k and getting a decent return. The only issue really is the 3 day turnaround on settlements in the US which means I can only trade twice a week. I've been looking at Margin Trading (IB will allow 50% maintenance margin levels which means I could have $20k to trade with as long as I have $10k in cash/stock in the account).

I dont intent to trade the $20k. I was considering using a Margin account to allow me to trade a "borrowed" $10k. I intend only to use this borrowed $10k when I have executed a sale on my own $10k (in otherwords I wont have more than $10k invested at any one time) but it effectively doubles the amount of trades I can make. Am making enough to well cover the commissions and interest rates to make it worthwhile.

Anyone doing this? And I appreciate its opinion I'll get not financial advice!

Cheers
MB

pirelli

moneybags2009 wrote: »

Hi

I've been day trading on the US market for a year or so using interactive brokers (working very well btw) now playing with $10k and getting a decent return. The only issue really is the 3 day turnaround on settlements in the US which means I can only trade twice a week. I've been looking at Margin Trading (IB will allow 50% maintenance margin levels which means I could have $20k to trade with as long as I have $10k in cash/stock in the account).

I dont intent to trade the $20k. I was considering using a Margin account to allow me to trade a "borrowed" $10k. I intend only to use this borrowed $10k when I have executed a sale on my own $10k (in otherwords I wont have more than $10k invested at any one time) but it effectively doubles the amount of trades I can make. Am making enough to well cover the commissions and interest rates to make it worthwhile.

Anyone doing this? And I appreciate its opinion I'll get not financial advice!

Cheers
MB

At the very least you can trade more often. Sounds like a good idea.

daveirl

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moneybags2009

daveirl wrote: »

This post has been deleted.

tbh mainly because i havent looked into it and dont understand it. i appreciate the leverage you can get plus no fees/comm/cgt but i like playing with actual money so i'll always know my losses are never more than my investment. and while i'm sure you can protect within S/Btg this is working for me at the moment.

soddy1979

moneybags2009 wrote: »

tbh mainly because i havent looked into it and dont understand it. i appreciate the leverage you can get plus no fees/comm/cgt but i like playing with actual money so i'll always know my losses are never more than my investment. and while i'm sure you can protect within S/Btg this is working for me at the moment.

Sorry but your losses can exceed your initial outlay with margin trading. Example:You buy 200 shares of XYZ on 20x Margin for EURO 100 per share.Cost is 20000 Euro, outlay is 1000 Euro.Price drops suddenly, and your broker can't close your position at or above EURO 95 per share. For every EURO 1 drop below price of EURO 95 you will owe your broker EURO 200.I know there are products such as guaranteed stops offered by some companies but I'm not sure if you can get them on all markets/products.Also, you need to ensure you can meet margin calls. If you open at 20K position with a 50% maintenance margin, every time the value of your account hits maintenance margin you need to deposit the difference between the maintenance margin & initial margin. If initial margin is 75% you will need to give them 5K in order for them not to close your position on you.

moneybags2009

soddy1979 wrote: »

Sorry but your losses can exceed your initial outlay with margin trading. Example:You buy 200 shares of XYZ on 20x Margin for EURO 100 per share.Cost is 20000 Euro, outlay is 1000 Euro.Price drops suddenly, and your broker can't close your position at or above EURO 95 per share. For every EURO 1 drop below price of EURO 95 you will owe your broker EURO 200.I know there are products such as guaranteed stops offered by some companies but I'm not sure if you can get them on all markets/products.Also, you need to ensure you can meet margin calls. If you open at 20K position with a 50% maintenance margin, every time the value of your account hits maintenance margin you need to deposit the difference between the maintenance margin & initial margin. If initial margin is 75% you will need to give them 5K in order for them not to close your position on you.

Not sure I follow. The Federal Reserve Board have strict guidelines on Margin requirements and I can only trade on 50% margin (i.e. twice my actual cash/securities position) so the 20x example above won't happen. As I day trade (and under SEC rules on margin trading for individuals you can only day trade on the US market 3 times a week - 4 or more leads to a 90 day ban!) and I only risk upto 50% of the total funds available at any one time (i.e. same as my cash position) my losses, even if the shares tank 100% in one day! will only be upto the value of my investment (within a few dollars)

Only started margin trading this week and so far so good.

Anyone else actually trading on margin in the US at the moment?

pocketdooz

soddy1979 wrote: »

Sorry but your losses can exceed your initial outlay with margin trading. Example:You buy 200 shares of XYZ on 20x Margin for EURO 100 per share.Cost is 20000 Euro, outlay is 1000 Euro.Price drops suddenly, and your broker can't close your position at or above EURO 95 per share. For every EURO 1 drop below price of EURO 95 you will owe your broker EURO 200.I know there are products such as guaranteed stops offered by some companies but I'm not sure if you can get them on all markets/products.Also, you need to ensure you can meet margin calls. If you open at 20K position with a 50% maintenance margin, every time the value of your account hits maintenance margin you need to deposit the difference between the maintenance margin & initial margin. If initial margin is 75% you will need to give them 5K in order for them not to close your position on you.

I don't know of trading platform that offers 20x leverage . . .

soddy1979

pocketdooz wrote: »

I don't know of trading platform that offers 20x leverage . . .

Hypothetical. Point was that theoretically you can lose more than your initial outlay if there is a fast price movement.

soddy1979

Hi Moneybags, sorry I think I missed the point of your opening post.

I'm not positive (but I could be wrong) that your plan will work in its current format.

I would think if you had an unsettled cash position of 10K on the back of a sale that this would not be included as part of your initial margin requirement (although it might and you would need to clarify that with your broker).

If it is not included then you would still need to deposit the IMR in order to execute the purchase. The alternative would be to have a 10K overdraft facility at the bank account that funds your trades.

moneybags2009

soddy1979 wrote: »

Hi Moneybags, sorry I think I missed the point of your opening post.

I'm not positive (but I could be wrong) that your plan will work in its current format.

I would think if you had an unsettled cash position of 10K on the back of a sale that this would not be included as part of your initial margin requirement (although it might and you would need to clarify that with your broker).

If it is not included then you would still need to deposit the IMR in order to execute the purchase. The alternative would be to have a 10K overdraft facility at the bank account that funds your trades.

Hi Soddy1979

That no problem. In practice (from a weeks trading using margin) it seems the broker will accept cash/shares AND unsettled share sales as MR so once I dont loose or withdraw my own funds (no matter where they are) I can trade twice my fund.

The REAL issue is to have the discipline not to have (in my case) a $20k exposure, i.e. only use +/- $10k at any one time. Can be tempting when you see an opportunity!!

soddy1979

Hi moneybags2009,

It does seem odd that they won't let you trade on an unsettled position. My reasoning is as follows:

You sell XYZ on Monday in the US (I think the US equity settlement cycle is T+3, but it may be T+2) so if you sell on Monday the deal is executed on Monday, and settles on Thursday the broker won't credit your account until settlement date, Thursday. They will however know the amount you will receive on trade date (this is your traded cash position).

Then if you execute a purchase on Tuesday, they shouldn't debit your account until Friday, although they will know how much they will debit once the deal is executed on Tuesday.

Systems that can account for cash on a traded as opposed too settled basis should enable and allow for clients to buy on the back of unsettled sales.

Again, it probably pays to shop around with brokers as I would be surpised if nobody offered this facility.