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Question about leverage

  #1 (permalink)
Humseper1
Odense denmark
 
Posts: 1 since Apr 2020
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Hi

I just got portfolio margin on my interactive brokers account, which offers 15% leverage.
If I have 100 K on my account and buy stocks for 200 K, how much would my portfolio be allowed to decline before I would have lost my money.

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  #2 (permalink)
 
wldman's Avatar
 wldman 
Chicago Illinois USA
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I am not sure I understand the question. I have never heard of 15% leverage, that said, when your 100,000 accounts loses 100,000 you will have lost all your money. IB is by far the fiercest risk department in retail, there is NO WAY the scenario that you outline would happen with them.

Right now IB does not even make a "telephone" margin call...they just sell you out of your positions. They do not care which positions or what your history is, they sell you out, period. You will get notification to make a deposit or execute a liquidating transaction to meet margin prior to the cutoff time.

-Dan

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Skidboot's Avatar
 Skidboot 
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Humseper1 View Post
Hi

I just got portfolio margin on my interactive brokers account, which offers 15% leverage.
If I have 100 K on my account and buy stocks for 200 K, how much would my portfolio be allowed to decline before I would have lost my money.

15% leverage means you need to put up just 15% of the value. You can buy 1000 shares of a $100 stock and still have 85K to trade others. Keep in mind, once your value of stocks exeed 100K, you will be charged margin interest. IB claims they have the least interest rate among its competitors which is about 3% i think.

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 Big Mike 
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Portfolio Margin at IB will allow risk to be identified across all positions within the portfolio, where you might have a set of positions that reduce risk when combined -- and therefore your margin or buying power would be increased by using portfolio margin

https://www.interactivebrokers.com/en/index.php?f=26659

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  #5 (permalink)
 humseper 
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I am trying to find out how much my portfolio can decline, when I buy twice the amount of stocks than cash, eg. leverage 2. My broker lets me have a 1 to 6 leverage.

Lets say I deposit 100 K and buy stocks equal to 200 k and does not do anything afterwards. (leverage =2).

If my portfolio now drops 40 %, My stocks will be worth 120 K, and my leverage will be 1-5.
So in conclusion my portfolio can decline a little more than 40 % before I get a margin call.

Is my math correct or have I missed something?

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  #6 (permalink)
 
Skidboot's Avatar
 Skidboot 
Houston, TX
 
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humseper View Post
I am trying to find out how much my portfolio can decline, when I buy twice the amount of stocks than cash, eg. leverage 2. My broker lets me have a 1 to 6 leverage.

Lets say I deposit 100 K and buy stocks equal to 200 k and does not do anything afterwards. (leverage =2).

If my portfolio now drops 40 %, My stocks will be worth 120 K, and my leverage will be 1-5.
So in conclusion my portfolio can decline a little more than 40 % before I get a margin call.

Is my math correct or have I missed something?

Think of it this way. You bought 100K stock with your $$s and 100K stock with Broker's $$s. You lost 40% which means, you lost 80K of your money. You will owe the broker $100K with interest, which leaves you with $20K of your capital. You can now calculate what is the % of leverage you have. You are margined big time and you are below the portfolio margin limits leaving you at the standard 1 to 2 margin level. Not a good place to be.

You will not get a margin call only if your original capital is atleast $500K with 100% margin and then dropping 40% which leaves you with a net liq of 100K, that is above the portfolio margin requirement.

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Last Updated on April 5, 2020


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