Understading Sub-Account

October 31st, 2020, 07:52 AM

First I want say hi to everybody! it's glad to be part of this forum. This will be my very first post.
My question is how does sub-account work in practice.
Let's say I've deposited 10k to my broker and I want to go long in ES (master account)
and short ES in (sub-account). Does sub-account use master account's and margin/balance or are these
funds completely separated which is not an actual hedge position?

October 31st, 2020, 11:18 AM

@Quantom it depends how it is set up by the broker. If your going to use sub accounts I believe the standard setup (I have this setup at two different brokers) is to have a master account, and then have sub accounts under it, including trading accounts, expense accounts and cash accounts. In this scenario, the master account holds nothing individually but is the sum of all the sub accounts. Actual margin requirements while calculated at the master and sub account level are enforced/required only based upon on the main account level.

An example

Main Account.

Long 1 ES $3000 profit,
Short 1 NQ $2000 loss,
$100,000 Cash,
Margin Requirement $8500.
Account Value $101,000
Margin Excess $92,500

Sub Accounts

Trading Sub Account One

Long 1 ES $3000 profit,
Margin Requirement $12,000.
Account Value $3,000
Margin Excess <$9,000>

Trading Sub Account One

Short 1 NQ $2000 loss,
Margin Requirement $16,000.
Account Value <$2,000>
Margin Excess <$18,000>

Cash Account

$100,000 Cash,
Account Value $100,000
Margin Excess $100,000

You will notice that while

Main Account Cash = Sub Account 1 Cash + Sub Account 2 Cash + Cash Account Cash
Main Account Value = Sub Account 1 Value + Sub Account 2 Value + Cash Account Value

that's not always the case as

Main Account Margin Requirement <> Sub Account 1 Margin Requirement + Sub Account 2 Margin Requirement + Cash Account Margin Requirement

because there is an intra-product margin offset between ES and NQ (Note I made the margin numbers up) and hence

Main Account Margin Excess <> Sub Account 1 Margin Excess + Sub Account 2 Margin Excess + Cash Account Margin Excess

For what it's worth the intent of sub-accounts is NOT to have offsetting positions. In fact most brokers and the exchange will frown upon that and some brokers will even not allow it at all. They probably will allow you to use Trading Sub Account 1 for Strategy A, and Trading Sub Account 2 for Strategy B, and they occasionally have offsetting positions. Personally I use my sub accounts to separate my trades. One for Currencies, one for Bitcoin, one for Crude, one for NatGas, one for Fixed Income, one for Index's. Makes it easier to track and reconcile my PnL and to track margin requirements.

November 2nd, 2020, 08:06 AM

Thank you for your explanation! I'm currently on amp and asked them about this and they said I need to use 2 separated datafeeds in order to make it work. Are you using set up this way?

November 2nd, 2020, 10:52 AM

CME rules say data is charged per user per device. I believe one account with several sub-accounts using the same software should be one user, one device and should mean one data fee. I can see that the argument could be that if you have two separate accounts that it could be two users, but one account with multiple sub-accounts is a single user. Are you sure they are talking about sub-accounts of the same account and not two separate accounts? This could be just a case that AMP doesn't have the ability to do what you want easily and this is their work around. Tradestation for example doesn't have sub accounts. So with them you have to have two accounts and they do then charge for data in each account.

My situation is slightly different in that I am an exchange member and hence qualify for data netting. The data is more expensive but I pay the CME directly for the data and then all the data on all platforms is free as I've already paid CME. It normally takes a couple of billing cycles to get this resolved properly but once resolved it works perfectly.

Understading Sub-Account

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Understading Sub-Account