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Max margin utilization at brokerage account


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Max margin utilization at brokerage account

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  #11 (permalink)
Legendary Market Wizard
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SMCJB View Post
My account has gone negative equity three times this year. Next day wire in additional funds. No liquidations in the 11 years I have been with this broker.

I probably should have clarified, all 3 times was due to new positions with new margin requirements, and not because of large losses on existing positions.

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  #12 (permalink)
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I've come to the same conclusion.

Why give the broker so much interest free money? I'm sure they use it as float for their own purposes.

Maybe if some % of balance can be automatically held in a money market fund, but otherwise it seems to me to just be unnecessary counter party risk for 0 return. Talk about a bad risk reward trade off.
SMCJB View Post
Very different than most I suspect. For 2020 my brokerage account has averaged 74% margin utilization. My lowest utilization was 49.7%! These numbers in no way reflect the actual utilization of my trading capital though as much of it is not in my trading account.

Margin Call != Position Forcibly closed.

My account has gone negative equity three times this year. Next day wire in additional funds. No liquidations in the 11 years I have been with this broker.

The concept of Trading Capital vs Cash in Trading Account is actually very important. I once heard a CTA speak, and they said after being involved in multiple broker bankruptcies they only keep 25% of their trading capital in their trading account. Later on the same CTA went on to say their returns were X%. I could never confirm whether that was X% return on the account or on the trading capital!


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  #13 (permalink)
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When I scalped stocks, I used all my leverage. I got a couple of margin calls that way but I don't hold anything for more than a few minutes. The calls went away. A long time ago when I didn't know how margin calls (or trading ) work, I got a few calls when I held things overnight. I never had a situation where I was liquidated.

Now I trade ES mostly and can only trade the number of contracts that reflect my account balance. At least that's how Ameritrade ThinkorSwim works.

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  #14 (permalink)
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I got lucky and built my account to 700k from 84k despite 2 margin calls that I appreciated out of. Once I learned that I was stuck on a day 2 margin call, I decided to take profits on all day 1 margin calls. That works much better and helps me escape over leveraging.

But, after Monday night when I very easily could've lost all of it by a forced close out (luckily, the market swung back before I got below 100k and I ended up in the positive at the end of the day), I started avoiding this. The good news is that I'm often on the right side of the trade, but it could take 1-2 days for the trade to turn around. I'm 77% since I started in May. But, since I could take a few hits with mark-to-market, I'll lever up for the day, but will close out half of the position before settlement if I'm expecting a rally in my favor to continue. I usually make the best money on shorts though.

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  #15 (permalink)
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SMCJB View Post
I probably should have clarified, all 3 times was due to new positions with new margin requirements, and not because of large losses on existing positions.

I'm curious to know if a margin call affects your status with the broker.... i.e. do you get a black mark on your record?

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  #16 (permalink)
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vmodus View Post
I'm curious to know if a margin call affects your status with the broker.... i.e. do you get a black mark on your record?

I would think repeatedly being on the broker's risk screens would not be good - neither for you nor for the broker.

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  #17 (permalink)
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vmodus View Post
Never had a margin call; never will.

1-20%. We never over-expose ourselves. I guess that makes us conservative, but we believe in not being over-leveraged.

I just realized that even my sim/practice/paper accounts I do not use a margin higher than 20%. Maybe that is just a good habit for me to have.

~vmodus

So now I need to change my answer. Since one of the accounts I trade is pretty small, right now I am using close to 90% of my margin on one of my accounts. It is still outside my comfort zone, but I am just taking advantage of a few opportunities I saw over the weekend.

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  #18 (permalink)
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Probably depends on the size of your positions. Force closing a few contracts is almost no risk to the broker, and they get a nice fee for it. Force closing 100+ contracts in a very volatile market is more risky to the broker, and the flat liquidation fee may not be enough to offset their risk. In this case they may not want your repeat business if the risk is large enough.

For 1 contract traders, I think they like margin calls.
vmodus View Post
I'm curious to know if a margin call affects your status with the broker.... i.e. do you get a black mark on your record?


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  #19 (permalink)
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vmodus View Post
So now I need to change my answer. Since one of the accounts I trade is pretty small, right now I am using close to 90% of my margin on one of my accounts. It is still outside my comfort zone, but I am just taking advantage of a few opportunities I saw over the weekend.

I have a well known trader friend, and his approach was to use all margin, every day. At end of day, if he had a margin call, the broker would call, and my friend would exit his biggest losers. Sort of a forced way to maintain a "cut your losses" discipline.

I guess the broker was OK with it, probably because this guy generated a LOT of commissions...

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  #20 (permalink)
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planetkill View Post
Probably depends on the size of your positions. Force closing a few contracts is almost no risk to the broker, and they get a nice fee for it. Force closing 100+ contracts in a very volatile market is more risky to the broker, and the flat liquidation fee may not be enough to offset their risk. In this case they may not want your repeat business if the risk is large enough.

For 1 contract traders, I think they like margin calls.

Interesting perspective, that makes perfect sense. Thanks!

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