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Portfolio Margin

 

 

Overview


 

Place Trade offers several account types, including a cash account which requires enough cash in the account to cover transaction plus commissions, and two types of margin accounts: Reg T Margin and Portfolio Margin. New customers must select an account type during the application process, and existing customers can upgrade their account from Cash or Reg T to Portfolio Margin, via the Trading Access menu in Account Management.

One of the main goals of Portfolio Margin is to reflect the lower risk inherent in a balanced portfolio. Depending on the composition of the trading account, margin requirements under Portfolio Margin could be lower than under the Reg T rules. This translates to greater leverage (note that trading with greater leverage involves greater risk of loss).

Conversely, for a portfolio with concentrated risk, the requirements under Portfolio Margin may be greater than those under Reg T, as the true economic risk behind the portfolio may not be adequately accounted for under static Reg T calculations.

Customers can compare their current Reg T margin requirements for their portfolio with those required under Portfolio Margin rules by clicking the Try PM button from their TWS Account Window.

 Margin Disclosure    Account Types Available     Details for Specific Securities

 

Account Type

Description

How We Calculate Margin

Regulation (Reg) T Margin

Borrowing to support equities trading, shorting of equities, options trading, currency conversions and securities/commodities trading in multiple currency denominations available. Purchase and sale proceeds are immediately recognized.

Margin requirements are computed in real-time under a rules-based calculation methodology, with immediate position liquidation if the minimum maintenance margin requirement is not met.

Portfolio Margin

Borrowing to support equities trading, shorting of equities, options trading, currency conversions and securities/commodities trading in multiple currency denominations available.

Margin requirements are calculated using a risk-based calculation methodology. Customers must maintain account equity of at least USD 100,000 in order to use a portfolio margin account. Otherwise account restrictions will apply.

 

 

 

 What is Margin?

 

The definition of margin includes three important concepts:

Margin Loan

Margin Deposit

Margin Requirement

The Margin Loan is the amount of money that an investor borrows from his broker to buy securities. The Margin Deposit is the amount of equity contributed by the investor toward the purchase of securities in a margin account. The Margin Requirement is the minimum amount that a customer must deposit and it is commonly expressed as a percent of the current market value. The Margin Deposit can be greater than or equal to the Margin Requirement. We can express this as an equation:

Borrowing money to purchase securities is known as "buying on margin". When an investor borrows money from his broker to buy a stock, he must open a margin account with his broker, sign a related agreement and abide by the broker's margin requirements. The loan in the account is collateralized by investor's securities and cash. If the value of the stock drops too much, the investor must deposit more cash in his account, or sell a portion of the stock.

 

 

Initial and Maintenance Margin

The Federal Reserve Board and self-regulatory organizations (SROs), such as the New York Stock Exchange and FINRA, have clear rules regarding margin trading.

In the United States, the Fed's Regulation T allows investors to borrow up to 50 percent of the price of the securities to be purchased on margin. The percentage of the purchase price of securities that an investor must pay for is called the initial margin.

To buy securities on margin, the investor must first deposit enough cash or eligible securities with a broker to meet the initial margin requirement for that purchase. Once an investor has started buying a stock on margin, the NYSE and FINRA require that a minimum amount of equity be maintained in the investor's margin account. These rules require investors to have at least 25 percent of the total market value of the securities they own in their margin account. This is called the maintenance margin.

For market participants identified as Pattern Day Traders, the maintenance margin requirement is $25,000. When the balance in the margin account falls below the maintenance requirement, the broker can issue a margin call requiring the investor to deposit more cash, or the broker can liquidate the position.

Brokers also set their own minimum margin requirements called "house requirements". Some brokers extend more lenient lending conditions than others and lending terms may also vary from one client to the other but brokers must always operate within the parameters of margin requirements set by regulators.

Not all securities can be bought on margin. Buying on margin is a double-edged sword that can translate into bigger gains or bigger losses. In volatile markets, investors who borrowed from their brokers may need to provide additional cash if the price of a stock drops too much for those who bought on margin or rallies too much for those who sold stock short. In such cases, brokers are also allowed to liquidate a position, even without informing the investor. Real-time position monitoring is a crucial tool when buying on margin or shorting a stock.

 

Place Trade Real-Time Margining

Place Trade uses real-time margining to allow you to see your trading risk at any moment of the day. Our real-time margin system applies maintenance margin requirements throughout the day to new trades and trades already on the books and enforces initial margin requirements at the end of the day, with real-time liquidation of positions instead of delayed margin calls. This system allows us to maintain our low commissions because we do not have to spread the cost of credit losses to customers in the form of higher costs.

Our real-time margin system allows you to see your trading risk at any moment of the day using the real-time activity monitoring features in Trader Workstation. For more information about real-time margin monitoring, see the Real-Time Monitoring Margin page.

 

 

Margin Model

 

Margin requirements are calculated either on a rules basis and/or a risk basis.

 

Margin Calculation Basis

Available Place Trade Products

Rule-Based Margin System: Predefined and static calculations are applied to each position or predefined groups of positions (“strategies”).

Reg T accounts: US stocks, index options, stock options, single stock futures, and mutual funds.

All accounts: Forex; bonds; Canadian, European, and Asian stocks; and Canadian stock options and index options.

Risk-Based Margin System: Exchanges consider the maximum one day risk on all the positions in a complete portfolio, or subportfolio together (for example, a future and all the options delivering that future).

Portfolio Margin accounts: US stocks, index options, stock options, single stock futures, and mutual funds.

All accounts: All futures and future options in any account. Non-US/Non-Canadian stock options and index options in any account.

Margin requirements for each underlying security are listed on the appropriate exchange site for the contract.

 


 
 Extreme Margin Model

 

Systems that derive risk-based margin requirements deliver adequate assessments of the risk for complex derivative portfolios under small/moderate move scenarios. Such systems are less comprehensive when considering large moves in the price of the underlying stock. Place Trade has enhanced the basic exchange margin models with algorithms that consider the portfolio impact of larger moves up 30% (or even higher for extremely volatile stocks). This 'Extreme Margin Model' may increase the margin requirement for portfolios with net short options positions, and is particularly sensitive to short positions in far out-of-the-money options.


 

If you sell a security short, you must have sufficient equity in your Place Trade account to cover any fees associated with borrowing the security. If you borrow the security through Place Trade, Place Trade will borrow the security on your behalf and your account must have sufficient collateral to cover the margin requirements of the short sale.  To cover administrative fees and stock borrowing fees, Place Trade must post 102% of the value of the security borrowed as collateral with the lender. In instances in which the security shorted is hard to borrow, borrowing fees charged by the lender may be so high (greater than the interest earned) that the short seller must pay additional interest for the privilege of borrowing a security. Customers may view the indicative short stock interest rates for a specific stock through the Short Stock (SLB) Availability tool located in the Tools section of their Account Management page. For more information concerning shorting stocks and associated fees, visit the "Shortable Stock" page on the Place Trade website.

 

 Get the lowest and best margin rates when you trade on margin at Place Trad

 

 
 

 

Margin Rates Margin Rate Tiers How to Calculate Margin Margin Requirements Account Types Available Risk Management & Control 

 

 

 

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