Stocks & Commodities V. 31:5 (57): Q&A by Don Bright

Stocks & Commodities V. 31:5 (57): Q&A by Don Bright
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Q&A by Don Bright

MARGIN CALLS WITH PORTFOLIO MARGIN

I have been trading for many years, but I have some concerns regarding my broker. Although I was promised something called “portfolio margin,” which was supposed to have a leverage of six times my capital, I have received margin calls when using a much lower amount. Should I pursue other alternatives, such as trading with a firm like yours? How does your firm, and others like yours, monitor the risks taken by its traders? How do you ensure that traders don’t blow out a lot of money? I have heard horror stories from some traders. Am I missing something here? I hope you can clarify this for me.

—Natofan

You have good reasons to be concerned, and your questions address some things that are often misunderstood.

Let’s talk about portfolio margin first. Retail brokerage firms have been offering 6:1 leverage to their larger accounts — accounts of around $100,000. This can work, but unfortunately it often doesn’t. The brokerages can decide on their own that you’re too risky for them, and they can invoke their own risk tolerance to give you more restrictions. This has caused a problem for many traders I know, and it’s something you need to be aware of.

Things are different in our world of professional trading. Our traders are using our money to trade with, entering trades that may be 50 times their equity, such as with the opening-only play and correlated pairs. Our traders may, for example, enter a large number of orders premarket, in anticipation of getting filled on only a few extreme cases where they can make quick profits. This generally cannot be done with a retail account, with or without a portfolio margin feature.




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