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.
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