Trading on margin is about managing risk. Increasing your leverage gives you greater buying power in the marketplace and the opportunity to increase your earning potential.
Imagine you have $50,000 in cash and receive a loan of $50,000 to buy a house for $100,000 and then in a year you sell the home for $500,000. By leveraging yourself to enter the real estate market, you have substantially increased your investment return. While you have just enjoyed greater gains, you also risked greater losses had the investment not worked in your favor.
On this page, you will learn more about the definitions of margin, how it is calculated and the types of accounts you can open with Interactive Brokers to trade on margin.
Buying on margin is borrowing cash to buy stock.
Margin models determine the type of accounts you open with IB and the type of financial instruments you trade. Trading on margin uses two key methodologies: rules-based and risk-based margin.
In Rules based margin systems, your margin obligations are calculated by a defined formula and applied to each marginable financial instrument. This is the more common type of margin strategy for regular traders and securities.
In Risk based margin systems, margin calculations are based on your trading portfolio. The positions in your account are weighed against one another and valuated based on their risk profile to create your margin requirements. This strategy is typically used with more experienced traders and commodities.
Margin requirements are calculated either on a rules basis and/or a risk basis.
Margin Calculation Basis | Available Products |
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Rule-Based Margin System: Predefined and static calculations are applied to each position or predefined groups of positions ("strategies"). | Margin accounts: US stocks, index options, stock options, single stock futures, and mutual funds. All accounts: 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 are listed on the appropriate exchange site for the contract. A summary of the requirements for the major futures contracts as well as links to the exchange sites are available on the Futures & FOPs page.
Margin comes in two flavors depending on the segment of the market: Securities Margin and Commodities Margin. Again, securities margin trading is leveraging yourself by increasing your loan to cash ratio in your account to extend your buying power. For example, if you have $5000 and borrow another $5000 you are leveraged 2:1 and your buying power is increased to $10,000.
Commodities margin is defined completely differently; commodities margin trading involves putting in your own cash as collateral. Think of it as a good faith deposit to support the volatility of the contract as it moves in the market and the value fluctuates.
Defining Trait | Calculation | |
---|---|---|
Securities Margin | Borrowing money to buy securities. | Margin Loan + Margin Deposit = Market Value of Securities |
Commodities Margin | Depositing money into your trading account to enter into a commodities contract. | Collateral = Amount of Equity Required to Support Futures Contract |
Margin requirements for each underlying are listed on the appropriate exchange site for the contract. A summary of the requirements for the major futures contracts as well as links to the exchange sites are available on the Futures & FOPs page.
Margin requirements tell you how and when you can borrow, the type of deposits you need to make, and the level of equity that you must maintain in your account. Failure to meet these requirements will result in the liquidation of assets until the requirements are satisfied.
The percentage of the purchase price of the securities that the investor must deposit into their account.
You must have a minimum of $2000 or 100% of the purchase price (whichever is less) deposited with IB.
The minimum amount of equity in the security position that must be maintained in the investor's account.
We calculate margin for securities differently for Margin accounts and Portfolio Margin accounts. Reg T Margin securities calculations are described below. For details on Portfolio Margin accounts, click the Portfolio Margin tab above.
One important thing to remember about our margin calculations is that we apply the Regulation T initial margin requirement at the end of the trading day (3:50 PM) as part of our Special Memorandum Account (SMA) calculation. At the time of trade and in real time throughout the trading day, we apply our own margin calculations, which are described below.
You can monitor most of the values used in the calculations described on this page in real time in the Account Window in Trader Workstation.
You are required to have a minimum of $2,000 or USD equivalent of securities equity with loan value or commodities net liquidation value to open a new position. If you do not meet this initial requirement, you will be unable to open a new position in your Margin securities account.
Upon submission of an order, a check is made against real-time available funds. If available funds, after the order request, would be greater than or equal to zero, the order is accepted; if available funds would be negative, the order is rejected.
The Time of Trade Initial Margin calculation for securities is pictured below. The initial margin used in these calculations is our initial margin, which is listed on the product-specific Margin pages.
Available Funds > 0
(Available Funds = Securities Equity with Loan Value(ELV1) - Initial Margin Requirement)
At the time of a trade, we also check the leverage cap for establishing new positions. The leverage limitation is a house margin requirement that limits the risk associated with the close-out of large positions held on margin. We perform the following calculation to ensure that the Gross Position Value is not more than 30 times the Net Liquidation Value minus the futures options value:
If the result of this calculation is true, then you have not exceeded the leverage cap
for establishing new positions. If the trade would put your account over the leverage cap (that is, the calculation is not true), then the order will not be accepted.Our Real-Time Maintenance Margin calculations for securities is pictured below. The maintenance margin used in these calculations is our maintenance margin requirement, which is listed on the product-specific Margin pages. In the calculations below, "Excess Liquidity" refers to excess maintenance margin equity.
Excess Liquidity >= 0
(Excess Liquidity= Securities Equity with Loan Value - Maintenance Margin Requirement)
There is a real-time check on overall position leverage to ensure that the Gross Position Value is not more than 50 times the Net Liquidation Value minus the futures options value. The leverage limitation is a house margin requirement that limits the risk associated with the close-out of large positions held on margin. The calculation is shown below.
Securities Gross Position Value <= 50 * (Net Liquidation Value - Futures Options Value)
If the result of this calculation is not true, positions may be liquidated to reduce the Gross Position Leverage.
An additional leverage check on cash is made to ensure that the total FX settlement value is no more than 250 times the Net Liquidation Value as shown below.
Total Settlement Value of All Unsettled FX Trades <= 250 * (Net Liquidation Value)
If the result of this calculation is not true, account liquidation may occur.
We reduce the marginability of stocks for accounts holding concentrated positions relative to the shares outstanding (SHO) of a company. For Margin securities accounts, this algorithm increases the margin requirement for stock positions exceeding 1% of the published SHO from its default to 100% (in other words, decreases the amount of money that can be borrowed against a stock position toward zero). At 5% concentration, positions have a 100% margin requirement.
Large bond positions relative to the issue size may trigger an increase in the margin requirement. The review of bond marginability is done periodically to consider redemptions and calls, as well as other factors, which may affect the remaining liquidity of the particular bond instrument. Less liquid bonds are given less favorable margin treatment.
We will automatically liquidate when an account falls below the minimum margin requirement. However, to allow a customer the ability to manage risk prior to a liquidation, we calculate Soft Edge Margin (SEM) during the trading day. From the start of the trading day until 15 minutes before the close of the trading day, Soft Edge Margin allows for an account's margin deficit to be within a specified percentage of the account's Net Liquidation Value, currently 10%. When SEM ends, the full maintenance requirement must be met. When SEM is not applicable, the account must meet 100% of maintenance margin.
Soft Edge Margin start time of a contract is the latest of:
Soft Edge Margin end time of a contract is the earliest of:
If an account falls below the minimum maintenance margin, it will not be automatically liquidated until it falls below the Soft Edge Margin. This allows a customer's account to be in margin violation for a short period of time. Soft Edge Margin is not displayed in Trader Workstation. Once the account falls below SEM however, it is then required to meet full maintenance margin.
Please note that we reserve the right to restrict soft edge access on any given day, and may eliminate SEM completely in times of heightened volatility.
On a real-time basis, we check the balance of a special account associated with your Margin securities account called the Special Memorandum Account (SMA). We calculate a running balance of your SMA throughout the trading day, then enforce Regulation T initial margin requirements at the end of the trading day. No cash withdrawal will be allowed that causes SMA to go negative on a real-time basis.
As described above, we calculate SMA in real time throughout the trading day, but we enforce Regulation T initial margin requirements (typically 50% for stocks or 100% for nonmarginable securities) at the end of the trading day. Whenever you have a position change on a trading day, we check the balance of your SMA at the end of the US trading day (15:50-17:20 ET), to ensure that it is greater than or equal to zero.
We use the following calculation to check your SMA balance in real time and apply Regulation T initial margin requirements to securities that can be purchased on margin. Note that this is the same SMA calculation that is used throughout the trading day. In the first calculation, "today's trades initial margin requirements" are added for SELL orders and subtracted for BUY orders, and are based on US Regulation T Initial Margin requirements.
SMA is calculated based on the following rules:
Use the following series of calculations to determine the last stock price of a position before we begin to liquidate that position. Note that this calculation applies only to single stock positions.
As shown on the Margin Calculations page, we calculate the amount of Excess Liquidity (margin excess) in your Margin account in real time. If your Excess Liquidity balance is less than zero, we will liquidate positions in your account to bring the Excess Liquidity balance up to at least zero.
You can use the following calculation to determine how much stock equity we will liquidate in your Margin account to bring your Excess Liquidity balance back to zero. Note that this calculation applies only to stocks.
The following table shows an example of a typical sequence of trading events
involving securities and how they affect a Margin Account.[5]
Day 1: Deposit $10,000.00 Cash in Margin Account. |
||
Cash | $10,000.00 | Initial deposit |
Securities Market Value | $0.00 | No positions held |
Equity with Loan Value (ELV1) | $10,000.00 | |
Initial Margin | $0.00 | IM = 25% * Stock Value |
Maintenance Margin (MM) | $0.00 | MM = 25% * Stock Value |
Available Funds | $10,000.00 | ELV - IM |
Excess Liquidity | $10,000.00 | ELV - MM |
1Equity with Loan Value(ELV) = Total cash value + stock value + bond value + fund value + European & Asian options value |
Day 1: End of Day SMA Calculation |
||
Reg T Margin | $0.00 | Reg T Margin = 50% * Stock Value |
SMA2 | $10,000.00 | SMA >= 0 SMA Requirement Satisfied, NO liquidation |
2SMA = The great value of: (Prior Day SMA +/- Change in Day's Cash +/- Today's Trades Reg T Initial Margin) or (Equity with Loan Value - Reg T Margin) |
Day 2: Customer BUYS 500 shares of XYZ stock at $40.00/share. |
||
Cash | ($10,000.00) | |
Securities Market Value | $20,000.00 | |
Equity with Loan Value (ELV1) | $10,000.00 | |
Initial Margin | $5,000.00 | IM = 25% * Stock Value |
Maintenance Margin (MM) | $5,000.00 | MM = 25% * Stock Value |
Available Funds | $5,000.00 | ELV-IM Available Funds were >=0 at the time of the trade, so the trade was submitted. |
Excess Liquidity | $5,000.00 | ELV - MM |
1Equity with Loan Value(ELV) = Total cash value + stock value + bond value + fund value + European & Asian options value |
Day 2: End of Day SMA Calculation |
||
Reg T Margin | $10,000.00 | Reg T Margin = 50% * Stock Value |
SMA2 | $0.00 |
SMA = The great value of: ($10,000.00 – $0.00 – $10,000.00) or ($10,000.00 – $10,000.00) SMA >= 0 SMA Requirement Satisfied, NO liquidation |
2SMA = The great value of: (Prior Day SMA +/- Change in Day's Cash +/- Today's Trades Reg T Initial Margin) or (Equity with Loan Value - Reg T Margin) |
Day 3: First, the price of XYZ rises to 45.00/share. |
||
Cash | ($10,000.00) | |
Securities Market Value | $22,500.00 | |
Equity with Loan Value (ELV1) | $12,500.00 | |
Initial Margin | $5,625.00 | IM = 25% * Stock Value |
Maintenance Margin (MM) | $5,625.00 | MM = 25% * Stock Value |
Available Funds | $6,875.00 | ELVIM |
Excess Liquidity | $6,875.00 | ELV - MM Excess Liquidity >=0, so NO LIQUIDATION occurs. |
1Equity with Loan Value(ELV) = Total cash value + stock value + bond value + fund value + European & Asian options value |
Day 3 Later: Then the price of XYZ falls to $35.00/share. |
||
Cash | ($10,000.00) | |
Securities Market Value | $17,500.00 | |
Equity with Loan Value (ELV1) | $7,500.00 | |
Initial Margin | $4,375.00 | IM = 25% * Stock Value |
Maintenance Margin (MM) | $4,375.00 | MM = 25% * Stock Value |
Available Funds | $3,125.00 | ELVIM |
Excess Liquidity | $3,125.00 | ELV - MM |
1Equity with Loan Value(ELV) = Total cash value + stock value + bond value + fund value + European & Asian options value |
Day 3 Later: End of Day SMA Calculation |
||
Reg T Margin | $8,750.00 | Reg T Margin = 50% * Stock Value |
SMA2 | $0.00 | SMA = The great value of: ($0.00 +/– $0.00 + $0.00) or ($7,500.00 – $8,750.00) SMA >= 0 SMA Requirement Satisfied, NO liquidation |
2SMA = The great value of: (Prior Day SMA +/- Change in Day's Cash +/- Today's Trades Reg T Initial Margin) or (Equity with Loan Value - Reg T Margin) |
Day 4: Customer SELLS 500 shares of XYZ at $45.00/share. |
||
Cash | $12,500.00 | |
Securities Market Value | $0.00 | Positions no longer held. |
Equity with Loan Value (ELV1) | $12,500.00 | |
Initial Margin | $0.00 | IM = 25% * Stock Value |
Maintenance Margin (MM) | $0.00 | MM = 25% * Stock Value |
Available Funds | $12,500.00 | ELV-IM |
Excess Liquidity | $12,500.00 | ELV - MM |
1Equity with Loan Value(ELV) = Total cash value + stock value + bond value + fund value + European & Asian options value |
Day 4: End of Day SMA Calculation |
||
Reg T Margin | $0.00 | Reg T Margin = 50% * Stock Value |
SMA2 | $12,500.00 | SMA = The great value of: ($0.00 +/– $0.00 + $11,250.00) or ($12,500.00 – $0.00) SMA >= 0 SMA Requirement Satisfied, NO liquidation |
2SMA = The great value of: (Prior Day SMA +/- Change in Day's Cash +/- Today's Trades Reg T Initial Margin) or (Equity with Loan Value - Reg T Margin) |
Day 5: Customer attempts to BUY 500 shares of ABC stock at $101.00/share. |
||
Cash | $12,500.00 | |
Securities Market Value | $0.00 | |
Equity with Loan Value (ELV1) | $12,500.00 | |
Initial Margin | $12,625.00 | IM = 25% * Stock Value |
Maintenance Margin (MM) | $12,625.00 | MM = 25% * Stock Value |
Available Funds | ($125.00) | ELV-IM Available Funds <=0 so the trade is Rejected. |
Excess Liquidity | ($125.00) | ELV - MM |
1Equity with Loan Value(ELV) = Total cash value + stock value + bond value + fund value + European & Asian options value |
Day 5 Later: Later on Day 5, the customer buys some stock. |
||
Cash | ($17,500.00) | |
Securities Market Value | $30,000.00 | |
Equity with Loan Value (ELV1) | $12,500.00 | |
Initial Margin | $7,500.00 | IM = 25% * Stock Value |
Maintenance Margin (MM) | $7,500.00 | MM = 25% * Stock Value |
Available Funds | $5,000.00 | ELVIM |
Excess Liquidity | $5,000.00 | ELV - MM |
1Equity with Loan Value(ELV) = Total cash value + stock value + bond value + fund value + European & Asian options value |
Day 5 Later: End of Day SMA Calculation |
||
Reg T Margin | $15,000.00 | Reg T Margin = 50% * Stock Value |
SMA2 | -$2,500.00 | SMA = The great value of: ($12,500 +/– $0.00 – $15,000.00) or ($12,500.00 – $15,000.00) SMA = ($2,500.00) which is < 0 Shares are Liquidated. |
2SMA = The great value of: (Prior Day SMA +/- Change in Day's Cash +/- Today's Trades Reg T Initial Margin) or (Equity with Loan Value - Reg T Margin) |
Day 5 Alternate: Consider an alternate Day 5 scenario in which the price of ABC stock drops. |
||
Cash | ($17,500.00) | |
Securities Market Value | $22,500.00 | |
Equity with Loan Value (ELV1) | $5,000.00 | |
Initial Margin | $5,625.00 | IM = 25% * Stock Value |
Maintenance Margin (MM) | $5,625.00 | MM = 25% * Stock Value |
Available Funds | ($625.00) | ELVIM |
Excess Liquidity | ($625.00) | ELV - MM Excess Liquidity < 0 so shares will be Liquidated. |
1Equity with Loan Value(ELV) = Total cash value + stock value + bond value + fund value + European & Asian options value |
Your Single Account has two account segments: one for securities and one for commodities (futures, single-stock futures and futures options). Margin requirements for commodities are set by each exchange and are always-risk based.
You can monitor most of the values used in the calculations described on this page in real time in the Account Window in Trader Workstation (TWS).
When you open a new position, we apply the following:
You are required to have a minimum of $2,000 or USD equivalent of commodities Net Liquidation Value to open a new position.
In a commodities account, you can satisfy this requirement with assets in currencies other than your base currency. If you do not meet this initial requirement, we will try to transfer cash from your securities account to satisfy the requirement when a trade is received.
If you do not have the minimum of $2,000 or USD equivalent of commodities Net Liquidation Value, or if you cannot satisfy the initital minimum equity requirement with assets in another currency, or if there is not enough cash in your securities account to satisfy the requirement, you will be unable to open the new position in your commodities account.
Upon submission of an order, a check is made against real-time available funds. If available funds, after the order request, would be greater than or equal to zero, the order is accepted; if available funds would be negative, the order is rejected.
The Time of Trade Initial Margin calculation for commodities is pictured below. The initial margin used in this calculation is set by the individual exchanges and listed on the Futures & FOPs Margin page.
Available Funds > 0
(Available Funds = Commodities Net Liquidation Value2 - Initial Margin Requirement3)
Throughout the trading day, we apply the following calculations to your securities account in real-time:
Our Real-Time Maintenance Margin calculation for commodities is shown below. The maintenance margin used in this calculation is set by the individual exchanges and listed on the Futures & FOPs Margin page. In the calculations below, "Excess Liquidity" refers to excess maintenance margin equity.
Excess Liquidity >= 0
(Excess Liquidity1 = Commodities Net Liquidation Value2 - Maintenance Margin Requirement3)
In addition, any account that has a negative Net Liquidation Value on a trade date or settlement date basis will be liquidated. It should be noted whereas futures settle each night, futures options are generally treated on a premium style basis, which means that they will not settle until the options are sold or expire. Therefore, for certain combination futures and futures options positions, there may be a mismatch in cash flows which could cause cash to go negative even though Net Liquidation Value is positive. In addition, there are a handful of options where local custom is to cash settle the option each night at the clearing house (e.g. HKFE HSI Options), but we may choose to margin these options on a premium style basis.
We will automatically liquidate when an account falls below the minimum margin requirement. However, to allow a customer the ability to manage risk prior to a liquidation, we calculate Soft Edge Margin (SEM) during the trading day. From the start of the trading day until 15 minutes before the close of the trading day, Soft Edge Margin allows for an account's margin deficit to be within a specified percentage of the account's Net Liquidation Value, currently 10%. When SEM ends, the full maintenance requirement must be met. When SEM is not applicable, the account must meet 100% of maintenance margin.
Soft Edge Margin start time of a contract is the latest of:
Soft Edge Margin end time of a contract is the earliest of:
If an account falls below the minimum maintenance margin, it will not be automatically liquidated until it falls below the Soft Edge Margin. This allows a customer's account to be in margin violation for a short period of time. Soft Edge Margin is not displayed in Trader Workstation. Once the account falls below SEM however, it is then required to meet full maintenance margin.
Please note that we reserve the right to restrict soft edge access on any given day, and may eliminate SEM completely in times of heightened volatility.
Real-time liquidation occurs when your commodity account does not meet the maintenance margin requirement. Before we liquidate, however, we do the following:
We liquidate customer positions on physical delivery contracts shortly before expiration. Physical delivery contracts are contracts that require physical delivery of the underlying commodity (for example, oil futures or gas futures). Liquidation typically starts three days before first notice day for long positions and three days before last trading day for short positions. Certain contracts have different schedules.
Some futures products are margined at 50% of the normal margin requirements during normal liquid trading hours for each product type. Each day at 15 minutes before the close of the normal trading session for a product, margin requirements will revert back to the 100% requirement until the opening of normal trading hours the next day. Margin requirements will always be applied at 100% for all spread transactions.
For a complete list of products that we margin at 50%, see the Futures - Intraday Margin Requirements on the Futures & FOPs page.
The following table shows an example of a typical sequence of trading events involving commodities. Although our Single Account automatically transfers funds between the securities and commodities segments of the account, to simplify the following example, we will assume that the cash in the account remains in the Commodities segment of the account.
Action | Cash | Margin Requirement | Net Liquidation Value |
1. Deposit $5,000.00 | + $5,000.00 | $5,000.00 | |
2 Buy 1 ES Futures Contract | $5,000.00 | $2,813.00 | $5,000.00 |
$850.00 * 50 (multiplier), ES Initial Margin Requirement = $2,813.00 | |||
3. End of Day: ESprice goes to $860.00 | $5,500.00 | $2813.00 | $5,500.00 |
Gained $10.00 * 50 = $500.00 | |||
Net Liquidation Value > $2,813.00 | No Liquidation. | ||
4. Next Day: ES price drops to $810.00 | $3,000.00 | $4,500.00 | $3,000.00 |
Lost $50.00 * 50 = $2,500.00 | |||
Net Liquidation Value < $4,500.00 Overnight Maintenance Margin | Liquidation occurs. | ||