**Re: Interactive Brokers**
Hi, would anyone verify if this example correctly illustrates Soft Edge Margining (SEM)? The IB website states that SEM allows a Margin Deficit (MD) to be within 10% (read: <= 10%) of Net Liquidation Value (NLV). However, I can't find a definition of what "Margin Deficit" means anywhere.
Let's say you have $10,000 and want to use full 4:1 margin and buy $40,000 of a security. NLV = $10,000, MM = $10,000, Excess Liquidity (EL) is now $0 (EL = NLV - MM).
Some scenarios (assume all action occurs intraday):
The security drops 1%. This is a 4% loss in NLV, which is now $9,600. MM = $9,900. Liquidation will occur with an MD of $960.
Guess 1: MD = (NLV - original MM) = $9,600 - $10,000 = -$400, therefore MD = $400. No liquidation
Guess 2: MD = (NLV - new MM) = $9,600 - $9,900, therefore MD = $300. No liquidation.
The security drops 2.5%. This is a 10% loss in NLV, which is now $9,000. MM = $9750. Liquidation occurs with an MD of $900.
Guess 1: MD = (NLV - original MM) = $9,000 - $10,000, therefore MD = $1,000. Liquidation.
Guess 2: MD = (NLV - new MM) = $9,000 - $9,750, therefore MD = $750. No liquidation.
Is either of these scenarios right? If not, can anyone provide an example?
Thanks for the help. |