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Duration: 5:17

Instructor:

Contributor: Interactive Brokers

Level: Intermediate

Learn about top tips for IB Risk Navigator margin sensitivity. Investors may want to know the impact on their margin value in the event they want to change positions from day-to-day. To do this, TWS users can open IB Risk Navigator and look at the Margin Sensitivity tab to judge the impact on Initial and Maintenance Margin values from increasing or reducing part of their holdings.

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Study Notes:

Investors may want to know the impact on their margin value in the event they want to change positions from day-to-day. To do this, TWS users can open IB Risk Navigator and look at the Margin Sensitivity tab to judge the impact on Initial and Maintenance Margin values from increasing or reducing part of their holdings.

In part, margin requirements are influenced by the riskiness of the security, portfolio concentration and composition. What investors are charged in margin terms is also influenced by the account type they hold. In this example, we are looking at a Portfolio Margin account. To contrast margin requirements for your portfolio under different account structures, use the Settings dropdown menu and select Reference Margin Type to select from the list of available alternatives.

Let’s display using a what-if portfolio in IB Risk Navigator, for example, a 10-security portfolio containing random holdings of shares in each stock. Let’s focus on changing margin requirements ONLY for shares in Apple (Ticker: AAPL) in which the portfolio contains exactly 100 shares. At the top of the page you can see the Net Liquidation Value, which in this example is also the same as the Gross Value of all positions.

Also displayed in the Trader dashboard are values for Maintenance and Initial Margin values required to support the portfolio. IB checks the value for Initial Margin at the time of trade entry and will only execute transactions if there is sufficient available equity to meet this value. Once executed, margin immediately falls back to the Maintenance Margin value. Note we are currently looking at the Equity tab. If we want to see the required change in Maintenance Margin – click on the Margin Sensitivity tab to the right. This tab still shows the current positions, but the columns to the right allow users to see what would happen for increases and decreases in the number of shares held.

Note the radio buttons next to the Position increment label. Users can vary the change in position by checking one of these buttons. Using the Order defaults button only applies changes on the basis of order presets that you may have programmed by asset or to individual stocks. Clicking the Overall button enables users to enter a number of shares in the input field to the right, which will be universally applied across all positions. Checking the Position Size button will compute margin changes by number of shares entered on the Equity tab when the page is refreshed.

We have to tab between the Equity and Margin Sensitivity tabs, and you will notice me frequently using the Refresh button whenever I make a change. Using the IB Risk Navigator, note that it is possible to use the include/exclude function to determine which positions are counted in the calculation.

To remove one position, simply deselect. With all positions included on the Equity tab, making sure the page has been refreshed, we can see the net liquidation value and corresponding margin values. Now, move to the Margin Sensitivity tab, hover over the ticker symbols, click-right and select ‘expand all table’.

Using the Position size radio button, you can now see initial and maintenance requirements needed to support a 100 share increase with respect to the current holding for ticker AAPL and for the other positions held in the portfolio as those holdings are changed by the existing position amount. Let’s see what happens to those requirements in the event that we reduce the positions to just five by deselecting some tickers from the Equity tab. You can quickly see the overall margin requirements by refreshing the page. But notice what happens when we look at the Margin Sensitivity tab with only five positions.

Again, refresh the page but see what impact it has on the required margin for ticker AAPL if we add the same 100 shares under this scenario. Finally, let’s isolate ticker AAPL by deselecting everything BUT AAPL on the Equity tab and again checking the margin numbers. By refreshing the Equity tab you can see the margin requirements for holding only 100 shares in AAPL. On the Margin Sensitivity tab you can see how the single concentration has increased the margin requirement dramatically.

Disclosure: Interactive Brokers

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Supporting documentation for any claims and statistical information will be provided upon request.

Any stock, options or futures symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

Disclosure: Margin Trading

Trading on margin is only for sophisticated investors with high risk tolerance. You may lose more than your initial investment.

For additional information regarding margin loan rates, see ibkr.com/interest

Disclosure: Options Trading

Options involve risk and are not suitable for all investors. For more information read the “Characteristics and Risks of Standardized Options” also known as the options disclosure document (ODD). To receive a copy of the ODD call 312-542-6901 or click here. Multiple leg strategies, including spreads, will incur multiple commission charges.

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