Margin Calls?

Does C2 do something equivalent to a margin call and automatically sell open positions when a system’s equity drops below a certain percentage? Twice this week I’ve had trades closed without any action on my part or any prior notification. [LINKSYSTEM_43019060]

Yes, we issue margin calls. Specifically: if you over-margin your account, you will receive an email warning you to take corrective action. Then, 60 minutes later, if the margin situation isn’t fixed, we will automatically begin closing positions until margin requirements are satisfied.

That 60-minute window is reduced to 10 minutes if you have any AutoTraders following your system in their brokerage account.

You can know a trade is a margin call by “unfolding” the details line of the trade summary (this is the little arrow on the upper right of the trading record).

What’s the “margin maintenance” requirement? I’m guessing it’s a bit tighter than the 30% I’m used to with my personal brokers.

Does the maintenance requirement apply to each position, individually, or is it account wide?

The reason why I’m asking is that I’ve received no e-mails at all on anything (including trades I’ve placed myself), in the past week, so it was quite a surprise to see the closed trades.

Maintenance margin is the required amount you must have in your account to keep futures positions open. Your broker should be able to tell you what these values are for each individual future, or the info is available at the exchange websites (for non-day trading margins).

Yes, I’m familiar with the margin-maintenance requirements my personal brokers specify.

I was more interested in what the C2 margin-maintenance requirements are.

I would imagine there would be an effort to keep things pretty tight, since some subscribers may have personal brokers with higher margin requirements than others. Brokers may, also, specify higher margin maintenance requirements for specific stocks.

I’d just like to know what the margin-maintenance requirement for C2 is so I don’t get caught off-guard again.

I ran a quick calculation, and the current holdings in Southern Oscillation are valued at $156,792.88. The system’s current equity is shown as $86,800.

At 50% total account margin maintenance, I should be able to hold $173,600 worth of positions ($86,800 * 2), and yet that was reduced to $156,792.88 through the sale of four positions, each having values of less than $5,000.

If I must maintain at least 50% equity, I could see one or two of the positions being sold, but all four?

I’m confused.

C2 requires 50% margin for all stocks over $5.

You can see the margin requirement per position by “unfolding” your open positions screen (click the arrow in the upper right of the open positions area).

We require 50% margin, but the way we make this calculation fit into the terminology here on the site is a bit unusual. Let’s imagine you buy 10 shares of stock at $20 per share. What you will see is that your cash balance is reduced by $100 (i.e. you only have to put up 50% of the cash, the rest is borrowed on margin). Then any incremental profit or loss associated with holding the position is called “equity” and is counted against your “cash/buy power.” When you get to negative cash/buy power, you have a margin call and must close positions.

We close the smallest positions first, and try only to close the number of shares/units required to cover your margin shortfall.

More details (again assuming at 50% margin maintenance requirement):

When I opened trades in Southern Oscillation this week, I was sitting on approximately $101,500 in cash. Based on the opening quotes for the 40 trades I opened, they "cost" me $192,500 to open. This indicates I "borrowed" approximately $91,000.

If my obligation (under the 50% maintenance requirement) is to never have my account equity drop below the amount I borrowed, I should have received no margin calls on Oct 28th, since, based on what I can see from my equity curve, it never fell to less than $91,000 that day

I sold one position, myself, on October 29th. This reduced the amount I "borrowed" to less than $86,000.

Since my closing account equity, today, is greater than $86,000, I should not have received any margin calls today, either.

Unless I have my math wrong, or my assumption of the 50% margin maintenance requirement is wrong, I believe all the trades opened and closed (with the exception of the VMED sale on October 29th), should be rolled back. I should be left with 39 open positions, based on their opening prices late in the day on the 26th or on the morning of the 27th.

I’m not really interested in doing the calculations by hand, because this margin call stuff has been in place for six years and pretty much works. You can see that it’s accurate in a very back-of-the-envelope fashion: You have $2,000 of available buy power now, even after the margin call closed several of your positions. Which means that if any one of your positions loses an incremental $2,000, or if in total your multiple positions lose another $2,000, then you will have another margin call.

In other words, it’s not as if we are looking at your account at this moment and seeing $50,000+ of buying power, and saying to ourselves, “Why the heck did C2 close my positions?! You can see I have a ton of available buy power.” Even now, after the margin call, you only have $2,000. So whatever that margin call did, it served to bring your available buy power up to a mere $2,000. Meaning: it was less than $2,000 before the margin call. (In fact, it was less than zero.)

There shouldn’t be any mystery. You can see your buy power on the system details page, and on the order entry screen. When the number is zero, you can’t buy any more stuff. When the number is negative, a margin call will be issued. You can unfold the open positions to see how much buy power each of your open positions eats up. I suspect that if you run the numbers, the mystery will resolve itself. Again, this stuff has been in place for a long time, and it’s vanilla software: we’re dealing with simple stock positions, not option spreads or butterflies or condors.

I guess it’s unfortunate that it’s difficult to understand where the numbers are coming from.

If I go to TD Ameritrade and ask to borrow $91,000, and they say, “You have a 50% margin maintenance requirement on all stocks greater than $5 in value”, I feel pretty safe as long as my account equity is greater than $91,000 and all my stocks are worth more than $5.

Based on what has happened in my C2 account over the past week, I can only conclude the real margin maintenance requirement, here, must be something greater than 50%, or must be based on a more complex calculation than directly comparing amount borrowed to amount equity.


Since Matthew is presumably busy fixing the site, there might be a different way of figuring this out. On the old site, viewing your chart, if I select "Showing equity: Intraday" and then zoom in, it shows your equity as low as $83k or so, which is below the $91k minimum needed per your own calculations to maintain a 50% equity level.


But five positions were booted out on Oct 28th. Just dropping the two, littlest ones would have dropped my “amount borrowed” from $91,000 to less than $83,000.

The margin-maintenance calculation C2 uses is, clearly, not as simple as taking the total amount one would have to borrow to open all current trades, then comparing that to the minimum account equity for the day. To be accurate, it should be at least close to that (preferably based on mark-to-market at the close of trade). But, it’s not.

Here’s an idea, leave a % of margin available for adverse events. Let’s say for example, a plane crashes into a building and you are at 50% margin. The next day the market tanks, you are now going to get a ton of margin calls.

However, if you had been on only 30% margin for your portfolio, then you may not have had any margin calls.

I think I’m going to let Southern Oscillation’s trades wind down, then close the system out. It’s a heavy margin user, and may not be compatible with C2’s margin-maintenance requirements.

That’s fine. I don’t expect the margin-maintenance equations to be changed just for me. Such a change would bring into question the integrity of all other systems, which have had to live with the same rules for as long as they’ve been running here.

Rather, I’m going to keep Anjin-san going. It uses the same model as Southern Oscillation, but utilizes the Direxion 3x shares for leverage, rather than using margin. Anjin-san got caught by the late-October downdraft, just like Southern Oscillation did, but I have enough confidence in my model to know it will recover.