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Should C2 Offer 4x Margin for LargeCap Stocks?


#1

At present I believe C2 offers 2x leverage/margin for stocks

As a stock trader I would prefer 4x leverage on larger-cap (eg., S&P500 listed) stocks, in line with many online brokers. This would allow launch of more stock-picking strategies which (in my case) are based on liquid S&P500 stocks, and broaden the appeal of C2.

Thoughts?


#2

The fact that C2 does not allow 4X leverage on large cap stocks within the C2 Model Account does not prevent you or any of your subscribers from receiving 4X leverage at their brokers, if their brokers offer such leverage, when conducting actual trading.

Having C2 grant this additional margin capability would not offer any additional functionality for customers, but it would allow some strategies to increase their percentage-based return statistics through the use of leverage.

There’s nothing inherently wrong with that, but it would make it marginally harder for subscribers investigating various trading strategies to make apples-to-apples comparisons among strategies. (This has always been a challenge C2 faces, because it is a multi-asset-class platform, and each asset class offers different leverage rates; and even within single asset classes, various brokers support different “day-trading” margins, etc.)

Our general principle is to use “least-common-denominator” margin rates. This keeps things simple, allows basic inter-asset-class comparison, and does not make assumptions about broker-specific offerings.

Matthew


#4

Hi Matthew,

Is there any way you can accommodate higher margin eg., 4x (or even 3x) for purely long/short strategies. I know this may be a big ask, but if a portfolio is always near fully hedged with equal long and short dollar positions, then surely using some margin is the norm.

Example: If I am long my 5 stocks total value $50k, and I am short SPY or IWM $50k (t hedge the five long stocks), then in my brokerage account I am trading 2x on both. So, with a $50k cash balance, I am buying 100k worth of stock and 100k short SPY. Total margin is 4x.

Because of the pure 1:1 dollar-neutral hedge, brokers also offer portfolio-margin, as they absolutely see the lower risk point of a true hedged position.

To launch these [very successful] strategies on C2, it would be essential to be able to provide the 4x margin performance level, which mirrors my own trading.

Is there any possible solution to this you can suggest, before I launch (all stock traded in the strategy would be S&P500 constituents)?

One suggestion - just thinking out loud - might be to keep stocks at 2x as they are, but perhaps offer 4x on the major (non leveraged, ie., not ultra) ETF’s such as SPY, SH, IWM, RWM.

Also quick Q: What are the margin requirements by C2 for trading UPRO, or SSO (leveraged ETF’s based on S&P500)?


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