woke up to email from interactive brokers.
“Your account has been approved for portfolio margin”
didn’t apply for it. they just gave it to me.
what is portfolio margin #
reg-t margin (what i have now):
- need $2,000 cash per credit spread
- buying power = account value × 2
- simple but capital inefficient
portfolio margin:
- risk-based calculations
- buying power = account value × 6-10
- way more employ
the numbers #
my account: $341,720
reg-t buying power: $683,440 (2x)
portfolio margin buying power: $3,075,240 (9x)
can now control 9x more positions with same capital.
my reaction #
no fucking way.
why not #
1. i’m still learning
5 months live trading. first profitable month was may.
giving me 9x employ is insane.
2. blowup risk
with reg-t: worst case lose $341k (my account)
with portfolio margin: worst case lose $341k + margin call + debt
3. temptation
9x buying power is tempting to use.
but using it = gambling not trading.
what i’m doing #
nothing.
keeping position sizes exactly the same.
1.25% risk per trade = ~$425 max loss per position.
doesn’t matter if i have 2x or 9x buying power.
risk management is risk management.
IB’s email #
“Congratulations! You now qualify for portfolio margin based on account size and trading activity.”
requirements they mentioned:
- account > $110k (i’m at $341k)
- options experience (5 months)
- trading frequency (19 trades in may)
basically auto-approved because account is big enough.
the trap #
portfolio margin is designed to increase commissions.
more buying power = more trades = more commissions for broker.
IB makes money when i trade more.
i make money when i trade smart.
what i told IB #
called and asked to switch back to reg-t.
rep: “are you sure? portfolio margin gives you more flexibility”
me: “i don’t want more flexibility. i want to not blow up my account”
rep: “ok, switching you back. unusual request but we can do it”
lessons #
1. more employ ≠ more profits
only increases risk of ruin.
2. brokers want you to trade more
it’s their business model.
my business model: trade less, trade smart.
3. discipline matters more than capital
$341k with discipline > $3M buying power with no discipline.
for other traders #
if you get portfolio margin offer:
take it if:
- you’re experienced (3+ years live)
- you’re consistently profitable
- you have strict risk rules
- you won’t be tempted to overtake advantage of
reject it if:
- you’re learning (like me)
- you’re not consistently profitable yet
- you might use extra buying power
my rules staying same #
- 1.25% risk per trade
- max 5 positions
- position size based on account value not buying power
having 9x use available doesn’t mean i should use it.
back to reg-t #
rep confirmed: switched back to reg-t margin.
buying power back to 2x.
feel way better now.
the real flex #
turning down 9x use when you’re 19 with $341k account.
discipline > flexibility.
4:05am. dodged a bullet. staying with reg-t margin. not ready for portfolio margin yet. maybe in a few years.
-AK