Can someone explain to me how IBKR uses margin?

[Sapperstien 74]

Canadian here so ew only get 3.33x leverage with IB. Which is fine. But every time I trade it always uses from my own margin acct and not using their leverage. Id like to use their leverage before using the entirety out of my acct. How do I actually use the margin when I want to only take 1% acct risk per trade? Thx. 

[Brendon 146]

Yo, not entirely sure what you mean by your question, but you can just call IB and ask, they have great, very fast customer service. Leverage just increases your potential BP (and risk). 

Edited October 29, 2019 by Brendon

[Sapperstien 74]

6 hours ago, Brendon said:

Yo, not entirely sure what you mean by your question, but you can just call IB and ask, they have great fast customer service. Leverage is just increases you potential BP (and risk). 

What I'm asking is that if I only want to use 1% of my acct size per trade, then  how do I get the 3.3x leverage without it just using 3.33% of my trading account? 

[Lee W 82]

You can’t choose to use the borrowing power as priority over your equity. The trade will always use your equity first. If the trade exceeds your equity, it will use margin. 
 

Equity: $30,000

Total Buying Power with margin: $90,000

If your trade is for 1,000 shares of XYZ at $25/share, it will use $25,000 of your equity and total buying power. 

[Sapperstien 74]

4 minutes ago, Lee W said:

You can’t choose to use the borrowing power as priority over your equity. The trade will always use your equity first. If the trade exceeds your equity, it will use margin. 
 

Equity: $30,000

Total Buying Power with margin: $90,000

If your trade is for 1,000 shares of XYZ at $25/share, it will use $25,000 of your equity and total buying power. 

Lol then whats the point of margin. Who would take on a trade 3x the size of their account? Thats just... I mean were to work with 1% per trade so I dont see the need. 

[Lee W 82]

5 minutes ago, Sapperstien said:

Lol then whats the point of margin. Who would take on a trade 3x the size of their account? Thats just... I mean were to work with 1% per trade so I dont see the need. 

When referring to the 1%, that’s RISK, not the full amount of the trade.   You can take a trade using margin for say $75,000 (500 shares of XYZ at $150/share) and only risk $300, for example. The $300 is 1% of your $30,000.  This means you’re not willing to lose more than $300 in that trade. 

Edited October 29, 2019 by Lee W

[Brendon 146]

6 minutes ago, Sapperstien said:

Lol then whats the point of margin. Who would take on a trade 3x the size of their account? Thats just... I mean were to work with 1% per trade so I dont see the need. 

That 1% is how far away your stop is from your entry in a trade (stop is where the trade no longer makes technical sense). So if that's 10 cents away from your entry, you better make sure your share size times 10 cents equals 1% of your acct.  Hopefully that helps, I know it can be confusing with these terms at first. 

[Sapperstien 74]

9 minutes ago, Brendon said:

That 1% is how far away your stop is from your entry in a trade (stop is where the trade no longer makes technical sense). So if that's 10 cents away from your entry, you better make sure your share size times 10 cents equals 1% of your acct.  Hopefully that helps, I know it can be confusing with these terms at first. 

Right, but thats also the actual $ amt that youre putting at risk in every trade. And you cant do more because you dont know if it'll be a successful trade.  So im still confused as to when anyone would use the leverage. People would have to take on positions 3x their actual account size? I dont think you'd find anyone like that. 

Edited October 29, 2019 by Sapperstien

[Brendon 146]

Margin allows you to have a larger position size, say for expensive stocks like +$200 with setups that the stop is only a couple cents away from your entry, you will have to take a large position and you will need the leverage, but your risk (stop) will still be 1% regardless. Your only risk is your stop, not the cash you use to enter the trade.  

[Sapperstien 74]

6 minutes ago, Brendon said:

Margin allows you to have a larger position size, say for expensive stocks like +$200 with setups that the stop is only a couple cents away from your entry, you will have to take a large position and you will need the leverage, but your risk (stop) will still be 1% regardless. Your only risk is your stop, not the cash you use to enter the trade.  

ahhhhhh. The lightbulb went on. I totally get it now. Thanks. 

[Brendon 146]

2 minutes ago, Sapperstien said:

ahhhhhh. The lightbulb went on. I totally get it now. Thanks. 

You bet, the rules of trading are a 'click' type learning curve, you either get it 100% or are completely lost, but we all get there. 

[Sapperstien 74]

On 10/29/2019 at 1:18 PM, Brendon said:

You bet, the rules of trading are a 'click' type learning curve, you either get it 100% or are completely lost, but we all get there. 

Haha. Apparently. Thanks again. 

[Gail Scott 3]

I know this is an old post but I am a newbie and still figuring it all out.  Are margin accounts also used to reach the $25,000 min balance for day trading?  I can open an account with $5,000 and have 20,000 margin to reach to min. giving me the opportunity to day trade without opening with $25,000?

[Abiel 474]

40 minutes ago, Gail Scott said:

I know this is an old post but I am a newbie and still figuring it all out.  Are margin accounts also used to reach the $25,000 min balance for day trading?  I can open an account with $5,000 and have 20,000 margin to reach to min. giving me the opportunity to day trade without opening with $25,000?

No. To avoid PDT the CASH in your account needs to be $25K.

BUYING POWER is your cash x margin, like $25K x 4 = $100K.

[Gail Scott 3]

I know this is an old post but I am a newbie and still figuring it all out.  Are margin accounts also used to reach the $25,000 min balance for day trading?  I can open an account with $5,000 and have 20,000 margin to reach to min. giving me the opportunity to day trade without opening with $25,000?

 

Thank you for clearing that up, I was getting confused.