Author Topic: Margin call  (Read 272 times)

Matthew Macklin

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Margin call
« on: March 07, 2019, 11:16:47 am »
Hello!
First thanks for creating this fantastic tool! I am very excited to start live trading. I just have a question that may or not be stupid, if so please forgive me.

I understand that the backtest and live PTL trader do not support stop loss, only time-limit stop loss. I understand the rationale for this, but how does the backtester simulate a situation in the case of being margin-called? For example if you are required 50% margin, but one leg of your pair moves against you by 50%, presumably the exchange will margin call you? And if you do not wish or are not able to add more margin, you must close the position...

I know that due to regulations, IB only allows 50% margin for most markets now, but I guess this must be even more pronounced in a market where it allows only 15% margin? For example if I had $10k at the recommended 5 slots, each at 15% margin, I could quickly find myself in debt if I was unlucky.


Is this simulated in the backtest, and/or is there a mechanism to deal with this in live trading?

Or am I just missing something obvious? Apologies if so.

Thanks!
« Last Edit: March 07, 2019, 11:19:05 am by Matthew Macklin »

admin

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Re: Margin call
« Reply #1 on: March 12, 2019, 09:59:23 am »
Hi Matthew,

you can get more information about risk control mechanisms in pairs trading here: https://www.pairtradinglab.com/faq#pairs-trading-risk-control

The rationale behind not supporting the conventional stop loss is explained there as well...

About your backtester question - the backtester is rather simple and does not really simulate margin calls - the reason is that you would require tick-by-tick backtester in order to simulate margin calls properly. With EOD mode you simply can't.

The general idea is to diversify - your portfolio of strategies should grow with your leverage. If you trade CFDs (10% leverage) and you want to use your capital as much as possible, you should trade at least 50(!) pairs at the same time.

Kind regards,
Karel

Matthew Macklin

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Re: Margin call
« Reply #2 on: March 17, 2019, 05:18:27 pm »
Thank you for the reply Karel! Clarification much appreciated