RISK OF MARGIN VIOLATION AT VARIOUS RISK LEVELS

 

When you trade using a high risk value, you do risk the chance that periodically, AlgoLab will accumulate enough open positions in your account, that your "P margin" field (on your dashboard) starts to come within 5% of your account value. When this happens, AlgoLab will automatically pause placing any new trades in your account. You will get an email from AlgoLab notifying you that your account has been paused. When your trades start to close by hitting their trailing stops, your "P margin" value will start to decrease, and AlgoLab will unpause your account and start to place new orders again.

 

There are risks by letting this happen too often. If you do exceed your minimum margin requirement, then IB will start to liquidate your account by closing your positions and canceling new orders. They will also issue a warning to you.

 

So how do you know when you are trading at a risk level where there is a risk of margin violation? As it turns out, the risk of exceeding the minimum margin level is the same for any amount of capital. 

 

Following is a table comparing various risk levels using any capital amount and the resulting approximate % of days that the account was at or over the minimum margin requirement level set by Interactive Brokers. Note that this table is generated from a 9 year period that contained many very volatile periods where there was a chance that multiple AlgoLab positions would have been opened all at the same time which is what generates a margin violation issue. In many cases, prior to reaching full violation, AlgoLab's automatic trade pause will circumvent the violation.

 

risk = % of time in violation

0.2  =  0.00%

0.24  =  0.08%

0.28  =  0.25%

0.32  =  0.70%

0.36  =  1.60%

0.4  =  2.90%

0.45  =  4.80%

0.5  =  6.80%

0.6  =  12.60%

0.75  =  21.60%

1  =  36.00%

 
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