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I do not if it is me who is wrong or Interactive Brokers' employees who do not provide a clear information by phone about How to Determine the Last Stock Price Before They Begin to Liquidate the Position

They say that for a Margin account to trade stocks the

$\text{Initial Margin} = 25 \% $ (This matches with the Buying power of IB that is 4 times the Equity)

$\text{Minimum Maintenance Margin} = 25 \%$ (This part should be different because the MInimum Maintenance Margin is less than the Initial Magin. I will explain this with an example )

According to them, the formula is:

$\dfrac{(\text{Cash borrowed}) / (\text{number of shares})}{1 - \text{margin rate}} = \text{last price before liquidation}$

Example of the apparent contradiction

Suppose that you are a day trader who are interested in holding your position during the day, from 9:30 AM to maximum 11:30 AM. In this case, and if you buy 2000 shares of MU at $\$50$ per share, you will be using all of your Buying Power, and you will be receiving margin calls for any drop on MU price because

$$ \text{last price before liquidation} = \dfrac{(\$ 100000) (1 - 0.25) / (2000 )}{1 - 0.25} = \$50 $$

by the way

$\text{Cash Borrowed} = (\text{stock value})(1-\text{Initial Margin}) $ $\text{Stock Value} = 2000 \text{shares} * (50 \text{dollars per share}) = \$ 100000$ $\text{Margin Rate} = \text{Minimum Maintenance Margin}$

I would really appreciate any help with this problem. Thanks in advance.

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  • $\begingroup$ Possible duplicate of quant.stackexchange.com/questions/39256/… $\endgroup$
    – nbbo2
    Commented Aug 2, 2018 at 22:49
  • $\begingroup$ Thanks @noob2 for the hint, but the question is different. $\endgroup$
    – Ivan
    Commented Aug 3, 2018 at 2:14

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