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I am testing out a systematic, cash-neutral, long/short strategy in a paper trading account with Interactive Brokers. Each day, an algorithm tells me what my target portfolio should look like in terms of relative position sizes. So, I multiply these target percent positions by 97% of my account value to yield target dollars amounts. I then divide these dollar amounts by the last close in order to get the target number of shares, take a difference between my currently held positions and these target positions (in shares), and send the corresponding orders to the broker. The problem is that I constantly run out of Excess Liquidity when I try to place these orders (i.e. I exceed my maintenance margin). This happens even though my account value generally does not move by more than 0.5% in a day (it is a diversified, cash neutral portfolio). I trade a lot of low price stocks (under 5 and 2.5 dollars so these might have increased margin requirements) but I feel there must be a bigger reason why this keeps on happening. Should I try keeping more cash in reserve, i.e. target positions to 90% of account value instead of 95-97%? Or am I completely off base and the problem is elsewhere? Any advice is appreciated. Thanks!

UPDATE: The mystery has been solved. For most of the names I trade, my broker (IB) happens to have a special margin requirement of 100%, which effectively reduces the account's excess liquidity to 0.

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  • $\begingroup$ IB is very quick to raise margin requirements in times like these, and without advance warning, it is all automatic within their system. I don't know a good solution really, I am trying to monitor the margin situation more carefully, and more frequently. Reductions in leverage are very costly from an expected return point of view, so try to avoid them. But these are unusual times. $\endgroup$
    – nbbo2
    Mar 30, 2020 at 18:54
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    $\begingroup$ You should look through your account statements, specifically the margin report, and understand how much margin is held for each position. Generally, low priced stocks require higher amounts of margin. $\endgroup$
    – amdopt
    Mar 30, 2020 at 19:25
  • $\begingroup$ The What If Portfolio feature in IB is also useful, it has a Tab (on the right) for Margin requirements. www1.interactivebrokers.com/en/software/tws/usersguidebook/… $\endgroup$
    – nbbo2
    Mar 30, 2020 at 19:44
  • $\begingroup$ Thank you for your suggestions guys. I think I need to improve my overall understanding of how the margin accounts work though. I updated the original post with the actual account values, maybe these will help to clear things up. $\endgroup$
    – nijshar28
    Mar 31, 2020 at 3:17
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    $\begingroup$ The mystery has been solved. For most of the names I trade, my broker (IB) happens to have a special margin requirement of 100%, which effectively reduces the account's excess liquidity to 0. Thank you everyone. $\endgroup$
    – nijshar28
    Mar 31, 2020 at 6:00

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