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Dave,
I guess I will need to add it :-)
Best regards,
Tomasz Janeczko
amibroker.com
----- Original Message -----
From: "Dave Merrill" <dmerrill@xxxxxxx>
To: <amibroker@xxxxxxxxxxxxxxx>
Sent: Saturday, January 17, 2004 9:29 PM
Subject: RE: [amibroker] Re: Margin and PositionSize in portfolio backtester
> Thanks for clarifying this Tomasz.
>
> Is there any way for AFL to find out the margin rate in effect? I don't see
> it listed in the things Status can tell us. Is there another way?
>
> Thanks,
>
> Dave
>
> > Since it may not be obvious I would like to note how position sizing is
> > handled when margin account is used.
> >
> > Margin account allows you to invest more money than you have and
> > "double your profit" by borrowing from the broker, or by "buying on
> > margin". Of course, the possibility of also doubling losses is
> > usually not considered, because it is not an acceptable alternative,
> > even though it is real. The Federal Reserve System through its
> > policy setting Open Market Committee, determines how much brokers and
> > investment banks can lend their client against their investments.
> > This percentage is called the margin rate. At present, the rate is
> > set at 50%. This means that for every one dollar in actual value
> > an investor has in his account, he can borrow another dollar. If an
> > investor has 100 shares of fully paid IBM shares in his account,
> > he can in effect purchase another 100 shares just by using margin.
> >
> > So with 50% margin account your buying power is 200% of your cash.
> >
> > Also the meaning of 'portfolio equity' changes a little:
> > Portfolio equity when margin account is used is considered
> > as sum of cash plus sum of already open positions MINUS current
> > margin loan.
> >
> > PortfolioEquity = CASH + VALUE_OF_CUR_OPENPOS - MARGIN_LOAN;
> >
> > (when no margin is used then margin loan is zero and things work
> > like it was described before).
> >
> > This way of defining portfolio equity has the advantage of:
> > - being consistent with 'old' definition
> > - describe the value of your assets alone (without money borrowed)
> >
> > With that definition however to use ALL available buying power
> > (200% of your cash)
> > you would need to use 200% of portfolio equity:
> >
> > PositionSize = -200; // 200% of equity this provides maximum
> > trade size with margin account
> >
> > If you open multiple positions at the same time, to fully use
> > margin account you would need to change your position size to:
> >
> > PositionSize = -200/posqty;
> > // 200% of equity because of 50% margin -> 100% represents YOUR
> > funds another 100% represents margin loan
> >
> > Hope this helps.
> >
> > Best regards,
> > Tomasz Janeczko
> > amibroker.com
>
>
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