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Shorting stocks - special margin, lending rates, etc
Matt Clark
posted

I am working on some long/short portfolios and am finding that a number of my best short candidates end up having one or both of the following characteristics:

  • High lending rates according to IB's SLB tool (10% or more, some 20-40%)
  • Special margin requirements, sometimes up to 100% (making running a 100/100 or 125/75 long/short portfolio difficult)

So just tossing this out there to the community and to the Quantopian staff:

1) Is anybody doing anything creative in their algos to detect/adjust/model for high lending rates? I'd assume Quantopian plans on providing this data at some point (hard to see how a long/short equity algorithm could be consistent in live money trading without it) but for now just curious what the community is doing (if anything).
2) Quantopian team - as regards the contest and/or fund, do you care if securities selected by an algorithm have special margin requirements?
3) Does anybody know what effect (if any) using Portfolio Margin through IB has on special margin securities?

2 responses
Matt Clark

In case anyone was wondering - IB tech support has told me that when you do paper trading via IB, they do not process hard-to-borrow short fees. So if you are running a long/short strategy in paper trading your returns may be overstated, depending on what you are short.

Simon Thornington
  1. I just eyeball it, or run it through some assumptions in Research after backtest.
  2. Many of the assets with very high margin requirements are leveraged ETPs, which are disallowed from contest entries.
  3. Not off-hand, but I do know that there's a list of leveraged ETPs and other particularly volatile products which are excluded from Portfolio Margin calculations, and instead subject to regular Reg-T margin calculations. I can't seem to find that list right now though.
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