What is a Margin Cushion?
A margin cushion refers to the buffer between your account equity and the margin requirement. It acts as a safety net to prevent margin calls and forced liquidations during market volatility.
How Margin Cushion Works in IBKR
IBKR utilizes margin cushions to determine the amount of leverage available to traders. By maintaining a healthy margin cushion, you can sustain your positions even when the market experiences significant fluctuations.
Calculating Your Margin Cushion
To calculate your margin cushion, subtract the current margin requirement from your account equity. A higher margin cushion indicates greater resilience against adverse market movements.
Strategies to Maintain a Healthy Margin Cushion
Implementing disciplined risk management practices, such as setting stop-loss orders and diversifying your portfolio, can help maintain a robust margin cushion in your IBKR account.
Risks Associated with Margin Trading
While margin trading can amplify profits, it also increases the risk of significant losses. It's essential to understand these risks and manage your margin cushion accordingly to protect your capital.