Hi elite traders, I am new to using margin for trading stocks. I use Interactive Brokers. IBKR will give a warning when the margin cushion is 5% above the margin requirement. I am not sure if this cushion is optimum. Is it too high or too low? For optimum risk management rules, how do you decide what is a comfortable margin cushion from a risk perspective? The more quantitative the rule is, the better.
http://www.investopedia.com/articles/trading/04/091504.asp Google Kelly, for a quantitative start. Depends, everything always depends. Would have to know more about your strategy, But Kelly or Kelly Risk Management are good places to start googling, and you know how that goes, if you really want to know you'll find it. Or you can give more detailed info if you have any and many will dial it in for you, but IMHO better to google and then ask more detailed question. Good Luck
If you desire longevity, a good rule of thumb is to use only ½ your capital as margin (assuming portfolio margin treatment). Even better is to use only ⅓. The day always comes when you wish you had more capital available (especially if you trade options).
With you here, and I gasped at OP's 5% cushion. I suspect it is with standard margin though, where one gets only 50% overnight, which must end up significantly different - but at 5% cushion on a portfolio of a few single stocks, one is still a single bad news away from liquidation.
If you are not doing a simulation account, but actual real cash, and don't want to risk loosing it, why not set a very high margin cushion (50%, 75%, etc.), until you get very comfortable with what you are doing. THen you can adjust it down if you so desire.