This week, we shipped a new chart on all backtests, optimizations, and new deployments of live trading algorithms -- the Portfolio Margin plot. This chart plots the margin used for significant holdings in your portfolio over time to help our community fully utilize capital and understand the impact of hedging on their strategies.

The adage "It’s not about timing the market, but about time in the market" tells us that simply having your capital deployed increases the probability of participating in significant moves. This adage is true for many quantitative investors as well. Smart beta, factor portfolios, and momentum strategies can all improve their returns by increasing capital utilization.

The new chart taps into the QuantConnect platform's superpower -- our high-fidelity portfolio margin modeling in backtesting and live trading. Our margin modeling system provides historical, realistic margin usage, mimicking the constraints of the real world. This system models multiple asset classes, even within the same portfolio. If the market dips, we model automatic brokerage margin calls liquidating some of the portfolio. This margin engine solves for derivative products, such as future option contracts, in strategies like straddles, condors, or spreads.

In the example below, we long and short two Option contracts to combine and reduce margin usage. The blue area represents a naked short position, and the gray area represents a group formed by a hedging long position. The naked short is purchased first, resulting in large swings in margin-used, but it is then hedged by the long to form a bear call spread, capping its margin used (gray).

Bear Call Spread Margin Requirements

We have deployed this new feature to all users on QuantConnect, and we hope it helps improve your understanding of the capital at work in your strategy. For more information, see our documentation on the Portfolio Margin chart. 

Happy Coding,

QuantConnect Team

Author

Jared Broad

February 2024