Reality Modeling

Buying Power

Introduction

Buying power models (also known as margin models) control how much buying power or leverage your portfolio has to make trades. When you place an order, LEAN uses the buying power model to determine whether the order should be submitted so you avoid placing orders that would be rejected by the brokerage. Buying power calculations can be very complex and depend on many factors, including the brokerage or even the time of day. For example, the PatternDayTradingMarginModel lets you have 4x leverage during regular trading hours and 2x leverage during pre-market and post-market trading hours.

What is Buying Power?

Buying power is the total amount of money you can spend in your brokerage account. It depends on the security type and account type. On one hand, Option and Future contracts are leveraged securities with specific buying power rules. On the other hand, the buying power of cash accounts is just the cash in the account while the buying power of margin accounts is leveraged by the brokerage credit.

What is Margin?

Margin is a credit loan from your brokerage you receive after you deposit collateral into your margin account. You need margin to place short-biased trades and you can use margin to increase your buying power, but you incur interest fees. Margin is the dollar value of the loan that the brokerage gives you. A margin requirement of 25% means that to purchase $10,000 worth of securities, you need at least $2,500 worth of collateral in your brokerage account to open the trade and you can borrow the rest on margin. Maintenance margin is the minimum equity (equity = total portfolio value - borrowed funds) you must have in your brokerage account to stay in your positions. If the value of your portfolio falls below the maintenance margin, you receive a margin call. If you receive a margin call, you either need to add more capital to your brokerage account or the brokerage will liquidate some of your holdings to reduce your exposure and their risk.

Some securities have special margin rules. Derivatives are leveraged assets with a floating margin requirement. In particular, long Options have zero maintenance margin requirement and their initial margin requirement is only the premium that you pay upfront.

What is Leverage?

Leverage is using borrowed money to increase your buying power. Leverage has an inverse relationship with your margin requirement and maintenance margin. If you have a margin requirement of 50%, you can use up to 1 / 50% = 2 leverage. Trading with leverage can be risky. It can boost your returns on profitable trades but can make your losing trades more expensive. If you have $10,000 in your brokerage margin account and purchase $20,000 worth of securities, you are trading with 2x leverage. If the value of the securities in your portfolio drops by 50% when you have a 2x leverage position, you lose all of your equity.

What Are Position Groups?

A position group is the combination of holdings. It has lower margin requirement and maintenance margin than the sum of each position of the group. If you have a margin requirement of $29,150 to purchase an in-the-money call Option contract, and a margin requirement of $101,499 to sell an out-of-the money call Option contract, the total margin requirement is $130,649. However, these positions compose a bull call spread with a margin requirement of $0.

Set Models

The brokerage model of your algorithm automatically sets the buying power model for each security, but you can override it. To manually set the buying power model of a security, call the SetBuyingPowerModel method on the Security object.

// In Initialize
var security = AddEquity("SPY");
security.SetBuyingPowerModel(new SecurityMarginModel(3m));
# In Initialize
security = self.AddEquity("SPY")
security.SetBuyingPowerModel(SecurityMarginModel(3))

You can also set the buying power model in a security initializer. If your algorithm has a universe, use the security initializer technique. In order to initialize single security subscriptions with the security initializer, call SetSecurityInitializer before you create the subscriptions.

// In Initialize
SetSecurityInitializer(new MySecurityInitializer(BrokerageModel, new FuncSecuritySeeder(GetLastKnownPrices)));

// Outside of the algorithm class
class MySecurityInitializer : BrokerageModelSecurityInitializer
{
    public MySecurityInitializer(IBrokerageModel brokerageModel, ISecuritySeeder securitySeeder)
        : base(brokerageModel, securitySeeder) {}    
    
    public override void Initialize(Security security)
    {
        // First, call the superclass definition
        // This method sets the reality models of each security using the default reality models of the brokerage model
        base.Initialize(security);

        // Next, overwrite some of the reality models        
        security.SetBuyingPowerModel(new SecurityMarginModel(3m));    
    }
}
# In Initialize
self.SetSecurityInitializer(MySecurityInitializer(self.BrokerageModel, FuncSecuritySeeder(self.GetLastKnownPrices)))

# Outside of the algorithm class
class MySecurityInitializer(BrokerageModelSecurityInitializer):

    def __init__(self, brokerage_model: IBrokerageModel, security_seeder: ISecuritySeeder) -> None:
        super().__init__(brokerage_model, security_seeder)

    def Initialize(self, security: Security) -> None:
        # First, call the superclass definition
        # This method sets the reality models of each security using the default reality models of the brokerage model
        super().Initialize(security)

        # Next, overwrite some of the reality models        
        security.SetBuyingPowerModel(SecurityMarginModel(3))

You cannot change the position group buying power models.

Default Behavior

The brokerage model of your algorithm automatically sets the buying power model of each security. The default brokerage model is the DefaultBrokerageModel, which sets the buying power model based on the asset class of the security. The following table shows the default buying power model of each asset class:

Asset ClassModel
Equity OptionsOptionMarginModel
FuturesFutureMarginModel
Future OptionsFuturesOptionsMarginModel
Index OptionsOptionMarginModel
CryptoCashBuyingPowerModel for cash accounts or SecurityMarginModel for margin accounts
CryptoFutureCryptoFutureMarginModel
ForexCashBuyingPowerModel for cash accounts or SecurityMarginModel for margin accounts
OtherSecurityMarginModel

Model Structure

Buying power models should extend the BuyingPowerModel class. Extensions of the BuyingPowerModel class should implement the following methods:

// In the Initialize method, set the buying power model
security.SetBuyingPowerModel(new MyBuyingPowerModel());

// Define the custom buying power model
class MyBuyingPowerModel : BuyingPowerModel
{
    public MyBuyingPowerModel(
        decimal leverage = 2m,
        decimal requiredFreeBuyingPowerPercent = 0m)
        : base(leverage, requiredFreeBuyingPowerPercent)
    {
    }

    public override decimal GetLeverage(Security security)
    {
       return base.GetLeverage(security);
    }

    public override void SetLeverage(Security security, decimal leverage)
    {
        base.SetLeverage(security, leverage);
    }

    public override InitialMargin GetInitialMarginRequiredForOrder(
        InitialMarginRequiredForOrderParameters parameters)
    {
        return base.GetInitialMarginRequiredForOrder(parameters);
    }

    public override MaintenanceMargin GetMaintenanceMargin(
        MaintenanceMarginParameters parameters)
    {
        return base.GetMaintenanceMargin(parameters);
    }

    protected override decimal GetMarginRemaining(
        SecurityPortfolioManager portfolio,
        Security security,
        OrderDirection direction)
    {
        return base.GetMarginRemaining(portfolio, security, direction);
    }

    public override InitialMargin GetInitialMarginRequirement(
        InitialMarginParameters parameters)
    {
        return base.GetInitialMarginRequirement(parameters);
    }

    public override HasSufficientBuyingPowerForOrderResult HasSufficientBuyingPowerForOrder(HasSufficientBuyingPowerForOrderParameters parameters)
    {
        return base.HasSufficientBuyingPowerForOrder(parameters);
    }

    public override GetMaximumOrderQuantityResult GetMaximumOrderQuantityForDeltaBuyingPower(GetMaximumOrderQuantityForDeltaBuyingPowerParameters parameters)
    {
        return base.GetMaximumOrderQuantityForDeltaBuyingPower(parameters);
    }

    public override GetMaximumOrderQuantityResult GetMaximumOrderQuantityForTargetBuyingPower(GetMaximumOrderQuantityForTargetBuyingPowerParameters parameters)
    {
        return base.GetMaximumOrderQuantityForTargetBuyingPower(parameters);
    }

    public override ReservedBuyingPowerForPosition GetReservedBuyingPowerForPosition(
        ReservedBuyingPowerForPositionParameters parameters)
    {
        return base.GetReservedBuyingPowerForPosition(parameters);
    }

    public override BuyingPower GetBuyingPower(BuyingPowerParameters parameters)
    {
        return base.GetBuyingPower(parameters);
    }
}
# In the Initialize method, set the buying power model
security.SetBuyingPowerModel(MyBuyingPowerModel())

# Define the custom buying power model
class MyBuyingPowerModel(BuyingPowerModel):
    def __init__(self, 
         leverage: float = 2, 
         requiredFreeBuyingPowerPercent: float = 0):
        super().__init__(leverage, requiredFreeBuyingPowerPercent)

    def GetLeverage(self, security: Security) -> float: 
        return super().GetLeverage(security)

    def SetLeverage(self, security: Security, leverage: float) -> None: 
        super().SetLeverage(security, leverage)

    def GetInitialMarginRequiredForOrder(self,
         parameters: InitialMarginRequiredForOrderParameters) -> InitialMargin:
        return super().GetInitialMarginRequiredForOrder(parameters)

    def GetMaintenanceMargin(self,
         parameters: MaintenanceMarginParameters) -> MaintenanceMargin: 
        return super().GetMaintenanceMargin(parameters)

    def GetMarginRemaining(self,
         portfolio: SecurityPortfolioManager,
         security: Security,
         direction: OrderDirection) -> float: 
        return super().GetMarginRemaining(portfolio, security, direction)

    def GetInitialMarginRequirement(self,
         parameters: InitialMarginParameters) -> InitialMargin:
        return super().GetInitialMarginRequirement(parameters)

    def HasSufficientBuyingPowerForOrder(self, 
         parameters: HasSufficientBuyingPowerForOrderParameters
        ) -> HasSufficientBuyingPowerForOrderResult: 
        return super().HasSufficientBuyingPowerForOrder(parameters)

    def GetMaximumOrderQuantityForDeltaBuyingPower(self, 
         parameters: GetMaximumOrderQuantityForDeltaBuyingPowerParameters
        ) -> GetMaximumOrderQuantityResult:
        return super().GetMaximumOrderQuantityForDeltaBuyingPower(parameters)

    def GetMaximumOrderQuantityForTargetBuyingPower(self, 
         parameters: GetMaximumOrderQuantityForTargetBuyingPowerParameters
        ) -> GetMaximumOrderQuantityResult:
        return super().GetMaximumOrderQuantityForTargetBuyingPower(parameters)

    def GetReservedBuyingPowerForPosition(self, 
         parameters: ReservedBuyingPowerForPositionParameters
        ) -> ReservedBuyingPowerForPosition:
        return super().GetReservedBuyingPowerForPosition(parameters)

    def GetBuyingPower(self,
         parameters: BuyingPowerParameters) -> BuyingPower:
        return super().GetBuyingPower(parameters)

For a full example algorithm, see this backtestthis backtest.

Disable Buying Power

You can disable order margin checks and opt to let your brokerage decide to accept or reject the trades. This is helpful in live trading if you have a more permissive brokerage margin allowance that what LEAN models. The default position group buying power models are helpful for Option trading strategies. However, it can be counterproductive if it's not a supported Option strategy. To disable the validations of the default position group buying power model, use the NullSecurityPositionGroupModel. To set the NullSecurityPositionGroupModel for the portfolio, during initialization, call the SetPositions method with the SecurityPositionGroupModel.Null argument.

Portfolio.SetPositions(SecurityPositionGroupModel.Null);
self.Portfolio.SetPositions(SecurityPositionGroupModel.Null)

To disable the validations of the default buying power model, use the NullBuyingPowerModel. To set the NullBuyingPowerModel for a security subscription, call the SetBuyingPowerModel method with the BuyingPowerModel.Null argument.

var equity = AddEquity("SPY");
equity.SetBuyingPowerModel(BuyingPowerModel.Null);
// Alias: 
// equity.SetMarginModel(SecurityMarginModel.Null);
equity = self.AddEquity("SPY")
equity.SetBuyingPowerModel(BuyingPowerModel.Null)
# Alias:
# equity.SetMarginModel(SecurityMarginModel.Null)

You can also set the asset NullBuyingPowerModel in a security initializer. If your algorithm has a universe, use the security initializer technique. In order to set the buying power of securities in the security initializer, call SetSecurityInitializer before you create security subscriptions and after you call SetBrokerageModel.

// In Initialize
SetSecurityInitializer(new MySecurityInitializer(BrokerageModel, new FuncSecuritySeeder(GetLastKnownPrices)));

// Outside of the algorithm class
class MySecurityInitializer : BrokerageModelSecurityInitializer
{
    public MySecurityInitializer(IBrokerageModel brokerageModel, ISecuritySeeder securitySeeder)
        : base(brokerageModel, securitySeeder) {}    
    
    public override void Initialize(Security security)
    {
        // First, call the superclass definition
        // This method sets the reality models of each security using the default reality models of the brokerage model
        base.Initialize(security);

        // Next, overwrite the security buying power        
        security.SetBuyingPowerModel(BuyingPowerModel.Null);    
    }
}
# In Initialize
self.SetSecurityInitializer(MySecurityInitializer(self.BrokerageModel, FuncSecuritySeeder(self.GetLastKnownPrices)))

# Outside of the algorithm class
class MySecurityInitializer(BrokerageModelSecurityInitializer):

    def __init__(self, brokerage_model: IBrokerageModel, security_seeder: ISecuritySeeder) -> None:
        super().__init__(brokerage_model, security_seeder)

    def Initialize(self, security: Security) -> None:
        # First, call the superclass definition
        # This method sets the reality models of each security using the default reality models of the brokerage model
        super().Initialize(security)

        # Next, overwrite the security buying power        
        security.SetBuyingPowerModel(BuyingPowerModel.Null)

Set Asset Leverage

The buying power model sets the leverage for each security in your algorithm, but you can override its leverage settings after the buying power model is set.

To set the leverage when you create a security subscription, pass in a leverage argument.

// In Initialize
AddEquity("SPY", leverage: 3);
# In Initialize
AddEquity("SPY", leverage=3)

You can also set the asset leverage in a security initializer. In order to set the leverage of securities in the security initializer, call SetSecurityInitializer before you create security subscriptions and before you call SetBrokerageModel. If you pass in a leverage argument when you create the security subscription, the leverage argument takes precedence over the SetLeverage call in the security initializer.

// In Initialize
SetSecurityInitializer(new MySecurityInitializer(BrokerageModel, new FuncSecuritySeeder(GetLastKnownPrices)));

// Outside of the algorithm class
class MySecurityInitializer : BrokerageModelSecurityInitializer
{
    public MySecurityInitializer(IBrokerageModel brokerageModel, ISecuritySeeder securitySeeder)
        : base(brokerageModel, securitySeeder) {}    
    
    public override void Initialize(Security security)
    {
        // First, call the superclass definition
        // This method sets the reality models of each security using the default reality models of the brokerage model
        base.Initialize(security);

        // Next, overwrite the security leverage        
        security.SetLeverage(3);    
    }
}
# In Initialize
self.SetSecurityInitializer(MySecurityInitializer(self.BrokerageModel, FuncSecuritySeeder(self.GetLastKnownPrices)))

# Outside of the algorithm class
class MySecurityInitializer(BrokerageModelSecurityInitializer):

    def __init__(self, brokerage_model: IBrokerageModel, security_seeder: ISecuritySeeder) -> None:
        super().__init__(brokerage_model, security_seeder)

    def Initialize(self, security: Security) -> None:
        # First, call the superclass definition
        # This method sets the reality models of each security using the default reality models of the brokerage model
        super().Initialize(security)

        # Next, overwrite the security leverage        
        security.SetLeverage(3)

To set the leverage for all securities in a universe, set the UniverseSettings.Leverage property.

// In Initialize
UniverseSettings.Leverage = 3;
# In Initialize
self.UniverseSettings.Leverage = 3

In live trading, LEAN doesn't ignore the leverage you set. However, if you set a different leverage from what your brokerage provides, it creates a mismatch between the buying power in your algorithm and the buying power the brokerage gives you. In this case, orders can pass the validations in LEAN but your brokerage may reject them.

PDT Rule

If all of the following statements are true, you are classified as a pattern day trader:

  • You reside in the United States.
  • You trade in a margin account.
  • You execute 4+ intraday US Equity trades within 5 business days.
  • Your intraday US Equity trades represent more than 6% of your total trades.

Pattern day traders must maintain a minimum equity of $25,000 in their margin account to continue trading. For more information about pattern day trading, see Am I a Pattern Day Trader? on the FINRA website.

The PatternDayTradingMarginModel doesn't enforce minimum equity rules and doesn't limit your trades, but it adjusts your available leverage based on the market state. During regular market hours, you can use up to 4x leverage. During extended market hours, you can use up to 2x leverage.

security.MarginModel = new PatternDayTradingMarginModel();
security.MarginModel = PatternDayTradingMarginModel()

Get Initial Margin Requirements

Follow these steps to check if you have enough margin remaining to cover the initial margin requirements of an order:

  1. Create an InitialMarginParameters object with the security and quantity you want to trade.
  2. var parameter = new InitialMarginParameters(security, quantity);
    parameter = InitialMarginParameters(security, quantity)
  3. Call the GetInitialMarginRequirement method of the security's buying power model with the InitialMarginParameters.
  4. var initialMargin = security.BuyingPowerModel.GetInitialMarginRequirement(parameter);
    initial_margin = security.BuyingPowerModel.GetInitialMarginRequirement(parameter)

    The GetInitialMarginRequirement method returns an InitialMargin object, which have the following properties:

  5. Compare the margin you have remaining against the initial margin requirement of the order.
  6. if (Portfolio.MarginRemaining >= initialMargin.Value)
    {
        MarketOrder(security.Symbol, quantity);
    }
    else
    {
        Debug("You don't have sufficient margin for this order.");
    }
    if self.Portfolio.MarginRemaining >= initial_margin.Value:
        self.MarketOrder(security.Symbol, quantity)
    else:
        self.Debug("You don't have sufficient margin for this order.")

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