Using Risk Navigator to Project Exposure Fees

The Risk Navigator offers traders the benefit of using our custom scenario feature, which will help accounts determine their overall exposure, based on theoretically price movements in the underlying asset(s). The steps outlined below will allow the trader to create an editable, hypothetical “What – If” portfolio to see how your overall exposure might change based on changes you make to your portfolio, such as adding, closing, or hedging positions.   

Open a new “What-if” portfolio
To create a “What-If” customer scenario from the Classic TWS trading platform 
(1)    On the Analytical Tools menu select Risk Navigator, and select Open New What-If

 

(2)    Specify whether or not you want to base the custom scenario on your existing portfolio
a.       If yes, all your current positions will download to the new “What-If”

b.       If no, you will see a new “What – If” Portfolio with no positions
  
 
You can elect to modify the variables that affect your risk profile using the Custom scenario command on the View menu
(3)    From the View menu select Custom Scenario

 

(4)    To determine the trading account(s) exposure for all the equity positions within your “what-if” portfolio, select ALL UNDERLYINGS to affect all of equity positions with the portfolio.
 
(5)    In the Underlying Price section, define the value of the price change (e.g. -30%, -20%, +10%, or +20%)
 
a.       Chg% à Adds or subtracts the percent of the value in the price field, depending on the sign. For example, if the Price of SPY is 205.37 and you enter -30%, the Custom Scenario price for SPY will be 143.76.   The values in the Custom Scenario are always compared to values in the real-time Market Scenario 
 
(6)    Hit Apply at the top left of the Scenario Editor to see the impact of your changes in the Custom Scenario section

 

To determine the exposure of an account you will need to review the PnL Graph
(7)    The Portfolio PnL Graph illustrates how the total value of your portfolio will change, based on a percent change in the price(s) of the underlying(s). The graph below shows the portfolio relative PnL for an equity portfolio, based on the -30% - +30% price change on ALL UNDERLYINGS.
 
(8)    The account exposure for this equity position can be determined by comparing the worst case loss within a -30% and +20% price scenarios, and then comparing that figure to your net liquidation value. If your estimated PnL is greater than your Net Liquidation Value, then your trading account has exposure.
a.       Using the figures from the above mentioned screen-shots.
                                                               i.      Net Liquidation Value = 207,600,335
                                                             ii.      PnL at -30% price scenario = -300,000,000
                                                            iii.      Exposure = 92,399,665 (207,600,335 - 300,000,000)

Can I set a maximum dollar exposure for my account?

Unless an account holds solely long stock, bond, option or forex positions which have been paid for in full (i.e., no margin) and/or contains limited risk derivative positions such as option spreads, it is at risk of losing more than the original investment.

In the case of portfolios where the risk is indeterminable, there is no mechanism whereby the account holder can specify, at the portfolio level, a maximum dollar threshold of losses which, if reached, would limit their liability. IB does, however, provide a variety of tools and settings designed to assist account holders with managing and monitoring their exposure, including specialized order types, alerts and the Risk Navigator. A brief overview of each is provided below:

Order Types

Account holders may manage exposure on an individual trade level through several order types designed to limit risk. These order types include, but are not limited to: Stop, Adjustable Stop, Stop Limit, Trailing Stop and Trailing Stop Limit Orders. All of these order types allow you to specify an exit level for your individual positions based on your risk tolerance. For example, an account holder long 200 shares of hypothetical stock XYZ at an average price of $20.00 seeking to limit their loss to $500.00 could create a Stop Limit order having a Stop Price of $18.00 (the price at which a limit sell order is triggered) and a Limit Price of $17.50 (the lowest price at which the shares would be sold).  It's important to note, however, that while a Stop Limit eliminates the price risk associated with a Stop order where the execution price is not guaranteed, it exposes the account holder to the risk that the order may never be filled even if the Stop Price is reached.  For instructions on creating a Stop Limit order, click here.

 

Alerts

Alerts provide account holders the ability to specify events or conditions which, if met, trigger an action. The conditions can be based on time, trades that occur in the account, price levels, trade volume, or a margin cushion. For example, if the account holder wanted to be notified if their account was nearing a margin deficiency and forced liquidation, an alert could be set up to send an email if the margin cushion fell to some desired percentage, say 10% of equity. The action may consist of an email or text notification or the triggering of a risk reducing trade. For instructions on creating an Alert, click here.

Risk Navigator

The Risk Navigator is a real-time market risk management platform contained within the TraderWorkstation, which provides the account holder with the ability to create 'what-if' scenarios to measure exposure given user-defined changes to positions, prices, date and volatility variables which may impact their risk profile. For information on using an Risk Navigator, click here.

IB's Risk Navigator Session 3 - What-if Scenario

How to create a What-if Scenario using IB's Risk Navigator

Click here to watch: Risk Navigator Session 1 - Introduction

Click here to watch: Risk Navigator Session 2 - Custom Scenario

For detailed information on how to create What-if scenarios please refer to the TWS Online User's Guide.

 

 

IB's Risk Navigator Session 2 - Custom Scenario

How to create a custom scenario using IB's Risk Navigator.

Click here to view: IB's Risk Navigator Session 1 - Introduction

Click here to view: IB's Risk Navigator Session 3 - What-if Scenario

For detailed information please refer to the TWS Online User's Guide.

 

IB's Risk Navigator Session 1 - Introduction

A Brief Introduction to Interactive Broker's Risk Navigator

Click here to view: IB's Risk Navigator Session 2 - Custom Scenario

Click here to view: IB's Risk Navigator Session 3 - What-if Scenario

For detailed information please refer to the TWS Online Users Guide.

 

 

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