Comment by chollida1
3 years ago
Not really true, collateral is decided at the end of the day and not mid day.
You aren't liquidated immediately the moment your needs more liquidity.
We wait till the end of the day short of absolute emergencies.
I know Amaranth well being in Canada and Calgary specifically at the time:)
And for tradfi a typical hedge fund gets a call and is told to post more collateral and they make real efforts to allow the fund to post collateral. There is almost never an immediate liquidation as this tends to cause more trouble than it fixes, even on the CME or CBOE:)
>Not really true, collateral is decided at the end of the day and not mid day.
Ho ho ho - no it's decided as soon as your lender things that it needs to liquidate you, and if it does it will know that you're not going to be able to go to court to fight afterwards.
A lot of nasty scenes start with someone on a phone shouting "you can't do that for another 2 hours".
Yup. Yup we can.
You write this comment as if you regularly liquidate people. Is this something you've done a lot?
Someone responded and deleted a comment that this isn't how it works. I guess I'll never know.
Especially when one of the main reasons for needing to post more collateral isn't necessarily that your position is underwater but rather volatility has picked up and risk needs to be brought down. This happens because futures especially trade with very high leverage.
Also generally the amount of collateral that needs to be posted is in the millions of USD so people tend to understand that isn't instant, especially if those funds are currently in money market funds or bonds held elsewhere.
>> Not really true, collateral is decided at the end of the day and not mid day.
Depends on your CSA (Credit Service Annex/Agreement) and what the joint agreement was. Also depends on the type of position (daily settled via exchange vs contractual)