Welcome back to the channel everyone today, i want to explain exactly how liquidations are going to work during the amc squeeze, how they're going to be performed and how we can be confident that we will receive our money so stay tuned and let's make some money. If you didn't already know this, hoodie that i'm wearing today is actually from my own personal line of amc merch, it's linked down in the description below. If you want to go and check it out and maybe pick up a t-shirt or a long sleeve, a hoodie. A sweater or even a mug and also be sure to check out the other links down in the description below as well to get your free shares with moomoo and free trade, and also to check out the private discord and become part of the team.

And now i want to dive straight in with the key information, so i'm going to explain what a hedge fund's profit and loss potentially looks like at the moment and what it's going to look like during the amc squeeze. As you can see here, maybe we're looking at a fairly small hedge fund. They only have one long position, which is in apple and they have cash as well. Let's say their position in apple is currently worth around seven hundred and fifty thousand dollars and they've got two hundred and fifty thousand dollars of cash on hand, which is that new margin requirement.

That means this small hedge fund have around one million dollars in cash and other long assets. Now, if we move over to the liabilities section, let's say: they've got a short position on amc and they're, currently in the red around 501 000 on their amc position. Now this is obviously not a very good place for a hedge fund to be in, but it's where they've ended up at the moment, just wanted to make a very quick post-production clarification. So this apple position here of 750 000.

Let's imagine their original position was 500. 000 and they've got 250 000 of profit, bringing their apple position to 000. If we look at this negative amc position of 501k, maybe their initial short position was 200 000, but they lost their whole initial investment and continued on into the reds another 500 000. As well, really holding on to that massive massive loss, so not only has this hedge fund lost their entire initial investment in their amc short, but they're, also now digging down into their margin and digging down into their wider account as well.

Currently, their entire portfolio still has a net liquidity balance of around 499 000. Yes, they're in the red around 501 000 on their amc position, but they've still got about a million dollars worth of assets between their apple position and their cash, even though their amc position has lost the entire value of their initial investment, they haven't yet been liquidated. Just yet because they're trading on margin and using the rest of their assets as collateral against their amc position and their entire portfolio is still in the net still in the green of 499 k. However, if we assume that today, amc runs up by 100 and therefore their losses in amc double to around 1 million dollars, now, that's obviously a very, very sudden and very fast price change.

So the first thing that's going to happen is the amc stock is going to be halted. Now this isn't a halt, that's done by the market makers or by the hedge funds. This is a halt. That's automatically performed by the new york stock exchange when certain stocks move up or down a large percentage in a very small space of time.

I think it's around five percent. In five minutes, then stocks become halted if the entire market, as in the dow jones, moves up or down massively in a short space of time, there can be an entire market wide circuit, breaker halt as well, but for the moment, i'm just assuming a one stock. Amc circuit breaker hull, these usually last around five minutes and the stock opens up for trading after that period of time. If the entire market moves downwards or upwards very fast in a very short space of time, the market can be halted for longer, maybe half an hour or even a full day.

So now the hedge fund finds themselves still with a 750 000 asset position in apple still with their 250 000 of cash collateral, meaning they still have around 1 million dollars in assets, but their losses on their amc position just doubled to around 1.002 million dollars or Just slightly over a million that means their entire account now has a net liquidity value of negative two thousand dollars, as in their entire account is now in the red. Now, as this hedge fund's net liquidity position has gone, negative they're, gon na get margin called so who margin calls the hedge funds? Well, it's the dtcc. Yes, when regular retail traders, like your, i get margin called it's our trading platform that performs the margin calling, but remember that hedge funds don't use robin hood to place their trades. For example, they effectively route their trades direct to the market through a market maker and therefore it's either the market maker or the dtcc that is responsible for performing the margin call.

So, what's realistically going to happen during this five minute halt is this hedge fund is probably going to get a call either from their market maker or from the dtcc saying that they need to perform a liquidation? At this point, the hedge fund no longer has access to their trading account as their entire trading account is now negative. So the market maker or the dtcc, comes in and sells off their 750 000 apple position and uses the one million dollars in cash to cover their short position on amc, and by that i mean they use their one million dollars in now. Cash to buy back amc shares and cover their short position now. Obviously, you will notice that this hedge fund is currently in a net liquidation position of negative two thousand dollars, meaning they don't have the extra two thousand dollars needed to buy back the rest of their amc shores.

Maybe they had a thousand shorts on amc and therefore they can only cover 998 of them and they're still short shares that haven't yet been covered. Therefore, the dtcc dips into their wider cash collateral pot, with all of the other institutions, 250 000 - is in and uses 2 000 from that pot to cover the remaining amc shares. Now. This means that every single short position they had in amc was covered and all the shares were bought back successfully now, obviously, when a very large position is brought back all at the same time.

In the same second instance, that's going to have a very large impact on the price and could cause amc to shoot upwards again and could cause another hull now. This is also going to have a domino effect on other hedge funds when other hedge funds breach this zero dollar net liquidation account value. Then other hedge funds are going to be getting that margin call from the dtcc as well. Obviously, other funds are going to have various different asset positions and various different loss positions on amc and it can have various different net liquidation account values for their entire portfolio.

Therefore, it should be a somewhat orderly liquidation process. One fund gets liquidated, which causes another fund to get liquidated, which causes another one and another one, and so on. Theoretically, the dtcc shouldn't have to liquidate multiple funds. At the same time, on the same one second interval, it should be fairly orderly and there should be give or take one hedge fund liquidated at each individual hall.

Now i guess it gets a little bit tricky if multiple funds have the same net liquidation value if they have the same assets and the same liabilities and the same overall account position and therefore all hit that liquidation point. At the same time, that's going to mean the dtcc or the market makers liquidate multiple hedge funds. At the same time, during the same haul, this means there could be magnitudes more amc shares bought back at the same time which could cause the amc price to fly. Even faster and even higher now i guess the risk that that causes is what happens if amc flies up so fast, so much that the dtcc don't call them in time if they've still got 750 000 in apple 250 thousand dollars in cash, leaving them one million Dollars of actual cash, but all of a sudden, their amc lost position is a whopping five million dollars.

That means this hedge fund only has enough cash to buy back around 20 of their entire position, and the dtcc will have to cover the remaining 80 percent. Now this is partially why dtcc implemented that rule nscco5 to increase the cash collateral put up from 10 000 to 250 thousand dollars per account per fund. This means that hopefully, the dtcc have enough cash actually on hand to go in and buy back. All of those amc positions, even if the total net liquidation value of each fund is way past zero.

The dtcc need to stump up a bunch of cash. So i hope that helps explain a little bit on how liquidations actually work and how we can be confident that we are going to get paid and how we know these hedge funds aren't just going to run off with the cash and continue shorting more shares. Now we also know the dtcc aren't necessarily going to force the fund to sell off this 750 000 position in apple. They can use the sft security financing transaction to lend those apple shares in return for cash.

Therefore, it kind of avoids apple crashing as well, and we know this cash is going to be used to cover that mc position and not just short, more shares because, as i said at the start of the video, the hedge fund is no longer in control of Their account when they reach that zero dollar net liquidation value just the same way that you aren't in control of your position on robin hood. If your position goes negative and you don't have enough cash in your account, robinhood just automatically take over and cover the position for you liquidating your entire account now. I also wanted to address the restrictions on the limit, sell orders in a number of brokers. Yesterday i said that it was paramount to use a limit sell order instead of a market sell order during the mother of all short squeezes, because during that moas, when the order book is completely wiped out, you'll be effectively refilling the order book and everybody will be Refilling the order book at different points and therefore the amc price is likely to jump around very, very heavily now.

The problem being is that at the moment, you can't place limit orders too far away from the current market price. I think td ameritrade only allows you to place an order, a hundred percent different to the market price. Therefore, if amz is trading at fifty dollars, you can only set your limit sale to a hundred dollars now on the upside fidelity do allow you to do a 500 variance from the current market price. So if the current price is 50, you can set a limit.

Sell for 250, however. Obviously most people want to be selling their amc, a thousand dollars a share. Ten thousand, a hundred thousand five hundred thousand eight hundred thousand dollars a share, or whatever your personal target for amc is maybe fidelity, doesn't allow you to set a sell order at the moment for that personal target of yours, and that's why we just have to wait For the amc squeeze to start and then as the price rises higher, then we'll be allowed to place our limit sell orders higher as well. For example, when the amc price hits 10 000 a share or maybe 20 000.

A share we'll be able to start placing limit orders at a hundred thousand dollars per share and therefore, when the amc price is bouncing around very heavily, when the order book is starting to fill back up, just make sure you place a limit set order. Instead of a market sell order at that point in time when the amc price hits your desired profit point and you go to sell, obviously just make sure you use a limit, sell order. Then, instead of a market sell order, i know you can't set that limit. Sell order right now, which is why you need to be aware of what's happening with the amc price.

The best way to be aware of what's happening with the amc price is obviously to set notifications on your phone or your stock trading app or platform, and get a notification when the amc price crosses certain resistance lines and, obviously, by staying up to date. With my videos on the amc squeeze when the amc stock does actually start squeezing i'll be sure to do a live stream as well to keep you all informed during that exact minute and that exact point in time, there's also a number of brokers that are also Planning to increase those restrictions as well or to alleviate those restrictions as well. I know free trade currently has a limit of around twenty five thousand dollars per sell order and they're just about to remove that limit because they know stocks are going to be going up. Quite fast, it also wouldn't surprise me if a number of other brokers also start lifting their limits and restrictions on those limit orders.

Now i also thought this was a very, very interesting tweet by john here, tens of million dollars of buys in the dark pools on amc after hours holy crud. This looks almost identical to what happened before the june run as well, and it's via the unusual wales twitter account. So this screenshot is showing a number of buy orders for amc with massive massive size positions as well, especially this one down here with massive premiums as well and what's interesting, is this entire page is all by orders as well? There's not a single sell order, something that's also very interesting. Is in this column here you can see, buy orders and also a aa buys so an aa buy is an above ask, which is when it's purchased above the asking price to confirm it will be sold to the buyer.

This is insanely bullish after hours, dark pool action, so this is effectively where an institution is just sweeping the top of the order book and is buying every single share of amc that they can at the ask, and also above the ask price as well. This is insanely bullish because it's hundreds of thousands of shares being purchased all at once, and therefore it's likely one very large whale. That's making each of these individual transactions guys be sure to. Let me know down in the comments below what you think about the process for hedge funds and institutions being liquidated.

Do you think that sounds about right, or do you think i've missed out anything that i should have included and also be sure to check out the links down in the description below to get yourself some merch and also to get yourself some free shares and become Part of the team and as always guys if you enjoyed this video, be sure to check out some of my others, alternatively subscribe to the channel and then that notification bell, because that way, you'll be alerted. When i upload a new video cheers.