I am thinking about switch my broker to IB. Any risks there?

[scorpioncapital]

IB as a partner is a good investment. They have helped me to make more money then otherwise would have been possible in stocks, options, and futures. Am just an individual. I am surprised they don't take ALL the business away from everybody else, call it lack of knowledge. I'm sure there are a huge amount of 10k+ accounts out there. I hope they succeed big time, but that has never been in doubt.

 

 

 

[muscleman]

Options settle the next day.  So instead of selling your common shares you can write deep-in-the-money calls (lowest strike on the market).

 

Get your cash tomorrow.

 

Eliminates 2 out of the 3 days in the settlement period.

 

Bonus:  you might not have to pay tax because you didn't sell your common.  See "constructive sale" rules -- I said "might".  You have to play by the rules in order to avoid the tax.

 

I wrote deep-in-the-money FFH calls, used the proceeds to buy ORH calls.  Then when ORH popped, I sold ORH and bought back the FFH calls.  I didn't owe tax on the FFH.  But if I'd instead sold the FFH shares, I would have needed to pay tax.

 

Thank you Eric. But waiting for a day still sounds inconvenient to me. because in my Fido cash account, I can sell a stock and immediately use that unsettled proceeds to buy anything, be it option or stock.

 

Are you using portfolio margin? Aren't you worried about their instant liquidation policy?

 

I was terrified of the instant liquidation policy before I understood was portfolio margin is -- then I switched from Reg-T to portfolio margin and I don't worry anymore.

 

Thank you Eric.  could u please tell me a bit more about portfolio margin?

I don't plan to actually use margin. I am just worried if ib platform would have a bug and force me to liquidate

 

Scneario:

1) $100,000 cash balance initially. 

2)  I purchase $190,000 worth of common stock, and $10,000 worth of puts using a $100,000 loan.  $200,000 total invested

3)  The puts are at-the-money

 

Okay, under Reg-T margin the account could be liquidated in a flash crash.

 

Under Portfolio Margin they can see that the puts completely protect the value of the loan they've extended me.  So I'm safe in a flash crash.

 

From their perspective, it's the same as if I invested $90,000 into the common stock and just put $10,000 into at-the-money calls (without taking a loan).

 

But instead of doing that with calls, I have the outstanding margin loan hedged with at-the-money puts.  It's non-recourse leverage at this point -- they know that and I know that. 

 

In my example I'm assuming puts and calls are at the money, and there is pricing parity.

 

Thank you.

This looks great if their real time margin algorithm is bug free. My primary concern was that their system seems a bit buggy.

 

From the reviews here, I am a bit terrified.

http://www.yelp.com/biz/interactive-brokers-llc-greenwich

 

I guess I will call IB again tomorrow to see if cash accounts are allow to sell a stock and immediately buy. If not, I will probably just stay with Fidelity and collect a much lower stock lending interest. ::)

[siddharth18]

One more feature I loved in InteractiveBrokers was access to data from small hedge funds that use their platform..

PS: This feature is FREE!

 

Would you know if this feature is available to IB's retail clients or only to their hedge fund clients?

 

Oh it's open to a retail client like myself (I haven't invested in any of the funds). And I have an individual cash account with minimal balance and I have access to it. I claim myself as an accredited investor, so maybe that's why it shows me the data?

 

Here's how it looks:

 

http://i.imgur.com/vDeAZz6.png

[ageofsocrates]

Options settle the next day.  So instead of selling your common shares you can write deep-in-the-money calls (lowest strike on the market).

 

Get your cash tomorrow.

 

Eliminates 2 out of the 3 days in the settlement period.

 

Bonus:  you might not have to pay tax because you didn't sell your common.  See "constructive sale" rules -- I said "might".  You have to play by the rules in order to avoid the tax.

 

I wrote deep-in-the-money FFH calls, used the proceeds to buy ORH calls.  Then when ORH popped, I sold ORH and bought back the FFH calls.  I didn't owe tax on the FFH.  But if I'd instead sold the FFH shares, I would have needed to pay tax.

 

Thank you Eric. But waiting for a day still sounds inconvenient to me. because in my Fido cash account, I can sell a stock and immediately use that unsettled proceeds to buy anything, be it option or stock.

 

Are you using portfolio margin? Aren't you worried about their instant liquidation policy?

 

I was terrified of the instant liquidation policy before I understood was portfolio margin is -- then I switched from Reg-T to portfolio margin and I don't worry anymore.

 

Thank you Eric.  could u please tell me a bit more about portfolio margin?

I don't plan to actually use margin. I am just worried if ib platform would have a bug and force me to liquidate

 

Scneario:

1) $100,000 cash balance initially. 

2)  I purchase $190,000 worth of common stock, and $10,000 worth of puts using a $100,000 loan.  $200,000 total invested

3)  The puts are at-the-money

 

Okay, under Reg-T margin the account could be liquidated in a flash crash.

 

Under Portfolio Margin they can see that the puts completely protect the value of the loan they've extended me.  So I'm safe in a flash crash.

 

From their perspective, it's the same as if I invested $90,000 into the common stock and just put $10,000 into at-the-money calls (without taking a loan).

 

But instead of doing that with calls, I have the outstanding margin loan hedged with at-the-money puts.  It's non-recourse leverage at this point -- they know that and I know that. 

 

In my example I'm assuming puts and calls are at the money, and there is pricing parity.

 

Hi Eric,

 

Just a quick question. How  far out do u usually buy the puts for (i.e 6 mths or 1 year)?

[ERICOPOLY]

Options settle the next day.  So instead of selling your common shares you can write deep-in-the-money calls (lowest strike on the market).

 

Get your cash tomorrow.

 

Eliminates 2 out of the 3 days in the settlement period.

 

Bonus:  you might not have to pay tax because you didn't sell your common.  See "constructive sale" rules -- I said "might".  You have to play by the rules in order to avoid the tax.

 

I wrote deep-in-the-money FFH calls, used the proceeds to buy ORH calls.  Then when ORH popped, I sold ORH and bought back the FFH calls.  I didn't owe tax on the FFH.  But if I'd instead sold the FFH shares, I would have needed to pay tax.

 

Thank you Eric. But waiting for a day still sounds inconvenient to me. because in my Fido cash account, I can sell a stock and immediately use that unsettled proceeds to buy anything, be it option or stock.

 

Are you using portfolio margin? Aren't you worried about their instant liquidation policy?

 

I was terrified of the instant liquidation policy before I understood was portfolio margin is -- then I switched from Reg-T to portfolio margin and I don't worry anymore.

 

Thank you Eric.  could u please tell me a bit more about portfolio margin?

I don't plan to actually use margin. I am just worried if ib platform would have a bug and force me to liquidate

 

Scneario:

1) $100,000 cash balance initially. 

2)  I purchase $190,000 worth of common stock, and $10,000 worth of puts using a $100,000 loan.  $200,000 total invested

3)  The puts are at-the-money

 

Okay, under Reg-T margin the account could be liquidated in a flash crash.

 

Under Portfolio Margin they can see that the puts completely protect the value of the loan they've extended me.  So I'm safe in a flash crash.

 

From their perspective, it's the same as if I invested $90,000 into the common stock and just put $10,000 into at-the-money calls (without taking a loan).

 

But instead of doing that with calls, I have the outstanding margin loan hedged with at-the-money puts.  It's non-recourse leverage at this point -- they know that and I know that. 

 

In my example I'm assuming puts and calls are at the money, and there is pricing parity.

 

Hi Eric,

 

Just a quick question. How  far out do u usually buy the puts for (i.e 6 mths or 1 year)?

 

I am holding 2015s presently.  I will roll them to 2016s within a few months of their issue.

[muscleman]

Options settle the next day.  So instead of selling your common shares you can write deep-in-the-money calls (lowest strike on the market).

 

Get your cash tomorrow.

 

Eliminates 2 out of the 3 days in the settlement period.

 

Bonus:  you might not have to pay tax because you didn't sell your common.  See "constructive sale" rules -- I said "might".  You have to play by the rules in order to avoid the tax.

 

I wrote deep-in-the-money FFH calls, used the proceeds to buy ORH calls.  Then when ORH popped, I sold ORH and bought back the FFH calls.  I didn't owe tax on the FFH.  But if I'd instead sold the FFH shares, I would have needed to pay tax.

 

Thank you Eric. But waiting for a day still sounds inconvenient to me. because in my Fido cash account, I can sell a stock and immediately use that unsettled proceeds to buy anything, be it option or stock.

 

Are you using portfolio margin? Aren't you worried about their instant liquidation policy?

 

I was terrified of the instant liquidation policy before I understood was portfolio margin is -- then I switched from Reg-T to portfolio margin and I don't worry anymore.

 

Thank you Eric.  could u please tell me a bit more about portfolio margin?

I don't plan to actually use margin. I am just worried if ib platform would have a bug and force me to liquidate

 

Scneario:

1) $100,000 cash balance initially. 

2)  I purchase $190,000 worth of common stock, and $10,000 worth of puts using a $100,000 loan.  $200,000 total invested

3)  The puts are at-the-money

 

Okay, under Reg-T margin the account could be liquidated in a flash crash.

 

Under Portfolio Margin they can see that the puts completely protect the value of the loan they've extended me.  So I'm safe in a flash crash.

 

From their perspective, it's the same as if I invested $90,000 into the common stock and just put $10,000 into at-the-money calls (without taking a loan).

 

But instead of doing that with calls, I have the outstanding margin loan hedged with at-the-money puts.  It's non-recourse leverage at this point -- they know that and I know that. 

 

In my example I'm assuming puts and calls are at the money, and there is pricing parity.

 

Hi Eric,

 

Just a quick question. How  far out do u usually buy the puts for (i.e 6 mths or 1 year)?

 

I am holding 2015s presently.  I will roll them to 2016s within a few months of their issue.

 

What is the advantage of leveraged buy plus put options, vs direct purchase of call options? One thing I could thing of is that you could lend the shares out to collect some interest. Then your true cost of leverage is the put options value minus lending interest, which could be cheaper than direct purchase of calls. Is that the only reason to do this?

 

I am still a bit worried if their real time margin algo for the portfolio margin would be bug free. If they make a mistake, I will get liquidated at the wrong time. ::)

[ERICOPOLY]

Options settle the next day.  So instead of selling your common shares you can write deep-in-the-money calls (lowest strike on the market).

 

Get your cash tomorrow.

 

Eliminates 2 out of the 3 days in the settlement period.

 

Bonus:  you might not have to pay tax because you didn't sell your common.  See "constructive sale" rules -- I said "might".  You have to play by the rules in order to avoid the tax.

 

I wrote deep-in-the-money FFH calls, used the proceeds to buy ORH calls.  Then when ORH popped, I sold ORH and bought back the FFH calls.  I didn't owe tax on the FFH.  But if I'd instead sold the FFH shares, I would have needed to pay tax.

 

Thank you Eric. But waiting for a day still sounds inconvenient to me. because in my Fido cash account, I can sell a stock and immediately use that unsettled proceeds to buy anything, be it option or stock.

 

Are you using portfolio margin? Aren't you worried about their instant liquidation policy?

 

I was terrified of the instant liquidation policy before I understood was portfolio margin is -- then I switched from Reg-T to portfolio margin and I don't worry anymore.

 

Thank you Eric.  could u please tell me a bit more about portfolio margin?

I don't plan to actually use margin. I am just worried if ib platform would have a bug and force me to liquidate

 

Scneario:

1) $100,000 cash balance initially. 

2)  I purchase $190,000 worth of common stock, and $10,000 worth of puts using a $100,000 loan.  $200,000 total invested

3)  The puts are at-the-money

 

Okay, under Reg-T margin the account could be liquidated in a flash crash.

 

Under Portfolio Margin they can see that the puts completely protect the value of the loan they've extended me.  So I'm safe in a flash crash.

 

From their perspective, it's the same as if I invested $90,000 into the common stock and just put $10,000 into at-the-money calls (without taking a loan).

 

But instead of doing that with calls, I have the outstanding margin loan hedged with at-the-money puts.  It's non-recourse leverage at this point -- they know that and I know that. 

 

In my example I'm assuming puts and calls are at the money, and there is pricing parity.

 

Hi Eric,

 

Just a quick question. How  far out do u usually buy the puts for (i.e 6 mths or 1 year)?

 

I am holding 2015s presently.  I will roll them to 2016s within a few months of their issue.

 

What is the advantage of leveraged buy plus put options, vs direct purchase of call options? One thing I could thing of is that you could lend the shares out to collect some interest. Then your true cost of leverage is the put options value minus lending interest, which could be cheaper than direct purchase of calls. Is that the only reason to do this?

 

I am still a bit worried if their real time margin algo for the portfolio margin would be bug free. If they make a mistake, I will get liquidated at the wrong time. ::)

 

Taxes. 

 

How do you roll a profitable call position without incurring taxable events?

 

This isn't a problem when you roll puts along.  If the put is showing a gain there will be an offsetting loss on the common.

 

Also, I'd rather write off the margin interest (investment expense offsetting investment income) when incurred instead of it being embedded in a call premium (capital gains rates).

 

 

 

[ERICOPOLY]

Supposing you live in California and have a large portfolio margin account allocated 100% to Berkshire Hathaway B shares.

 

You never need to pay tax again (or until they pay a dividend).  You just borrow on margin to fund your spending and hedge the loan with at-the-money puts.  Yes, puts cost you money but so do taxes.  I'll bet it's better to go the margin+puts approach.

 

As the stock rises over time, the cost of those puts on an annualized basis falls lower and lower (if you never change the strike price).  You then start to generate gains on that stock you never sold (but otherwise would have sold) -- these gains come as a result of Berkshire appreciating over time at a rate higher than the annualized cost of this non-recourse leverage.

 

Every now and then the accumulated capital losses from the puts can be utilized to offset capital gains on the Berkshire Shares (selling some shares to pay down margin loan).

 

 

 

 

[ItsAValueTrap]

What is the advantage of leveraged buy plus put options, vs direct purchase of call options? One thing I could thing of is that you could lend the shares out to collect some interest. Then your true cost of leverage is the put options value minus lending interest, which could be cheaper than direct purchase of calls. Is that the only reason to do this?

 

If you're only getting paid 50% of the borrow cost (and the borrow cost is very high like SHLD), then it might be better to simply buy only call options.  When the borrow cost is high, put/call parity will break down to reflect the cost of borrowing shares to short them.  With options, the borrow cost is "locked in" unlike the common stock.

[ERICOPOLY]

What is the advantage of leveraged buy plus put options, vs direct purchase of call options? One thing I could thing of is that you could lend the shares out to collect some interest. Then your true cost of leverage is the put options value minus lending interest, which could be cheaper than direct purchase of calls. Is that the only reason to do this?

 

If you're only getting paid 50% of the borrow cost (and the borrow cost is very high like SHLD), then it might be better to simply buy only call options.  When the borrow cost is high, put/call parity will break down to reflect the cost of borrowing shares to short them.  With options, the borrow cost is "locked in" unlike the common stock.

 

It is strange that the borrow cost is so high with SHLD.  It costs roughly 10% annualized to short it synthetically (write 2015 calls at-the-money and use proceeds to offset cost of 2015 at-the-money puts).  The cost delta is the "synthetic borrow" cost.

 

But I suppose if you expect the stock to drop suddenly like it did already this year, then it would be perhaps better to just short the common and pay the borrow.

 

That 10% annualized synthetic cost of shorting would be the more expensive path to take if the stock went back down to $40 next week.

[muscleman]

Taxes. 

 

How do you roll a profitable call position without incurring taxable events?

 

This isn't a problem when you roll puts along.  If the put is showing a gain there will be an offsetting loss on the common.

 

Also, I'd rather write off the margin interest (investment expense offsetting investment income) when incurred instead of it being embedded in a call premium (capital gains rates).

 

Thank you! You are our tax expert here!

 

Do you feel like the reviews here would be some concern?

http://www.yelp.com/biz/interactive-brokers-llc-greenwich

[ERICOPOLY]

Taxes. 

 

How do you roll a profitable call position without incurring taxable events?

 

This isn't a problem when you roll puts along.  If the put is showing a gain there will be an offsetting loss on the common.

 

Also, I'd rather write off the margin interest (investment expense offsetting investment income) when incurred instead of it being embedded in a call premium (capital gains rates).

 

Thank you! You are our tax expert here!

 

Do you feel like the reviews here would be some concern?

http://www.yelp.com/biz/interactive-brokers-llc-greenwich

 

regarding the reviews.  This makes no sense to me "IB force liquidated my positions and created a loss in my account that would have been greater than if all my trades had gone wrong. ".

 

He goes on to say that he had enough liquidity, and then makes the point that these were European style options and couldn't be exercised prior to expiry.  Something tells me that IB cares more than just whether or not you need any liquidity before they expire -- perhaps the direction they trade in the interim makes IB nervous about having enough liquidity when they expire.

 

Impossible to know without the whole story. 

 

But do you believe him when he says that they created a loss greater than if all his trades had gone wrong?  All of them?  That sounds nonsensical.

 

[muscleman]

Taxes. 

 

How do you roll a profitable call position without incurring taxable events?

 

This isn't a problem when you roll puts along.  If the put is showing a gain there will be an offsetting loss on the common.

 

Also, I'd rather write off the margin interest (investment expense offsetting investment income) when incurred instead of it being embedded in a call premium (capital gains rates).

 

Thank you! You are our tax expert here!

 

Do you feel like the reviews here would be some concern?

http://www.yelp.com/biz/interactive-brokers-llc-greenwich

 

regarding the reviews.  This makes no sense to me "IB force liquidated my positions and created a loss in my account that would have been greater than if all my trades had gone wrong. ".

 

He goes on to say that he had enough liquidity, and then makes the point that these were European style options and couldn't be exercised prior to expiry.  Something tells me that IB cares more than just whether or not you need any liquidity before they expire -- perhaps the direction they trade in the interim makes IB nervous about having enough liquidity when they expire.

 

Impossible to know without the whole story. 

 

But do you believe him when he says that they created a loss greater than if all his trades had gone wrong?  All of them?  That sounds nonsensical.

 

Thank you Eric. I am talking to Fidelity right now. If they can't get me a good stock lending rate, I think at least I would open a cash account in IB and transfer my SHLD shares there.

If I get comfortable with a margin account, I will apply for margin, but I am a pretty conservative guy and I would like not to actually borrow any money.

[wachtwoord]

Taxes. 

 

How do you roll a profitable call position without incurring taxable events?

 

This isn't a problem when you roll puts along.  If the put is showing a gain there will be an offsetting loss on the common.

 

Also, I'd rather write off the margin interest (investment expense offsetting investment income) when incurred instead of it being embedded in a call premium (capital gains rates).

 

Thank you! You are our tax expert here!

 

Do you feel like the reviews here would be some concern?

http://www.yelp.com/biz/interactive-brokers-llc-greenwich

 

regarding the reviews.  This makes no sense to me "IB force liquidated my positions and created a loss in my account that would have been greater than if all my trades had gone wrong. ".

 

He goes on to say that he had enough liquidity, and then makes the point that these were European style options and couldn't be exercised prior to expiry.  Something tells me that IB cares more than just whether or not you need any liquidity before they expire -- perhaps the direction they trade in the interim makes IB nervous about having enough liquidity when they expire.

 

Impossible to know without the whole story. 

 

But do you believe him when he says that they created a loss greater than if all his trades had gone wrong?  All of them?  That sounds nonsensical.

 

Thank you Eric. I am talking to Fidelity right now. If they can't get me a good stock lending rate, I think at least I would open a cash account in IB and transfer my SHLD shares there.

If I get comfortable with a margin account, I will apply for margin, but I am a pretty conservative guy and I would like not to actually borrow any money.

 

Then there shouldn't be any issues for owning a margin account for you then. Danger is for people that actually intend to use the margin. I'm really conservative too and won't buy on margin.

[LC]

Exactly. Having a margin account and going on margin (i.e. a negative cash balance) are two different things! Just open a margin account but keep a positive (or zero) cash balance!

[muscleman]

Exactly. Having a margin account and going on margin (i.e. a negative cash balance) are two different things! Just open a margin account but keep a positive (or zero) cash balance!

 

Thank you LC and wachtwoord. My only worry is what would happen if IB's real time margin algo went wrong and thought I would need real time liquidation, but I actually didn't even buy on margin?

Or what would happen if I mistakenly put in one more zero for the number of shares to buy, and caused a big margin call?

Perhaps I was just being too extreme and frightened myself.

[LC]

Exactly. Having a margin account and going on margin (i.e. a negative cash balance) are two different things! Just open a margin account but keep a positive (or zero) cash balance!

 

Thank you LC and wachtwoord. My only worry is what would happen if IB's real time margin algo went wrong and thought I would need real time liquidation, but I actually didn't even buy on margin?

Or what would happen if I mistakenly put in one more zero for the number of shares to buy, and caused a big margin call?

Perhaps I was just being too extreme and frightened myself.

 

Yes these things could happen. To take it to the extreme, the entire SIPC could shut down, our brokers could raid our accounts, and we'd all be left penniless. Obviously an extreme example, but this is a question of where your limit of reasonableness is. As far as I know, they are a pretty reputable broker.

[muscleman]

Exactly. Having a margin account and going on margin (i.e. a negative cash balance) are two different things! Just open a margin account but keep a positive (or zero) cash balance!

 

Thank you LC and wachtwoord. My only worry is what would happen if IB's real time margin algo went wrong and thought I would need real time liquidation, but I actually didn't even buy on margin?

Or what would happen if I mistakenly put in one more zero for the number of shares to buy, and caused a big margin call?

Perhaps I was just being too extreme and frightened myself.

 

Yes these things could happen. To take it to the extreme, the entire SIPC could shut down, our brokers could raid our accounts, and we'd all be left penniless. Obviously an extreme example, but this is a question of where your limit of reasonableness is. As far as I know, they are a pretty reputable broker.

 

Thanks a lot! I am playing with their REG T margin account's platform right now. The UI needs a little bit of time to figure out, but not bad at all. Do you think I would need portfolio margin at all? I bet probably not? :)

[ageofsocrates]

Options settle the next day.  So instead of selling your common shares you can write deep-in-the-money calls (lowest strike on the market).

 

Get your cash tomorrow.

 

Eliminates 2 out of the 3 days in the settlement period.

 

Bonus:  you might not have to pay tax because you didn't sell your common.  See "constructive sale" rules -- I said "might".  You have to play by the rules in order to avoid the tax.

 

I wrote deep-in-the-money FFH calls, used the proceeds to buy ORH calls.  Then when ORH popped, I sold ORH and bought back the FFH calls.  I didn't owe tax on the FFH.  But if I'd instead sold the FFH shares, I would have needed to pay tax.

 

Thank you Eric. But waiting for a day still sounds inconvenient to me. because in my Fido cash account, I can sell a stock and immediately use that unsettled proceeds to buy anything, be it option or stock.

 

Are you using portfolio margin? Aren't you worried about their instant liquidation policy?

 

I was terrified of the instant liquidation policy before I understood was portfolio margin is -- then I switched from Reg-T to portfolio margin and I don't worry anymore.

 

Thank you Eric.  could u please tell me a bit more about portfolio margin?

I don't plan to actually use margin. I am just worried if ib platform would have a bug and force me to liquidate

 

Scneario:

1) $100,000 cash balance initially. 

2)  I purchase $190,000 worth of common stock, and $10,000 worth of puts using a $100,000 loan.  $200,000 total invested

3)  The puts are at-the-money

 

Okay, under Reg-T margin the account could be liquidated in a flash crash.

 

Under Portfolio Margin they can see that the puts completely protect the value of the loan they've extended me.  So I'm safe in a flash crash.

 

From their perspective, it's the same as if I invested $90,000 into the common stock and just put $10,000 into at-the-money calls (without taking a loan).

 

But instead of doing that with calls, I have the outstanding margin loan hedged with at-the-money puts.  It's non-recourse leverage at this point -- they know that and I know that. 

 

In my example I'm assuming puts and calls are at the money, and there is pricing parity.

 

Hi Eric,

 

Just a quick question. How  far out do u usually buy the puts for (i.e 6 mths or 1 year)?

 

I am holding 2015s presently.  I will roll them to 2016s within a few months of their issue.

 

 

Hi Eric,

 

Just wanted to hear your thoughts on this. Selling at the money puts in a margined account as a way to open a stock position (using margin). Subsequently, then using the premiums collected (from selling puts) to buy at the money puts to hedge

[rmitz]

Exactly. Having a margin account and going on margin (i.e. a negative cash balance) are two different things! Just open a margin account but keep a positive (or zero) cash balance!

 

Thank you LC and wachtwoord. My only worry is what would happen if IB's real time margin algo went wrong and thought I would need real time liquidation, but I actually didn't even buy on margin?

Or what would happen if I mistakenly put in one more zero for the number of shares to buy, and caused a big margin call?

Perhaps I was just being too extreme and frightened myself.

 

Yes these things could happen. To take it to the extreme, the entire SIPC could shut down, our brokers could raid our accounts, and we'd all be left penniless. Obviously an extreme example, but this is a question of where your limit of reasonableness is. As far as I know, they are a pretty reputable broker.

 

For what it's worth, I have only seen margin calls happen towards the very end of the trading day.  They seem to give float during the day, so you should have time to make any corrections for this kind of fat-fingered thing.

[Christopher1]

Potential 68$ mil. loss in 4Q due to accounts margined.

 

Full disclosure: I'm an IB customer

 

Extract from Q3 Conf. Call:

 

"This leads me to address the recent event that will likely result in a charge to the earnings in the fourth quarter. While we have a solid track record for minimizing customer and firm losses, thanks to our automated risk management controls, we are not completely immune to swift and unusual market movements.

 

A group of our brokerage customers took a large position in four stocks listed on the Singapore Stock Exchange. And in early October within a very short timeframe, these stocks lost over 90% of their volume. The accounts were margined and we were able to liquidate only a small part of the position. The accounts are currently in deficit to the extent of approximately $68 million.

 

We believe that the customers have substantial assets independent of the companies involved and we are currently organizing our legal team to collect on these debts. We are currently also in the process of modifying our margin lending methodology to limit the chances of similar events happening in the future"

[ItsAValueTrap]

Very interesting!

[siddharth18]

Wanted to post it here since this is an IB focused thread.

 

I'm long EBIX and it has a borrow/rebate rate of -40% according to IB's Short Stock Availability Tool:

 

 

http://i.imgur.com/7IvYlXj.png

 

But they are only counting the Market Fee Rate between 2-11% in my account.

 

Any idea why?

 

 

http://i.imgur.com/SAGO24w.png

[meiroy]

Exactly. Having a margin account and going on margin (i.e. a negative cash balance) are two different things! Just open a margin account but keep a positive (or zero) cash balance!

 

No, don't keep a zero cash balance, you might have some fees to be paid to IB and then you might get liquidated if excess liquidity is not enough  (IB do not issue margin calls, they just liquidate).  It's less of an issue with p.margin due to how excess liquidity is calculated but anyhow just play it safe if it's something you are worried about. You might also have payable interest from previous trades or on foreign currency etc.

 

 

[LC]

Exactly. Having a margin account and going on margin (i.e. a negative cash balance) are two different things! Just open a margin account but keep a positive (or zero) cash balance!

 

No, don't keep a zero cash balance, you might have some fees to be paid to IB and then you might get liquidated if excess liquidity is not enough  (IB do not issue margin calls, they just liquidate).  It's less of an issue with p.margin due to how excess liquidity is calculated but anyhow just play it safe if it's something you are worried about. You might also have payable interest from previous trades or on foreign currency etc.

 

Fair enough...I think though they would just take the fees on margin. That is how my broker handles it. Usually the fees are pretty small AFAIK...not enough to trigger a margin call/liquidation I wouldn't think. I may be wrong, though!