Interactive Brokers (Best Kept Secret)

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AlohaJoe
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Re: Interactive Brokers (Best Kept Secret)

Post by AlohaJoe »

AndroAsc wrote: Sat Sep 28, 2019 10:29 pm I'm trying to understand this margin loan thing from a few posts back. Is it possible to use it as an emergency fund? Is the loan callable?
Yes and yes.
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whodidntante
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Re: Interactive Brokers (Best Kept Secret)

Post by whodidntante »

AndroAsc wrote: Sat Sep 28, 2019 10:29 pm I'm trying to understand this margin loan thing from a few posts back. Is it possible to use it as an emergency fund? Is the loan callable?
Yes, you can use it as an emergency fund, whiskey purchases, or for any other need. The broker will sell securities to bring you back in line if you fall under maintenance margin.
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Re: Interactive Brokers (Best Kept Secret)

Post by rascott »

AndroAsc wrote: Sat Sep 28, 2019 10:29 pm I'm trying to understand this margin loan thing from a few posts back. Is it possible to use it as an emergency fund? Is the loan callable?

A loan is a loan. It's secured by your equity in your account. That's why it's much cheaper money than via an unsecured credit card. Margin is a relatively low risk loan.

If your equity collapses (below the requirements) , they will call your loan due. It's no different than any other debt other than its callable and constantly marked to market price. It's actually a very cheap way to borrow money, if you do it right.
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Re: Interactive Brokers (Best Kept Secret)

Post by bgreat »

Interactive Brokers are already so cheap, it's hard to understand the advantage. 30 cents per trade really isn't a big deal vs 0, except that it helps grab headlines and compete in the zero-commisison market. And of course, nice for new investors to not have minimums - but will conversion be possib/eeasy?
danaht
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Re: Interactive Brokers (Best Kept Secret)

Post by danaht »

RandomWord wrote: Sat Sep 28, 2019 7:22 pm
saver007 wrote: Tue Feb 27, 2018 10:51 pm

IB execution quality ( which probably matters more than commission but hard to measure) is said to be better than any other retail brokers. IB is connected to more liquidity pools and use smart order routing system meaning better chance of orders getting executed at favorable price. IB publishes a statistics saying their all in cost for executing is 3 or 4 basis points of trade value when comparing it against trade based on days volume weighted average price. Point is every single basis point matters...

So with this new IB Lite, you get free commissions but you won't get the superior execution quality. It would be nice if there was more data on how much that actually matters. It might actually be better to pay the small commission if it can get you a price that's 3 or 4 basis points better on each trade.
I don't really care if I have to pay a few pennies extra for stocks to get executed. I use limit orders and mostly just hold the ETFs (or stocks) that I buy for years/decades. I am going to try the IBKR Lite plan and as soon as I get an account that has $50,000 in it - will be lending my stocks/ETFs out as well. Hopefully there will be a lot of people who will want to short VOO/VTI soon so I can get some extra money from lending shares!
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indexfundfan
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Re: Interactive Brokers (Best Kept Secret)

Post by indexfundfan »

danaht wrote: Sun Sep 29, 2019 10:49 am I don't really care if I have to pay a few pennies extra for stocks to get executed. I use limit orders and mostly just hold the ETFs (or stocks) that I buy for years/decades. I am going to try the IBKR Lite plan and as soon as I get an account that has $50,000 in it - will be lending my stocks/ETFs out as well.
Just beware that there could be tax consequences (in a taxable account) if your shares are loaned out when there is a dividend distribution. The dividends will not qualify for the QDI dividend rate.
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danaht
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Re: Interactive Brokers (Best Kept Secret)

Post by danaht »

indexfundfan wrote: Sun Sep 29, 2019 10:53 am
danaht wrote: Sun Sep 29, 2019 10:49 am I don't really care if I have to pay a few pennies extra for stocks to get executed. I use limit orders and mostly just hold the ETFs (or stocks) that I buy for years/decades. I am going to try the IBKR Lite plan and as soon as I get an account that has $50,000 in it - will be lending my stocks/ETFs out as well.
Just beware that there could be tax consequences (in a taxable account) if your shares are loaned out when there is a dividend distribution. The dividends will not qualify for the QDI dividend rate.
Good point. If they offer IBKR lite accounts for Roth. I may open one and transfer some of my ETFs and stocks in a Roth account to be loaned out. I hold a few stocks that are heavily shorted right now - and would like to get the extra $ from the short sellers.
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oneleaf
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Re: Interactive Brokers (Best Kept Secret)

Post by oneleaf »

bgreat wrote: Sun Sep 29, 2019 5:11 am Interactive Brokers are already so cheap, it's hard to understand the advantage. 30 cents per trade really isn't a big deal vs 0, except that it helps grab headlines and compete in the zero-commisison market. And of course, nice for new investors to not have minimums - but will conversion be possib/eeasy?
I think the minimum $10/month fee (meaning you had to spend at least that much in commissions or else be charged the difference) was a bigger deal than the actual fees themselves..
HEDGEFUNDIE
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Re: Interactive Brokers (Best Kept Secret)

Post by HEDGEFUNDIE »

At IBKR How much can you borrow on margin as a % of assets?
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indexfundfan
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Re: Interactive Brokers (Best Kept Secret)

Post by indexfundfan »

HEDGEFUNDIE wrote: Sun Sep 29, 2019 1:06 pm At IBKR How much can you borrow on margin as a % of assets?
I used to have portfolio margin (not Reg T) at IBKR. The maintenance requirement was about 15% with the diversified portfolio that I had.
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HEDGEFUNDIE
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Re: Interactive Brokers (Best Kept Secret)

Post by HEDGEFUNDIE »

indexfundfan wrote: Sun Sep 29, 2019 1:09 pm
HEDGEFUNDIE wrote: Sun Sep 29, 2019 1:06 pm At IBKR How much can you borrow on margin as a % of assets?
I used to have portfolio margin (not Reg T) at IBKR. The maintenance requirement was about 15% with the diversified portfolio that I had.
Put another way, they let you borrow 666% of your assets?
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Re: Interactive Brokers (Best Kept Secret)

Post by indexfundfan »

HEDGEFUNDIE wrote: Sun Sep 29, 2019 1:13 pm
indexfundfan wrote: Sun Sep 29, 2019 1:09 pm
HEDGEFUNDIE wrote: Sun Sep 29, 2019 1:06 pm At IBKR How much can you borrow on margin as a % of assets?
I used to have portfolio margin (not Reg T) at IBKR. The maintenance requirement was about 15% with the diversified portfolio that I had.
Put another way, they let you borrow 666% of your assets?
No. Your debt can reach 85% before you get a margin call.

FWIW, I have heard that IBKR is absolutely "ruthless" with the margin ratios. Your assets will be liquidated without warning if their value falls below the required margin. And of course they could absolutely change the maintenance requirement, so I would stay far away from the 15% requirement.
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Tanelorn
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Re: Interactive Brokers (Best Kept Secret)

Post by Tanelorn »

You guys are saying the same thing. Borrowing 6.6x your equity is the same as having up to 85% debt/assets (when you’re financing most of your asssets via margin). The margin requirements are lower than 15% for some larger ETF (9-10%), and lower still for futures and treasuries. Of course all those are very liquid markets so they aren’t taking much risk loaning you funds against SPY or treasuries or whatnot since they can always sell them to protect their loan if your equity starts dropped too much.
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Re: Interactive Brokers (Best Kept Secret)

Post by AlohaJoe »

danaht wrote: Sun Sep 29, 2019 10:49 am Hopefully there will be a lot of people who will want to short VOO/VTI soon so I can get some extra money from lending shares!
You're going to be disappointed :o . There's just not much lending in the large cap space. For one thing, people can already borrow all of the underlying shares easily from Vanguard, Fidelity, and iShares in massive volumes. For another, there are millions of other investors also willing to lend VOO and VTI.

I hold a US large cap ETF at IB. With $50,000 in shares, you'd be looking at, best case, $4-5 each day it is lent out. Last month mine was borrowed for 8 days total. The month before 3 days. In June it wasn't borrowed at all. So you'd be looking at $55 for 3 months of securities lending. And that's pre-tax, don't forget you need to pay your full marginal tax rate on it, so post-tax that's more like maybe $40. Or $13 a month.

Don't get me wrong. It more than pays for any trading I do, so I'm not complaining. But it is really just pocket change most of the time, so you need to set expectations for that. I have 7-figures at IB and my total securities lending income last month was just $61.
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Re: Interactive Brokers (Best Kept Secret)

Post by saver007 »

This website https://iborrowdesk.com has good data giving insight into the security lending market.

VTI lending rate is now tiny .3% and there is a lot of supply/availability at the moment. IB will only lend out SYEP shares after it's natural supply from accounts with margin borrowing runs out.

ICSH has higher rate(5.5%) but availability is also high. So not much lending happening in my account. My ICSH used to be lend out 5-10 days a month pretty consistently but it has dried up for a few months now.
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indexfundfan
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Re: Interactive Brokers (Best Kept Secret)

Post by indexfundfan »

Tanelorn wrote: Sun Sep 29, 2019 7:06 pm You guys are saying the same thing. Borrowing 6.6x your equity is the same as having up to 85% debt/assets (when you’re financing most of your asssets via margin).
Except that HEDGEFUNDIE asked about "borrowing 666% of your assets", not 666% of your equity. Here is his question:
HEDGEFUNDIE wrote: Sun Sep 29, 2019 1:13 pm Put another way, they let you borrow 666% of your assets?
Equity = Asset Value - Debt.

For example, if your house (asset) is worth $1m, and your mortgage is $850k (debt), the equity you have in the house is $150k (15%). You borrowed 85% of the value of your asset, not 666%. Borrowing 666% of asset value would mean your debt is 6.66 x 1m = $6.66m.
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RandomWord
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Re: Interactive Brokers (Best Kept Secret)

Post by RandomWord »

danaht wrote: Sun Sep 29, 2019 10:49 am
RandomWord wrote: Sat Sep 28, 2019 7:22 pm
saver007 wrote: Tue Feb 27, 2018 10:51 pm

IB execution quality ( which probably matters more than commission but hard to measure) is said to be better than any other retail brokers. IB is connected to more liquidity pools and use smart order routing system meaning better chance of orders getting executed at favorable price. IB publishes a statistics saying their all in cost for executing is 3 or 4 basis points of trade value when comparing it against trade based on days volume weighted average price. Point is every single basis point matters...

So with this new IB Lite, you get free commissions but you won't get the superior execution quality. It would be nice if there was more data on how much that actually matters. It might actually be better to pay the small commission if it can get you a price that's 3 or 4 basis points better on each trade.
I don't really care if I have to pay a few pennies extra for stocks to get executed. I use limit orders and mostly just hold the ETFs (or stocks) that I buy for years/decades. I am going to try the IBKR Lite plan and as soon as I get an account that has $50,000 in it - will be lending my stocks/ETFs out as well. Hopefully there will be a lot of people who will want to short VOO/VTI soon so I can get some extra money from lending shares!
Well, the commission is also half a penny per share, so it's not like this is a ton of money either way. There aren't that many people shorting the big index funds either, so that'll also be very little money.
Tanelorn
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Re: Interactive Brokers (Best Kept Secret)

Post by Tanelorn »

indexfundfan wrote: Mon Sep 30, 2019 6:09 am
Tanelorn wrote: Sun Sep 29, 2019 7:06 pm You guys are saying the same thing. Borrowing 6.6x your equity is the same as having up to 85% debt/assets (when you’re financing most of your asssets via margin).
Except that HEDGEFUNDIE asked about "borrowing 666% of your assets", not 666% of your equity. Here is his question:
HEDGEFUNDIE wrote: Sun Sep 29, 2019 1:13 pm Put another way, they let you borrow 666% of your assets?
Well I think his question was about how much you could borrow from your assets before you were using margin, so in that case your equity is equal to your assets initially and you can borrow 6.6 more. Again, we’re saying the same thing.
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Re: Interactive Brokers (Best Kept Secret)

Post by indexfundfan »

Tanelorn wrote: Thu Oct 03, 2019 9:55 am
indexfundfan wrote: Mon Sep 30, 2019 6:09 am
Tanelorn wrote: Sun Sep 29, 2019 7:06 pm You guys are saying the same thing. Borrowing 6.6x your equity is the same as having up to 85% debt/assets (when you’re financing most of your asssets via margin).
Except that HEDGEFUNDIE asked about "borrowing 666% of your assets", not 666% of your equity. Here is his question:
HEDGEFUNDIE wrote: Sun Sep 29, 2019 1:13 pm Put another way, they let you borrow 666% of your assets?
Well I think his question was about how much you could borrow from your assets before you were using margin, so in that case your equity is equal to your assets initially and you can borrow 6.6 more. Again, we’re saying the same thing.
No. By your argument, if you have a $1m asset, you can borrow $6.6m?
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Tanelorn
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Re: Interactive Brokers (Best Kept Secret)

Post by Tanelorn »

indexfundfan wrote: Thu Oct 03, 2019 10:04 am No. By your argument, if you have a $1m asset, you can borrow $6.6m?
If you haven’t borrowed against the $1M so far, yes.
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Re: Interactive Brokers (Best Kept Secret)

Post by indexfundfan »

Tanelorn wrote: Thu Oct 03, 2019 11:32 am
indexfundfan wrote: Thu Oct 03, 2019 10:04 am No. By your argument, if you have a $1m asset, you can borrow $6.6m?
If you haven’t borrowed against the $1M so far, yes.
This would mean that the financial institution is giving you a loan that is larger than the collateral ($1m) they have.
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Tanelorn
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Re: Interactive Brokers (Best Kept Secret)

Post by Tanelorn »

indexfundfan wrote: Thu Oct 03, 2019 11:35 am
Tanelorn wrote: Thu Oct 03, 2019 11:32 am
indexfundfan wrote: Thu Oct 03, 2019 10:04 am No. By your argument, if you have a $1m asset, you can borrow $6.6m?
If you haven’t borrowed against the $1M so far, yes.
This would mean that the financial institution is giving you a loan that is larger than the collateral ($1m) they have.
That’s correct, becuase once you use it to buy more stocks, they have those as collateral too. For liquid stocks, they can sell them whenever they want in a margin call if you get close to a situation where the broker might lose money instead of just you losing your equity.
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Re: Interactive Brokers (Best Kept Secret)

Post by fivedots »

I understand IBKR pays interest on cash in your account over $10,000. What is recommended for cash balances under 10,000? Is there a money market fund that cash can be swept into?
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Re: Interactive Brokers (Best Kept Secret)

Post by AlohaJoe »

fivedots wrote: Mon Nov 04, 2019 10:24 am I understand IBKR pays interest on cash in your account over $10,000. What is recommended for cash balances under 10,000? Is there a money market fund that cash can be swept into?
From IB's FAQ:

FAQ: Do you offer a money market fund for unused cash?

www.interactivebrokers.com/lib/cstools/ ... copiedLink

Most mutual funds have a $10,000 minimum though, so just buy an ETF. ICSH, SHV, BIL, etc.
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Re: Interactive Brokers (Best Kept Secret)

Post by fivedots »

Let's say I had a cash back credit card that I wanted to pay off every month. Can that bill be paid from my IBKR brokerage account? I see they offer "cash management", but I'm not sure what that means in practice. Would I have to actively manage this transaction every month? Or can the credit card company automatically pull the amount they need to pay off the balance-in-full each month?
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Re: Interactive Brokers (Best Kept Secret)

Post by rama13 »

fivedots wrote: Mon Nov 04, 2019 11:21 am Let's say I had a cash back credit card that I wanted to pay off every month. Can that bill be paid from my IBKR brokerage account? I see they offer "cash management", but I'm not sure what that means in practice. Would I have to actively manage this transaction every month? Or can the credit card company automatically pull the amount they need to pay off the balance-in-full each month?
You *can*, but I wouldn't recommend it. Direct debits require authorization through their app. The time window on this is pretty limited. Also, if the debit is small enough, it won't require authorization. But then if another debit happens that pushes it over their unpublished limit, then you need to authorize each one, even if that debit previously didn't need authorization and you might only have a couple hours to do it. In practice, this was a complete nightmare with many returned payment fees and finance charges on the credit cards I was trying to pay.

Note that this experience is for direct debits (ACH). I did not try their bill pay. After a few months of trying their system out, I returned all my cash management back to Fidelity.
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Re: Interactive Brokers (Best Kept Secret)

Post by hungrywave »

rama13 wrote: Mon Nov 04, 2019 11:54 am
fivedots wrote: Mon Nov 04, 2019 11:21 am Let's say I had a cash back credit card that I wanted to pay off every month. Can that bill be paid from my IBKR brokerage account? I see they offer "cash management", but I'm not sure what that means in practice. Would I have to actively manage this transaction every month? Or can the credit card company automatically pull the amount they need to pay off the balance-in-full each month?
You *can*, but I wouldn't recommend it. Direct debits require authorization through their app. The time window on this is pretty limited. Also, if the debit is small enough, it won't require authorization. But then if another debit happens that pushes it over their unpublished limit, then you need to authorize each one, even if that debit previously didn't need authorization and you might only have a couple hours to do it. In practice, this was a complete nightmare with many returned payment fees and finance charges on the credit cards I was trying to pay.

Note that this experience is for direct debits (ACH). I did not try their bill pay. After a few months of trying their system out, I returned all my cash management back to Fidelity.
Wow! This is super helpful! I’ll need to look more into Fidelity cash management. Ideally I’d like something like my chase checking but with more interest...
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Re: Interactive Brokers (Best Kept Secret)

Post by 1130Super »

Yes it could be a source of an emergency fund the same way a HELOC could be used as one. I’m one that doesn’t want to tie up 6 months income in cash earning peanuts in an emergency fund that I’ll rally ever need.
It could be callable depending on how high leverage you use and how severe the market crashes. With my taxable account with IB I would only use around 30% leverage (for example buy 130k of stock with 100k funds) and I feel comfortable doing so. I calculate that the portfolio would have to crash just over 60% before I would get a margin call even if they raised the margin requirement to 40% from 25%.

Now I don’t Necessarily recommend margin accounts for people that do not know what they are doing, and do not know the risks. For example if you go crazy and go in with 100% leverage (buy 200k of stock with 100k funds) you would only need a 17% correction before you get a margin call. (I’m assuming that they would change maintenance margin to 40% from 25% which is unlikely but within the realm of possibility.)
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Re: Interactive Brokers (Best Kept Secret)

Post by hungrywave »

1130Super wrote: Thu Nov 14, 2019 8:28 am Yes it could be a source of an emergency fund the same way a HELOC could be used as one. I’m one that doesn’t want to tie up 6 months income in cash earning peanuts in an emergency fund that I’ll rally ever need.
It could be callable depending on how high leverage you use and how severe the market crashes. With my taxable account with IB I would only use around 30% leverage (for example buy 130k of stock with 100k funds) and I feel comfortable doing so. I calculate that the portfolio would have to crash just over 60% before I would get a margin call even if they raised the margin requirement to 40% from 25%.

Now I don’t Necessarily recommend margin accounts for people that do not know what they are doing, and do not know the risks. For example if you go crazy and go in with 100% leverage (buy 200k of stock with 100k funds) you would only need a 17% correction before you get a margin call. (I’m assuming that they would change maintenance margin to 40% from 25% which is unlikely but within the realm of possibility.)
Nice analysis! I have run similar numbers and come to similar conclusions. I had a hard time finding evidence to suggest what IBKR might raise their margin requirements to during a severe downturn but 40% seems reasonable. I guess if I REALLY needed to I could always find cash somewhere (eg credit card promotional checks) given that, in such a crash, expected returns would likely be high. But I know that sounds crazy to many Bogleheads. Certainly, I wouldn't enter drawdown with any leverage (and more likely 3 years of living expenses in unleveraged, short term bond fund).

I would add that I have calculated my tolerance for leverage based on assumptions of a 50% drawdown over 6 months with a 40% margin requirement. I then calculate how much excess cash flow would be required to stay ahead of the margin call (or automatic liquidation, in that case of IBKR). I set my margin based on my cash flow. As my portfolio gets larger, my tolerance for margin decreases as my cash flow becomes a relatively smaller proportion of the portfolio.
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Andymoler58
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Re: Interactive Brokers (Best Kept Secret)

Post by Andymoler58 »

Yes, I’ve been saying this exact same thing for years.

The other brokerages are a joke with their margin rates.

The only minor complaint that I have with IB is that they really raise the mx maintenance margin requirements in Times with heightened volatility like now.

My margin to equity ratio was 20-25% before this pandemic and then your account value drops 30% and all the sudden the mx margin is now 50%.

They said they’d lower the requirement once the volatility subsides though.

I went and took out a mortgage recently to pay down the margin debt quite a bit

I would just say, don’t leverage up more than 10-15% on margin
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Re: Interactive Brokers (Best Kept Secret)

Post by Tanelorn »

Andymoler58 wrote: Tue Apr 07, 2020 5:23 am The only minor complaint that I have with IB is that they really raise the mx maintenance margin requirements in Times with heightened volatility like now.

My margin to equity ratio was 20-25% before this pandemic and then your account value drops 30% and all the sudden the mx margin is now 50%.
Yeah, they have really been increasing the margin requirements on everything the last week or so. After the big crash mind you, but that’s always how it is. They haven’t been particularly transparent about it either.
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Re: Interactive Brokers (Best Kept Secret)

Post by deltaneutral83 »

Tanelorn wrote: Tue Apr 07, 2020 7:13 am
Andymoler58 wrote: Tue Apr 07, 2020 5:23 am The only minor complaint that I have with IB is that they really raise the mx maintenance margin requirements in Times with heightened volatility like now.

My margin to equity ratio was 20-25% before this pandemic and then your account value drops 30% and all the sudden the mx margin is now 50%.
Yeah, they have really been increasing the margin requirements on everything the last week or so. After the big crash mind you, but that’s always how it is. They haven’t been particularly transparent about it either.
I'm just curious but doesn't the fact that they aren't transparent about raising the LTV that drastically nullify the benefits? I would imagine there are plenty of BH who have a nice taxable account and if they are moving instead of getting out of the market partially they can hold their equities at IB and take out a margin loan for the down payment of the home they are moving into while not being out of the market at a low margin rate 2% and then pay down the margin loan with the sell of home #1 a month or two later? It seems as if your example has reverse engineered the process in that you took a mortgage to pay down the margin loan because they jacked the LTV up to 50% after a 35% drop. My question ultimately to myself is what's the point if they can pull the rug out from under you at the exact inopportune time, I assume its in the really small fine print on page 92 of your margin docs?
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Re: Interactive Brokers (Best Kept Secret)

Post by Oregano »

I opened an IB account during the market drop last month because I wanted to move a Schwab margin account to IB to drastically reduce the margin interest rate (Schwab is ridiculously high). However, I ended up not moving it to IB after all because it turned out not to do ANY of the things I wanted to do. Some of this is certainly based on my style of investing/trading, but boy was I not happy.

The two main issues:
1. By far the most disappointing considering that it is a margin account is that I could only put in limit orders whose total potential trade values does not exceed my buying power. This would have completely ruined my strategy of buying securities in a rapidly declining market. At Schwab, even if I had, say $100,000 of buying power, I can enter limit orders below the market prices for a variety of securities that add up to way more than $100,000. The idea in mid-March was to capture panic selling in real-time, not knowing exactly which limits would get hit for which particular securities. If orders get filled and I actually get close to using up a lot of my buying power, then I go out and cancel some of the limit orders to make sure I don't violate initial margin requirements.

2. Can't buy (or even transfer in) ANY variable rate bonds - their systems simply can't handle them even though I have had retail accounts at Schwab and Etrade that can handle them just fine. Probably not an issue for most investors, but I buy both fixed and variable rate bonds.

So I can't say strongly enough how disappointed I was thinking that IB would be a "trader's paradise" and it turned out to be the worst brokerage account I have ever imagined for how I trade.

I kept the IB account open with a small amount of cash because if I do run up a margin balance (I had a small one at Schwab for a short period of time, then added more cash to get out of margin, and in the last few days have been selling positions), I will transfer everything to IB and leave them there to get the low margin rate. But I'm only going to do that if we get another steep decline in the market. I think that is likely, but not guaranteed.
rama13
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Re: Interactive Brokers (Best Kept Secret)

Post by rama13 »

Was that IBKR Pro or Lite?
Dovahkiin
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Re: Interactive Brokers (Best Kept Secret)

Post by Dovahkiin »

Oregano wrote: Fri Apr 10, 2020 9:01 pm At Schwab, even if I had, say $100,000 of buying power, I can enter limit orders below the market prices for a variety of securities that add up to way more than $100,000.
Wow! That's umm..., how to put it lightly, breaking Reg-T/FINRA rules. Under Reg-T any outstanding limit order needs to use buying power equal to the limit order even if it's not executed. I don't know about portfolio margin though but I'd imagine PM is the same way. Generally only at places like proprietary trading firms will you get that behavior where your "buying power" or available margin is reduced on actual order fills.

For retail the only way legally around this to execute trades like you're doing is if you have a $5 million+ of equity in a portfolio margin account and establish a relationship with a prime brokerage. Under that you can trade away from your broker and clear your trades at the end of the day. With a $5m+ account you're not subject to intraday monitoring, and also not subject to changing margin requirements like IBKR does with smaller portfolio margin accounts. Pretty much the only rule is you have to net out at $5m equity end of day otherwise you'll probably lose your relationship with the prime broker.

https://www.finra.org/rules-guidance/ke ... q#intraday

So, I'm impressed that Schwab has this loophole. Keep it up! Just don't be upset if they close it down at some day.
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Re: Interactive Brokers (Best Kept Secret)

Post by IndexCore »

Andymoler58 wrote: Tue Apr 07, 2020 5:23 am My margin to equity ratio was 20-25% before this pandemic and then your account value drops 30% and all the sudden the mx margin is now 50%.
I just opened and funded an IBKR Pro account with $3,000 and my buying power is listed as $12,000. Which doesn't contradict what you said - cash can have a 25% margin requirement while other investments don't.

My guess is that they might impose increasing levels of margin:
cash, index ETFs, individual stocks, leveraged ETFs, options.

But I don't really know... I'd be curious if you can figure out which category of investment requires 50% margin right now.
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Re: Interactive Brokers (Best Kept Secret)

Post by Tanelorn »

Dovahkiin wrote: Fri Apr 10, 2020 9:21 pm
Oregano wrote: Fri Apr 10, 2020 9:01 pm At Schwab, even if I had, say $100,000 of buying power, I can enter limit orders below the market prices for a variety of securities that add up to way more than $100,000.
Wow! That's umm..., how to put it lightly, breaking Reg-T/FINRA rules. Under Reg-T any outstanding limit order needs to use buying power equal to the limit order even if it's not executed. I don't know about portfolio margin though but I'd imagine PM is the same way. Generally only at places like proprietary trading firms will you get that behavior where your "buying power" or available margin is reduced on actual order fills.
I’m not sure about that, but for IB in practice you can enter lots of orders, possibly in excess of your buying power in aggregate. There is some limit, where they can’t be too large relative to your available margin, so they’ve clearly thought about this and have steps to limit their risk. In addition, if you get filled on one and it uses up all your buying power, their system will automatically cancel the rest nearly instantaneously. Of course it’s possible you might get filled on several very quickly, which could put you in a margin call and then their system would sell you out of something fairly soon if you didn’t do so yourself.

For Schwab and even Vanguard, remember you only have to pay for trades T+2 days later, so if you bring in extra money to pay in time, that’s still fine. Of course the broker is taking some risk that you actually do this, but both of these I know will allow you to make some trades, not too large vs your account size, if you have a pending bank deposit or wire in progress to pay for them even if you have no buying power at the time.
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Re: Interactive Brokers (Best Kept Secret)

Post by saver007 »

Oregano wrote: Fri Apr 10, 2020 9:01 pm I opened an IB account during the market drop last month because I wanted to move a Schwab margin account to IB to drastically reduce the margin interest rate (Schwab is ridiculously high). However, I ended up not moving it to IB after all because it turned out not to do ANY of the things I wanted to do. Some of this is certainly based on my style of investing/trading, but boy was I not happy.

The two main issues:
1. By far the most disappointing considering that it is a margin account is that I could only put in limit orders whose total potential trade values does not exceed my buying power. This would have completely ruined my strategy of buying securities in a rapidly declining market. At Schwab, even if I had, say $100,000 of buying power, I can enter limit orders below the market prices for a variety of securities that add up to way more than $100,000. The idea in mid-March was to capture panic selling in real-time, not knowing exactly which limits would get hit for which particular securities. If orders get filled and I actually get close to using up a lot of my buying power, then I go out and cancel some of the limit orders to make sure I don't violate initial margin requirements.

2. Can't buy (or even transfer in) ANY variable rate bonds - their systems simply can't handle them even though I have had retail accounts at Schwab and Etrade that can handle them just fine. Probably not an issue for most investors, but I buy both fixed and variable rate bonds.

So I can't say strongly enough how disappointed I was thinking that IB would be a "trader's paradise" and it turned out to be the worst brokerage account I have ever imagined for how I trade.

I kept the IB account open with a small amount of cash because if I do run up a margin balance (I had a small one at Schwab for a short period of time, then added more cash to get out of margin, and in the last few days have been selling positions), I will transfer everything to IB and leave them there to get the low margin rate. But I'm only going to do that if we get another steep decline in the market. I think that is likely, but not guaranteed.

Be sure to read through documentation available in IB page. Check out below link especially the examples mentioned in the bottom of the page.
https://www.interactivebrokers.com/en/index.php?f=24862
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Re: Interactive Brokers (Best Kept Secret)

Post by Oregano »

Dovahkiin wrote: Fri Apr 10, 2020 9:21 pm
Oregano wrote: Fri Apr 10, 2020 9:01 pm At Schwab, even if I had, say $100,000 of buying power, I can enter limit orders below the market prices for a variety of securities that add up to way more than $100,000.
Wow! That's umm..., how to put it lightly, breaking Reg-T/FINRA rules. Under Reg-T any outstanding limit order needs to use buying power equal to the limit order even if it's not executed. I don't know about portfolio margin though but I'd imagine PM is the same way. Generally only at places like proprietary trading firms will you get that behavior where your "buying power" or available margin is reduced on actual order fills.

For retail the only way legally around this to execute trades like you're doing is if you have a $5 million+ of equity in a portfolio margin account and establish a relationship with a prime brokerage. Under that you can trade away from your broker and clear your trades at the end of the day. With a $5m+ account you're not subject to intraday monitoring, and also not subject to changing margin requirements like IBKR does with smaller portfolio margin accounts. Pretty much the only rule is you have to net out at $5m equity end of day otherwise you'll probably lose your relationship with the prime broker.

https://www.finra.org/rules-guidance/ke ... q#intraday

So, I'm impressed that Schwab has this loophole. Keep it up! Just don't be upset if they close it down at some day.
Well, I didn't keep receipts but I'm pretty sure I did this in mid-March. I just went into my account to test it again with a huge limit order and it let me enter it. Now, the market isn't open right now, so maybe someone at Schwab would see it on Monday morning and cancel it, I don't know (I cancelled it because I didn't want to leave it open).

I've had a margin account for just under a month (opportunity struck, so I went after it), so I assumed what I was doing with all those limit orders was standard. Maybe not. I just know IB was not letting me do what I wanted.

When I opened the Schwab account, it had something that I didn't expect. It asked if I wanted to use my other Schwab accounts as collateral for this account. I chose yes because it allowed the account to be opened immediately instead of having to go through the usual process to approve a margin account, and time was of the essence. I don't know that it has anything to do with it, because the buying power on the margin account is clearly based only on the values in the margin account. I assume the idea is that Schwab would pull from my other accounts if there was a margin call - I didn't look to closely at the details because the probability of me getting a margin call is nil. Not to mention that all of my other assets at Schwab are retirement accounts and I don't think they legally be used as collateral!
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Re: Interactive Brokers (Best Kept Secret)

Post by Oregano »

Tanelorn wrote: Fri Apr 10, 2020 10:05 pm For Schwab and even Vanguard, remember you only have to pay for trades T+2 days later, so if you bring in extra money to pay in time, that’s still fine. Of course the broker is taking some risk that you actually do this, but both of these I know will allow you to make some trades, not too large vs your account size, if you have a pending bank deposit or wire in progress to pay for them even if you have no buying power at the time.
Perhaps that is the difference? IB does not actually have margin calls. They just monitor your account in real-time and start liquidating holdings if you are below your margin requirements. Whereas with Schwab, you can add cash to the account to cover a margin call. I don't know.
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Re: Interactive Brokers (Best Kept Secret)

Post by Tanelorn »

Oregano wrote: Fri Apr 10, 2020 10:33 pm When I opened the Schwab account, it had something that I didn't expect. It asked if I wanted to use my other Schwab accounts as collateral for this account. I chose yes because it allowed the account to be opened immediately instead of having to go through the usual process to approve a margin account, and time was of the essence. I don't know that it has anything to do with it, because the buying power on the margin account is clearly based only on the values in the margin account. I assume the idea is that Schwab would pull from my other accounts if there was a margin call - I didn't look to closely at the details because the probability of me getting a margin call is nil. Not to mention that all of my other assets at Schwab are retirement accounts and I don't think they legally be used as collateral!
Theres a difference between what you can legally do and what you'd want to happen regarding IRAs, including regarding "prohibited transactions" for retirement accounts. I have read one example at a different broker where an account using options and margin managed to go negative due to a very unlucky move around options expiration. Long story short, the fine print of their margin agreement allowed the broker to use any other accounts the person had at that broker as collateral and when the person didn't pay off the negative balance, the broker subsequently took a large distribution from their IRA and transferred it to their negative account. Of course this generated all sorts of tax problems for the individual, likely including a large tax bill and premature distribution penalties, so be careful what you do with margin if you've got retirement accounts in the same place. As always, read what you agree to!
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Re: Interactive Brokers (Best Kept Secret)

Post by Oregano »

Tanelorn wrote: Sat Apr 11, 2020 7:47 am Theres a difference between what you can legally do and what you'd want to happen regarding IRAs, including regarding "prohibited transactions" for retirement accounts. I have read one example at a different broker where an account using options and margin managed to go negative due to a very unlucky move around options expiration. Long story short, the fine print of their margin agreement allowed the broker to use any other accounts the person had at that broker as collateral and when the person didn't pay off the negative balance, the broker subsequently took a large distribution from their IRA and transferred it to their negative account. Of course this generated all sorts of tax problems for the individual, likely including a large tax bill and premature distribution penalties, so be careful what you do with margin if you've got retirement accounts in the same place. As always, read what you agree to!
As I mentioned above, I have no intention to ever be close to getting a margin call. Having a margin account provides a lot of trading flexibility, but my intent is not to actually maintain a large margin balance.

Last note about Schwab, when I put in a limit order that would theoretically push me past my total buying power (counting all open limit orders) they actually do have a warning noting that I may be overspending my account and I have to check a box confirming I understand it before I can submit the trade. So as far as I can tell, this is a normal issue for their accounts and I am not getting some sort of mistaken exception.
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Re: Interactive Brokers (Best Kept Secret)

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occambogle had asked a question in this thread. I moved the question and replies back into his original thread. See: Re: Interactive Brokers (Best Kept Secret)
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Re: Interactive Brokers (Best Kept Secret)

Post by whodidntante »

Oregano wrote: Fri Apr 10, 2020 10:35 pm
Tanelorn wrote: Fri Apr 10, 2020 10:05 pm For Schwab and even Vanguard, remember you only have to pay for trades T+2 days later, so if you bring in extra money to pay in time, that’s still fine. Of course the broker is taking some risk that you actually do this, but both of these I know will allow you to make some trades, not too large vs your account size, if you have a pending bank deposit or wire in progress to pay for them even if you have no buying power at the time.
Perhaps that is the difference? IB does not actually have margin calls. They just monitor your account in real-time and start liquidating holdings if you are below your margin requirements. Whereas with Schwab, you can add cash to the account to cover a margin call. I don't know.
Is liquidation really so bad though? You can add money and open the position again. And if you don't have the money to do that, you would have been unable to maintain the positions regardless.
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Re: Interactive Brokers (Best Kept Secret)

Post by petulant »

whodidntante wrote: Sat Apr 11, 2020 11:27 am
Oregano wrote: Fri Apr 10, 2020 10:35 pm
Tanelorn wrote: Fri Apr 10, 2020 10:05 pm For Schwab and even Vanguard, remember you only have to pay for trades T+2 days later, so if you bring in extra money to pay in time, that’s still fine. Of course the broker is taking some risk that you actually do this, but both of these I know will allow you to make some trades, not too large vs your account size, if you have a pending bank deposit or wire in progress to pay for them even if you have no buying power at the time.
Perhaps that is the difference? IB does not actually have margin calls. They just monitor your account in real-time and start liquidating holdings if you are below your margin requirements. Whereas with Schwab, you can add cash to the account to cover a margin call. I don't know.
Is liquidation really so bad though? You can add money and open the position again. And if you don't have the money to do that, you would have been unable to maintain the positions regardless.
Could be tax issues
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Re: Interactive Brokers (Best Kept Secret)

Post by whodidntante »

petulant wrote: Sat Apr 11, 2020 11:35 am
whodidntante wrote: Sat Apr 11, 2020 11:27 am
Oregano wrote: Fri Apr 10, 2020 10:35 pm
Tanelorn wrote: Fri Apr 10, 2020 10:05 pm For Schwab and even Vanguard, remember you only have to pay for trades T+2 days later, so if you bring in extra money to pay in time, that’s still fine. Of course the broker is taking some risk that you actually do this, but both of these I know will allow you to make some trades, not too large vs your account size, if you have a pending bank deposit or wire in progress to pay for them even if you have no buying power at the time.
Perhaps that is the difference? IB does not actually have margin calls. They just monitor your account in real-time and start liquidating holdings if you are below your margin requirements. Whereas with Schwab, you can add cash to the account to cover a margin call. I don't know.
Is liquidation really so bad though? You can add money and open the position again. And if you don't have the money to do that, you would have been unable to maintain the positions regardless.
Could be tax issues
True. I've booked substantial capital losses with some of my positions going down 35%-50% in the COVID-19 panic of 2020. So I doubt a broker picking position A versus position B to liquidate would impact my tax liability at all. Surely we've all been tax-loss harvesting, right? :twisted:
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Post by Taylor Larimore »

whodidntante wrote:
I've booked substantial capital losses with some of my positions going down 35%-50% in the COVID-19 panic of 2020. So I doubt a broker picking position A versus position B to liquidate would impact my tax liability at all. Surely we've all been tax-loss harvesting, right?
whodidntante:

"right?" Maybe not. Read this:

9 Reasons Not to Tax Loss Harvest

Best wishes
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Re: Interactive Brokers (Best Kept Secret)

Post by Oregano »

whodidntante wrote: Sat Apr 11, 2020 11:27 am Is liquidation really so bad though? You can add money and open the position again. And if you don't have the money to do that, you would have been unable to maintain the positions regardless.
Ask any investor if they would like to choose which investments to sell to meet the margin call, or be fine with whatever the broker picks, and I think you will find 100% favor the former.
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Re: Interactive Brokers (Best Kept Secret)

Post by saver007 »

Oregano wrote: Sat Apr 11, 2020 1:55 pm
whodidntante wrote: Sat Apr 11, 2020 11:27 am Is liquidation really so bad though? You can add money and open the position again. And if you don't have the money to do that, you would have been unable to maintain the positions regardless.
Ask any investor if they would like to choose which investments to sell to meet the margin call, or be fine with whatever the broker picks, and I think you will find 100% favor the former.
Somewhere in IB systems, one can specify priority order for liquidating security.. I never use it but I know the functionality exist. Also if you have portfolio margin account, you have the option of buying hedging Option position to temporarily decrease/eliminate margin reqirement although that has some cost to it.

Anyhow, beauty of IB is it's clean balance sheet - no good will, no intangibles or very little long term liability, no mortgage backed securities,etc... And it's pretax margin is 60%!! Not even money printing business like Visa, Master Card has 60% pretax margin.
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Re: Interactive Brokers (Best Kept Secret)

Post by Tanelorn »

saver007 wrote: Sat Apr 11, 2020 2:31 pm Somewhere in IB systems, one can specify priority order for liquidating security.. I never use it but I know the functionality exist.
That feature is called “liquidate last” and you can set yes/no flag for each position. It’s not absolute, but presumably their system tries to sell other securities first to meet margin calls than those you’ve designated. In my experience, the IB system does a pretty good job of picking which stocks or futures to liquidate if a call arises. I hear they may be less good if you have lots of options or complex options spreads.
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