Interactive Brokers (Best Kept Secret)

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
hithere
Posts: 94
Joined: Sat Mar 31, 2018 5:30 am

Re: Interactive Brokers (Best Kept Secret)

Post by hithere »

AlohaJoe wrote: Fri Apr 23, 2021 8:00 am
hithere wrote: Fri Apr 23, 2021 7:12 am That's why I'm trying to figure out what is the worst case scenario for this end-of-day margin requirement so I can come up with a "safe" strategy for long-term indexing with leverage.
Well the Reg-T margin requirement can be up to 100%. It has been set at 100% in the past. It has also been at 75% in the past. So the "worst case scenario" is that it gets changed to 100% and you're not allowed to use margin any more and have to unwind your margin usage.

In practice, brokers don't like sending thousands of their customers into bankruptcy. When IBKR changed the margin requirements last year -- up to 67% I think? -- before the election they gradually increased it over a period of 20 days. And they notified people 5 days before they started increasing it.

I think this is what Tanelorn meant, changing for the US election, I don't remember them changing margin requirements earlier in the year. But my memory ain't what it used to be!
Thank you for chiming in. I've heard of cases where the margin requirement for individual stocks was increased to 100%, but I haven't heard of that happening for broad ETFs. Have you? Like you said, it was temporarily increased to 67.5% last year, but that's still a fairly reasonable requirement. On the surface, it seems that it would take a very severe crash, if not a black swan event, to make IB force a 100% margin requirement on people who invest in broad ETFs.
corp_sharecropper wrote: Fri Apr 23, 2021 8:16 am
hithere wrote: Fri Apr 23, 2021 7:12 am
Tanelorn wrote: Fri Apr 23, 2021 2:57 am
hithere wrote: Thu Apr 22, 2021 5:35 pm While we're on the topic of leverage, I have a question for experienced investors. Do you recall IB increasing the margin requirements during the Great Recession, the Dot-com bubble or any other of the past crashes/crises? How big was the increase?
In the period shortly after the covid crash last year, IB raised the requirements on large cap stocks from 15% to 50-65%. Said another way, they offered 6x maximum leverage before and quickly jacked that to 1.5-2x maximum.

if you had used only 2x leverage and suffered no actual losses during that time, you very likely would still have had a margin call.
Thank you for sharing this! Did the increase only apply to large-cap stocks, or it also affected index funds?

I presume those are the intraday requirements you're talking about. Do you know if the Reg-T end-of-day requirement was changed at all? This requirement is currently at 50%, meaning that if you hold leveraged positions overnight, you can't have more than 2x leverage. Of course, 2x is still a lot of leverage for what we're trying to do, but my thinking is that during crashes, IB can raise the said requirement from 50% to, say, 75% and obliterate the people who use much modest amounts of leverage - 1.15x-1.3x. That's why I'm trying to figure out what is the worst case scenario for this end-of-day margin requirement so I can come up with a "safe" strategy for long-term indexing with leverage.
I don't recall such a huge spike in margin requirements. Then again, I don't have any single equities. I do recall receiving notices that futures exchange margin was increasing, not to ~50%, but that's not in IB's control. In the past I've usually received a few days' notice before an increase and the increases were in gradual steps, not sudden and all at once. I'd get some additional confirmation on this before making any rash decisions, I just don't recall there being any change significant enough to cause me to deleverage. I don't know know exactly but I want to say I was probably leveraged to 1.4x around this time, but that's not 1.4x equities, I use risk parity approach.
Thanks again for your input!
User avatar
Stef
Posts: 1244
Joined: Thu Oct 10, 2019 10:13 am

Re: Interactive Brokers (Best Kept Secret)

Post by Stef »

AlohaJoe wrote: Fri Apr 23, 2021 8:00 am
hithere wrote: Fri Apr 23, 2021 7:12 am That's why I'm trying to figure out what is the worst case scenario for this end-of-day margin requirement so I can come up with a "safe" strategy for long-term indexing with leverage.
Well the Reg-T margin requirement can be up to 100%. It has been set at 100% in the past. It has also been at 75% in the past. So the "worst case scenario" is that it gets changed to 100% and you're not allowed to use margin any more and have to unwind your margin usage.

In practice, brokers don't like sending thousands of their customers into bankruptcy. When IBKR changed the margin requirements last year -- up to 67% I think? -- before the election they gradually increased it over a period of 20 days. And they notified people 5 days before they started increasing it.

I think this is what Tanelorn meant, changing for the US election, I don't remember them changing margin requirements earlier in the year. But my memory ain't what it used to be!
Makes me wonder if it would be more safe to just use leveraged ETFs instead of margin. If aiming for 1.3x leverage, just do 70/30 VTI/SSO or something like that and rebalance often enough.
65% USA 15% Switzerland 10% Developed Markets 10% Emerging Markets
alex_686
Posts: 8800
Joined: Mon Feb 09, 2015 2:39 pm

Re: Interactive Brokers (Best Kept Secret)

Post by alex_686 »

AlohaJoe wrote: Fri Apr 23, 2021 8:00 am
hithere wrote: Fri Apr 23, 2021 7:12 am That's why I'm trying to figure out what is the worst case scenario for this end-of-day margin requirement so I can come up with a "safe" strategy for long-term indexing with leverage.
Well the Reg-T margin requirement can be up to 100%. It has been set at 100% in the past. It has also been at 75% in the past. So the "worst case scenario" is that it gets changed to 100% and you're not allowed to use margin any more and have to unwind your margin usage.

In practice, brokers don't like sending thousands of their customers into bankruptcy. When IBKR changed the margin requirements last year -- up to 67% I think? -- before the election they gradually increased it over a period of 20 days. And they notified people 5 days before they started increasing it.

I think this is what Tanelorn meant, changing for the US election, I don't remember them changing margin requirements earlier in the year. But my memory ain't what it used to be!
I don't think that is right.

Reg T is set by the Federal Reserve as the initial margin requirement. That is more or less set in stone. Note - Initial.

Brokers have a very wide discretion on what their maintenance requirements are. The regulations are set up to protect the brokers. The regulators do not want client's losses spilling over and blowing up the firm, which has happened in the past.

Anyways, feel free to ask me any questions. I used to work on a margin desk during the dot.com boom and bust.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
alex_686
Posts: 8800
Joined: Mon Feb 09, 2015 2:39 pm

Re: Interactive Brokers (Best Kept Secret)

Post by alex_686 »

hithere wrote: Fri Apr 23, 2021 9:06 am Thank you for chiming in. I've heard of cases where the margin requirement for individual stocks was increased to 100%, but I haven't heard of that happening for broad ETFs. Have you? Like you said, it was temporarily increased to 67.5% last year, but that's still a fairly reasonable requirement. On the surface, it seems that it would take a very severe crash, if not a black swan event, to make IB force a 100% margin requirement on people who invest in broad ETFs.
I have never heard of that happening for broad based ETFs, and I kind of doubt it would.

The point is to protect the broker - you don't want the client to blow up leaving the broker on the hook for 100ks on unsecured debt. ETFs tend to be broader based so the volitivity tends to be lower and their liquidity is higher.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
alex_686
Posts: 8800
Joined: Mon Feb 09, 2015 2:39 pm

Re: Interactive Brokers (Best Kept Secret)

Post by alex_686 »

Stef wrote: Fri Apr 23, 2021 9:37 am Makes me wonder if it would be more safe to just use leveraged ETFs instead of margin. If aiming for 1.3x leverage, just do 70/30 VTI/SSO or something like that and rebalance often enough.
Define safe.

However, leveraged ETFs rebalance daily so their return profile is much different than a leveraged portfolio that is rebalanced either monthly or not at all. So a leveraged ETF is not a substitute for a leverage portfolio.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
User avatar
Stef
Posts: 1244
Joined: Thu Oct 10, 2019 10:13 am

Re: Interactive Brokers (Best Kept Secret)

Post by Stef »

alex_686 wrote: Fri Apr 23, 2021 9:45 am Define safe.

However, leveraged ETFs rebalance daily so their return profile is much different than a leveraged portfolio that is rebalanced either monthly or not at all. So a leveraged ETF is not a substitute for a leverage portfolio.
More safe meaning less risky to lose a lot of money.

It's not a substitute, but a good enough approximation?
65% USA 15% Switzerland 10% Developed Markets 10% Emerging Markets
alex_686
Posts: 8800
Joined: Mon Feb 09, 2015 2:39 pm

Re: Interactive Brokers (Best Kept Secret)

Post by alex_686 »

Stef wrote: Fri Apr 23, 2021 10:12 am
alex_686 wrote: Fri Apr 23, 2021 9:45 am Define safe.

However, leveraged ETFs rebalance daily so their return profile is much different than a leveraged portfolio that is rebalanced either monthly or not at all. So a leveraged ETF is not a substitute for a leverage portfolio.
More safe meaning less risky to lose a lot of money.

It's not a substitute, but a good enough approximation?
If that is your definition, then no, The standard deviation for both portfolios are about the same.

It is a excellent substitute if your holding period is 1 day. It is a decent one if you holding period is 30 days. It is not a substitute if you are going to hold for 90 days or longer.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Tanelorn
Posts: 1875
Joined: Thu May 01, 2014 9:35 pm

Re: Interactive Brokers (Best Kept Secret)

Post by Tanelorn »

AlohaJoe wrote: Fri Apr 23, 2021 8:00 am I think this is what Tanelorn meant, changing for the US election, I don't remember them changing margin requirements earlier in the year. But my memory ain't what it used to be!
They announced and handled the election volatility concerns much much better than they did the covid ones. For the election, they announced in advance several weeks, told you how much it would scale up each day, gave you margin tools to judge your future exposure and limits, etc.

During the covid crash and in the wake of that recovery, they were changing the risk rules on the fly, not telling anyone, and every day your portfolio would be up and your margin deficit would be twice as high as the day before. It’s very hard to plan when you don’t know whether you’re a fair bit safe on excess liquidity or in a fairly big margin call and that was changing every day.
alex_686
Posts: 8800
Joined: Mon Feb 09, 2015 2:39 pm

Re: Interactive Brokers (Best Kept Secret)

Post by alex_686 »

Tanelorn wrote: Fri Apr 23, 2021 12:45 pm During the covid crash and in the wake of that recovery, they were changing the risk rules on the fly, not telling anyone, and every day your portfolio would be up and your margin deficit would be twice as high as the day before. It’s very hard to plan when you don’t know whether you’re a fair bit safe on excess liquidity or in a fairly big margin call and that was changing every day.
From my perspective this seems normal. I was on the margin desk during the dot.com boom and bust, plus 9/11.

What you want to do is read up on Value-at-Risk (VaR). It is a logical place to enter into risk analytics. Basically you use historic volatility of forward looking volatility indexes to predict the chance that clients will blow themselves up and thus blow up he firm. You set the limit and go from there.

The presidential election has a time table and a limited number of logical branches of where the market could go. Known unknowns. You can't use historic volatility but there are decent methods of estimating and guessing future volatility.

With COVID you did not have that. Lots of unknow unknowns. When the facts change on the ground you have to change your plan.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Misenplace
Moderator
Posts: 3481
Joined: Mon Feb 01, 2016 9:46 pm

Re: Interactive Brokers (Best Kept Secret)

Post by Misenplace »

An off topic post, and replies quoting it, have been removed. Please note the forum policies regarding Trolling Topics:
Non-actionable (Trolling) Topics

If readers can't do anything with the content of a topic other than argue about it, it does not belong here. Examples include:

- US or world economic, political, tax, health care and climate policies
- conspiracy theories of any type
- discussions of the crimes, shortcomings or stupidity of other people, whether they be political figures, celebrities, CEOs, Fed chairmen, subprime mortgage borrowers, lottery winners, federal "bailout" recipients, poor people, rich people, etc. Of course, you are welcome to talk about the stupid financial things you have done.
Moderator Misenplace
Neus
Posts: 264
Joined: Fri Sep 22, 2017 2:12 am

Re: Interactive Brokers (Best Kept Secret)

Post by Neus »

Since recently targeted hacks become frequent news, i wonder how safe is our portfolio with IBKR?
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
EddyB
Posts: 1626
Joined: Fri May 24, 2013 3:43 pm

Re: Interactive Brokers (Best Kept Secret)

Post by EddyB »

Neus wrote: Tue Jun 08, 2021 10:40 am Since recently targeted hacks become frequent news, i wonder how safe is our portfolio with IBKR?
Neus, what about those hacks raises your concerns specifically about IB?
Neus
Posts: 264
Joined: Fri Sep 22, 2017 2:12 am

Re: Interactive Brokers (Best Kept Secret)

Post by Neus »

EddyB wrote: Tue Jun 08, 2021 11:01 am
Neus wrote: Tue Jun 08, 2021 10:40 am Since recently targeted hacks become frequent news, i wonder how safe is our portfolio with IBKR?
Neus, what about those hacks raises your concerns specifically about IB?
hmm

Hackers targeting IB system, wiping out our portfolio data

Hackers targetting our account, liquidate and withdraw the money to their account
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
Tanelorn
Posts: 1875
Joined: Thu May 01, 2014 9:35 pm

Re: Interactive Brokers (Best Kept Secret)

Post by Tanelorn »

Neus wrote: Wed Jun 09, 2021 7:29 am Hackers targetting our account, liquidate and withdraw the money to their account
Have you tried to withdraw money from IB? They don’t make it super easy and that’s if you’re the actual owner! If you’ve seen how much paperwork is required to try to do a third party withdrawal, ie to an account in the hacker’s name and not yours, you wouldn’t be worried at all - that can take weeks to months with no guarantees of approval.

I guess the worst case would be they set up a new bank account somewhere under your name but with their fake ID and credentials, add that new bank account profile into IB, and try to get IB to send money to there and subsequently withdraw it from that bank. New withdrawal destinations, even your own, still get a pretty high level of security scrutiny.

Very low on my list of worries.
Rob Bertram
Posts: 835
Joined: Mon May 05, 2014 12:15 pm

Re: Interactive Brokers (Best Kept Secret)

Post by Rob Bertram »

Neus wrote: Wed Jun 09, 2021 7:29 am
EddyB wrote: Tue Jun 08, 2021 11:01 am
Neus wrote: Tue Jun 08, 2021 10:40 am Since recently targeted hacks become frequent news, i wonder how safe is our portfolio with IBKR?
Neus, what about those hacks raises your concerns specifically about IB?
hmm

Hackers targeting IB system, wiping out our portfolio data

Hackers targetting our account, liquidate and withdraw the money to their account
I believe that those are risks applicable to all brokerages, including our favorite ones like Vanguard and Fidelity. Perhaps I can rephrase EddyB's question. Are there recent events or design flaws that make Interactive Broker's platform more susceptible to hacking than another broker?

As Tanelorn mentions, Interactive Brokers has several policies that makes the hacking activities you describe difficult. There are 30-day wait limits if you try to withdraw money from IB to a new bank account. You are required to re-enter your multi-factor authentication as part of the withdrawal confirmation, email confirmations are sent, etc.
Neus
Posts: 264
Joined: Fri Sep 22, 2017 2:12 am

Re: Interactive Brokers (Best Kept Secret)

Post by Neus »

Tanelorn wrote: Wed Jun 09, 2021 11:58 am
Neus wrote: Wed Jun 09, 2021 7:29 am Hackers targetting our account, liquidate and withdraw the money to their account
Have you tried to withdraw money from IB? They don’t make it super easy and that’s if you’re the actual owner! If you’ve seen how much paperwork is required to try to do a third party withdrawal, ie to an account in the hacker’s name and not yours, you wouldn’t be worried at all - that can take weeks to months with no guarantees of approval.

I guess the worst case would be they set up a new bank account somewhere under your name but with their fake ID and credentials, add that new bank account profile into IB, and try to get IB to send money to there and subsequently withdraw it from that bank. New withdrawal destinations, even your own, still get a pretty high level of security scrutiny.

Very low on my list of worries.
I see

So what is high in your list of worry?
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
Neus
Posts: 264
Joined: Fri Sep 22, 2017 2:12 am

Re: Interactive Brokers (Best Kept Secret)

Post by Neus »

Rob Bertram wrote: Wed Jun 09, 2021 1:10 pm
Neus wrote: Wed Jun 09, 2021 7:29 am
EddyB wrote: Tue Jun 08, 2021 11:01 am
Neus wrote: Tue Jun 08, 2021 10:40 am Since recently targeted hacks become frequent news, i wonder how safe is our portfolio with IBKR?
Neus, what about those hacks raises your concerns specifically about IB?
hmm

Hackers targeting IB system, wiping out our portfolio data

Hackers targetting our account, liquidate and withdraw the money to their account
I believe that those are risks applicable to all brokerages, including our favorite ones like Vanguard and Fidelity. Perhaps I can rephrase EddyB's question. Are there recent events or design flaws that make Interactive Broker's platform more susceptible to hacking than another broker?

As Tanelorn mentions, Interactive Brokers has several policies that makes the hacking activities you describe difficult. There are 30-day wait limits if you try to withdraw money from IB to a new bank account. You are required to re-enter your multi-factor authentication as part of the withdrawal confirmation, email confirmations are sent, etc.
The problem with asking the question on design flaw is: if normal non hacker prople can easily think of it, it will be fixed

But hackers search and see more design flaw in a way that normal people and even the institution itself can’t see yet

So i, normal people might not able to give good answer the question on design flaw, but a good hacker might
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
AlohaJoe
Posts: 6035
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Interactive Brokers (Best Kept Secret)

Post by AlohaJoe »

Neus wrote: Wed Jun 09, 2021 7:29 am
EddyB wrote: Tue Jun 08, 2021 11:01 am
Neus wrote: Tue Jun 08, 2021 10:40 am Since recently targeted hacks become frequent news, i wonder how safe is our portfolio with IBKR?
Neus, what about those hacks raises your concerns specifically about IB?
hmm

Hackers targeting IB system, wiping out our portfolio data
It doesn't matter if they wipe out your portfolio data at IBKR. The custodian has all the same data. And so does the depository company. So they'd need to hack all three. And at that point you're talking about a complete collapse of the global financial system.
Tanelorn
Posts: 1875
Joined: Thu May 01, 2014 9:35 pm

Re: Interactive Brokers (Best Kept Secret)

Post by Tanelorn »

Neus wrote: Wed Jun 09, 2021 8:35 pm So what is high in your list of worry?
My long investments going down a lot, my short investments going up a lot, and punitive tax law changes (very high rates on capital gains, no long term treatment, wealth taxes, etc).
User avatar
cos
Posts: 451
Joined: Fri Aug 23, 2019 7:34 pm
Location: Boston
Contact:

Re: Interactive Brokers (Best Kept Secret)

Post by cos »

AlohaJoe wrote: Fri Apr 23, 2021 8:00 am
hithere wrote: Fri Apr 23, 2021 7:12 am That's why I'm trying to figure out what is the worst case scenario for this end-of-day margin requirement so I can come up with a "safe" strategy for long-term indexing with leverage.
Well the Reg-T margin requirement can be up to 100%. It has been set at 100% in the past. It has also been at 75% in the past. So the "worst case scenario" is that it gets changed to 100% and you're not allowed to use margin any more and have to unwind your margin usage.

In practice, brokers don't like sending thousands of their customers into bankruptcy. When IBKR changed the margin requirements last year -- up to 67% I think? -- before the election they gradually increased it over a period of 20 days. And they notified people 5 days before they started increasing it.

I think this is what Tanelorn meant, changing for the US election, I don't remember them changing margin requirements earlier in the year. But my memory ain't what it used to be!
Was that just for Reg-T, or did it affect portfolio margin as well?
Rob Bertram
Posts: 835
Joined: Mon May 05, 2014 12:15 pm

Re: Interactive Brokers (Best Kept Secret)

Post by Rob Bertram »

cos wrote: Thu Jun 10, 2021 12:36 pm
AlohaJoe wrote: Fri Apr 23, 2021 8:00 am
hithere wrote: Fri Apr 23, 2021 7:12 am That's why I'm trying to figure out what is the worst case scenario for this end-of-day margin requirement so I can come up with a "safe" strategy for long-term indexing with leverage.
Well the Reg-T margin requirement can be up to 100%. It has been set at 100% in the past. It has also been at 75% in the past. So the "worst case scenario" is that it gets changed to 100% and you're not allowed to use margin any more and have to unwind your margin usage.

In practice, brokers don't like sending thousands of their customers into bankruptcy. When IBKR changed the margin requirements last year -- up to 67% I think? -- before the election they gradually increased it over a period of 20 days. And they notified people 5 days before they started increasing it.

I think this is what Tanelorn meant, changing for the US election, I don't remember them changing margin requirements earlier in the year. But my memory ain't what it used to be!
Was that just for Reg-T, or did it affect portfolio margin as well?
I believe that the margin requirements were increased by 67% and not to 67% during the last election. For example, if the margin requirement on an asset like the e-mini S&P 500 contract is $6,000, it increased to $10,000. It did not go from $6,000 to $130,000.
parval
Posts: 66
Joined: Tue Oct 22, 2019 9:23 pm

Re: Interactive Brokers (Best Kept Secret)

Post by parval »

Does anyone use margin on IB?

Here's a scenario I'm not sure is achievable:

I deposit 100k, buy VTI, withdraw 50k cash as margin to invest in asset B, so my position is now:

100k VTI, -50k margin, 50k B

I get another 50k cash to deposit and I think my position becomes:
100k VTI, 0 margin, 50k B

but I don't want to negate my margin, so would prefer my new position to be
150k VTI, -50k margin, 50k B

So I can withdraw another 25k and buy more B:
150k VTI, -75k margin, 75k B

Otherwise I'd have to sell asset B, deposit 100k again and withdraw again to buy B, which is fine because B is super liquid and not volatile but just annoying because it's a full week for cash to settle between banks.
Tanelorn
Posts: 1875
Joined: Thu May 01, 2014 9:35 pm

Re: Interactive Brokers (Best Kept Secret)

Post by Tanelorn »

parval wrote: Thu Jun 10, 2021 1:34 pm Does anyone use margin on IB?

Here's a scenario I'm not sure is achievable:

I deposit 100k, buy VTI, withdraw 50k cash as margin to invest in asset B, so my position is now:

100k VTI, -50k margin, 50k B

I get another 50k cash to deposit and I think my position becomes:
100k VTI, 0 margin, 50k B

but I don't want to negate my margin, so would prefer my new position to be
150k VTI, -50k margin, 50k B

So I can withdraw another 25k and buy more B:
150k VTI, -75k margin, 75k B

Otherwise I'd have to sell asset B, deposit 100k again and withdraw again to buy B, which is fine because B is super liquid and not volatile but just annoying because it's a full week for cash to settle between banks.
With a margin account, you don’t have to put the money in and then withdraw it. You can just put $50k in and buy $100k of VTI. In a portfolio margin account, they only required 10% of the amount you wanted to buy (10x leverage), although I suspect if that was your only asset or in a reg T margin account it might be 30% or so (3x leverage). Either way, that should be fine for your purposes.

When you get another $50k, you just put $25k into the IB account and buy another $50k of VTI and the other $25k into wherever you’re buying the other B asset. I’d suggest buying them both at IB if that was possible, since it reduces your risk of margin problems in extremes market conditions, but I guess that depends on what it is. Liquid assets are usually available, although perhaps not certain mutual funds.
calwatch
Posts: 425
Joined: Wed Oct 02, 2013 1:48 am

Re: Interactive Brokers (Best Kept Secret)

Post by calwatch »

If you want to play around with it you can certainly use the play money account to simulate portfolio margin and see what leverage you can have. Remember that IB will always auto-liquidate so it's best to keep a good buffer for March 2020-like scenarios.
parval
Posts: 66
Joined: Tue Oct 22, 2019 9:23 pm

Re: Interactive Brokers (Best Kept Secret)

Post by parval »

Tanelorn wrote: Thu Jun 10, 2021 2:01 pm
parval wrote: Thu Jun 10, 2021 1:34 pm Does anyone use margin on IB?

Here's a scenario I'm not sure is achievable:

I deposit 100k, buy VTI, withdraw 50k cash as margin to invest in asset B, so my position is now:

100k VTI, -50k margin, 50k B

I get another 50k cash to deposit and I think my position becomes:
100k VTI, 0 margin, 50k B

but I don't want to negate my margin, so would prefer my new position to be
150k VTI, -50k margin, 50k B

So I can withdraw another 25k and buy more B:
150k VTI, -75k margin, 75k B

Otherwise I'd have to sell asset B, deposit 100k again and withdraw again to buy B, which is fine because B is super liquid and not volatile but just annoying because it's a full week for cash to settle between banks.
With a margin account, you don’t have to put the money in and then withdraw it. You can just put $50k in and buy $100k of VTI. In a portfolio margin account, they only required 10% of the amount you wanted to buy (10x leverage), although I suspect if that was your only asset or in a reg T margin account it might be 30% or so (3x leverage). Either way, that should be fine for your purposes.

When you get another $50k, you just put $25k into the IB account and buy another $50k of VTI and the other $25k into wherever you’re buying the other B asset. I’d suggest buying them both at IB if that was possible, since it reduces your risk of margin problems in extremes market conditions, but I guess that depends on what it is. Liquid assets are usually available, although perhaps not certain mutual funds.
Oh wait you're totally right, absolute brain fart on my part, thanks!
klaus14
Posts: 734
Joined: Sun Nov 25, 2018 7:43 pm

Re: Interactive Brokers (Best Kept Secret)

Post by klaus14 »

Deleted.
Last edited by klaus14 on Tue Jul 20, 2021 12:00 pm, edited 1 time in total.
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
tomsense76
Posts: 659
Joined: Wed Oct 14, 2020 1:52 am

Re: Interactive Brokers (Best Kept Secret)

Post by tomsense76 »

Does anyone know if an IBKR Lite account can be converted to an IBKR Pro account? If so, am curious what is involved?
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
Tanelorn
Posts: 1875
Joined: Thu May 01, 2014 9:35 pm

Re: Interactive Brokers (Best Kept Secret)

Post by Tanelorn »

tomsense76 wrote: Mon Jun 14, 2021 2:40 pm Does anyone know if an IBKR Lite account can be converted to an IBKR Pro account? If so, am curious what is involved?
Under Account Settings, you can pick whichever plan you want. Pro seems better for most things, but I guess it depends on how you use the account. Changes take a day to kick in.
calwatch
Posts: 425
Joined: Wed Oct 02, 2013 1:48 am

Re: Interactive Brokers (Best Kept Secret)

Post by calwatch »

Pro has the $10 minimum commission and charges for streaming quotes while Lite doesn't though. OTOH, Pro has the lower margin interest rates. My speculative account is on Pro for low margin rates, but when I decide to stop speculating I will switch back to Lite since selling order flow doesn't really matter when you're buy and holding for the long term.
rchmx1
Posts: 408
Joined: Sat Oct 26, 2019 6:38 pm

Re: Interactive Brokers (Best Kept Secret)

Post by rchmx1 »

calwatch wrote: Wed Jun 16, 2021 3:51 pm Pro has the $10 minimum commission and charges for streaming quotes while Lite doesn't though. OTOH, Pro has the lower margin interest rates. My speculative account is on Pro for low margin rates, but when I decide to stop speculating I will switch back to Lite since selling order flow doesn't really matter when you're buy and holding for the long term.
Can I ask you a question about the $10 Pro fee? Because I could never get super clear just from reading their site. Say you write 10 option contracts each month at $1.09 each, so $10.90 per month. Does that cover the $10 Pro fee, so that you won't be charged that $10 in such a month? That's my impression of how their fee system works, but I could never get 100% sure.
calwatch
Posts: 425
Joined: Wed Oct 02, 2013 1:48 am

Re: Interactive Brokers (Best Kept Secret)

Post by calwatch »

rchmx1 wrote: Wed Jun 16, 2021 4:04 pm
calwatch wrote: Wed Jun 16, 2021 3:51 pm Pro has the $10 minimum commission and charges for streaming quotes while Lite doesn't though. OTOH, Pro has the lower margin interest rates. My speculative account is on Pro for low margin rates, but when I decide to stop speculating I will switch back to Lite since selling order flow doesn't really matter when you're buy and holding for the long term.
Can I ask you a question about the $10 Pro fee? Because I could never get super clear just from reading their site. Say you write 10 option contracts each month at $1.09 each, so $10.90 per month. Does that cover the $10 Pro fee, so that you won't be charged that $10 in such a month? That's my impression of how their fee system works, but I could never get 100% sure.
That is correct. I often sell weekly covered calls out of the money, at the ten cent premium range (to maximize commission), just to offset the fee. However, this does not work for the quote data exemption, which is $30 in commissions a month. So if you had $29 in commissions in a month you would still pay the $10 data fee. The amount I'm saving in margin interest, and that I like how IBKR displays watchlists over the other brokers I normally use (Ameritrade, Schwab, Merrill, Chase) means that I'll pay the $10 a month.
stay_the_course
Posts: 21
Joined: Tue Dec 15, 2020 11:13 pm

Re: Interactive Brokers (Best Kept Secret)

Post by stay_the_course »

calwatch wrote: Wed Jun 16, 2021 3:51 pm Pro has the $10 minimum commission and charges for streaming quotes while Lite doesn't though. OTOH, Pro has the lower margin interest rates. My speculative account is on Pro for low margin rates, but when I decide to stop speculating I will switch back to Lite since selling order flow doesn't really matter when you're buy and holding for the long term.
There is no charge for IBKR Pro if your account is more than $100,000 https://www.interactivebrokers.com/en/index.php?f=4969
shahbaz
Posts: 1
Joined: Sun Jun 20, 2021 7:48 am

Re: Interactive Brokers (Best Kept Secret)

Post by shahbaz »

Hi, can someone please let me know how I can borrow cash against my stocks fully paid for by cash?

Can I lend my sticks at the same time to IBKR and collect interest through Stock Yield Enhancement Program?
bling
Posts: 946
Joined: Sat Jan 21, 2012 12:49 pm

Re: Interactive Brokers (Best Kept Secret)

Post by bling »

calwatch wrote: Wed Jun 16, 2021 3:51 pm Pro has the $10 minimum commission and charges for streaming quotes while Lite doesn't though. OTOH, Pro has the lower margin interest rates. My speculative account is on Pro for low margin rates, but when I decide to stop speculating I will switch back to Lite since selling order flow doesn't really matter when you're buy and holding for the long term.
the monthly fee is waived if you have more than 100k. the "free" streaming quotes are worthless as they are not directly from the exchange where you would be placing the trade. for small accounts, PFOF is reasonable but there's no reason to get a lite account if you have a large balance because paying commission more than offsets getting filled at a worse price.
assyadh
Posts: 362
Joined: Tue Sep 18, 2018 12:44 pm

Re: Interactive Brokers (Best Kept Secret)

Post by assyadh »

stay_the_course wrote: Wed Jun 16, 2021 4:33 pm
calwatch wrote: Wed Jun 16, 2021 3:51 pm Pro has the $10 minimum commission and charges for streaming quotes while Lite doesn't though. OTOH, Pro has the lower margin interest rates. My speculative account is on Pro for low margin rates, but when I decide to stop speculating I will switch back to Lite since selling order flow doesn't really matter when you're buy and holding for the long term.
There is no charge for IBKR Pro if your account is more than $100,000 https://www.interactivebrokers.com/en/index.php?f=4969
Update: IBKR has now gotten rid of all minimum requirements for IBKR Pro account. No more 100k nor $10 inactivity fee.
User avatar
danbdzs
Posts: 61
Joined: Mon Feb 17, 2020 6:29 pm

Re: Interactive Brokers (Best Kept Secret)

Post by danbdzs »

assyadh wrote: Thu Jul 08, 2021 12:55 pm
stay_the_course wrote: Wed Jun 16, 2021 4:33 pm
calwatch wrote: Wed Jun 16, 2021 3:51 pm Pro has the $10 minimum commission and charges for streaming quotes while Lite doesn't though. OTOH, Pro has the lower margin interest rates. My speculative account is on Pro for low margin rates, but when I decide to stop speculating I will switch back to Lite since selling order flow doesn't really matter when you're buy and holding for the long term.
There is no charge for IBKR Pro if your account is more than $100,000 https://www.interactivebrokers.com/en/index.php?f=4969
Update: IBKR has now gotten rid of all minimum requirements for IBKR Pro account. No more 100k nor $10 inactivity fee.
Confirmed,

I just received a notification in my IBKR Pro account that they have eliminated these fees.

Excellent.
User avatar
LadyGeek
Site Admin
Posts: 74276
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Interactive Brokers (Best Kept Secret)

Post by LadyGeek »

Does the wiki need to be updated? See: Interactive Brokers

If so, please link to the IBKR web page that shows the change.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
occambogle
Posts: 810
Joined: Thu Dec 12, 2019 4:58 am

Re: Interactive Brokers (Best Kept Secret)

Post by occambogle »

They appear to have updated this page. Click on "compare plans"...
https://www.interactivebrokers.com/en/index.php?f=1338
atdharris
Posts: 941
Joined: Wed Jan 02, 2019 3:18 pm

Re: Interactive Brokers (Best Kept Secret)

Post by atdharris »

With the minimums gone, what is the reason to have the Lite account over the Pro? I have my risky margin account at M1 Finance right now at 2% interest, but they will begin charging me for that rate next year, so I will move the account to IBRK if it makes sense to do that.
rchmx1
Posts: 408
Joined: Sat Oct 26, 2019 6:38 pm

Re: Interactive Brokers (Best Kept Secret)

Post by rchmx1 »

Oh nice. So are there any reasons now not to switch from a lite to a pro account?
User avatar
LadyGeek
Site Admin
Posts: 74276
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Interactive Brokers (Best Kept Secret)

Post by LadyGeek »

occambogle wrote: Thu Jul 08, 2021 2:16 pm They appear to have updated this page. Click on "compare plans"...
https://www.interactivebrokers.com/en/index.php?f=1338
Thanks. I'm hesitant to update the wiki page on my own. Can someone please suggest wording for: Interactive Brokers? Here's what we have now:
Cost structure for passive investors
Interactive Brokers is a low cost operator in the brokerage industry. The firm is highly profitable despite its low commission structure due to its highly automated trading platform, active client base and low touch service.

Passive investors can take advantage of low trading cost and breadth of product offerings from Interactive Brokers, provided two caveats relevant for certain investors:

1. For accounts with equity below $100,000, Interactive Brokers charges a $10/month minimum activity fee. This fee is reduced by the amount of commission generated for the month.
2. Interactive Brokers charges a fee for real time market data subscriptions. This fee is passed-through from exchanges that actually sell the data product. Passive investors are not advised to subscribe to real time market data as it is unnecessary for the investment style.
It seems that "1." can be replaced with a statement showing the 0 fee. I'm not sure how to word this.

Updates on any part of the page are welcome.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
tj
Posts: 4747
Joined: Thu Dec 24, 2009 12:10 am

Re: Interactive Brokers (Best Kept Secret)

Post by tj »

rchmx1 wrote: Thu Jul 08, 2021 2:20 pm Oh nice. So are there any reasons now not to switch from a lite to a pro account?
Looks like the main difference is real time data.
saver007
Posts: 190
Joined: Fri Nov 07, 2014 9:18 pm

Re: Interactive Brokers (Best Kept Secret)

Post by saver007 »

LadyGeek wrote: Thu Jul 08, 2021 2:33 pm
occambogle wrote: Thu Jul 08, 2021 2:16 pm They appear to have updated this page. Click on "compare plans"...
https://www.interactivebrokers.com/en/index.php?f=1338
Thanks. I'm hesitant to update the wiki page on my own. Can someone please suggest wording for: Interactive Brokers? Here's what we have now:
Cost structure for passive investors
Interactive Brokers is a low cost operator in the brokerage industry. The firm is highly profitable despite its low commission structure due to its highly automated trading platform, active client base and low touch service.

Passive investors can take advantage of low trading cost and breadth of product offerings from Interactive Brokers, provided two caveats relevant for certain investors:

1. For accounts with equity below $100,000, Interactive Brokers charges a $10/month minimum activity fee. This fee is reduced by the amount of commission generated for the month.
2. Interactive Brokers charges a fee for real time market data subscriptions. This fee is passed-through from exchanges that actually sell the data product. Passive investors are not advised to subscribe to real time market data as it is unnecessary for the investment style.
It seems that "1." can be replaced with a statement showing the 0 fee. I'm not sure how to word this.

Updates on any part of the page are welcome.
I will take a stab at updating the wiki. Probably should just mention two current pricing scheme.. IBKR Pro and Lite.. under cost structure.
assyadh
Posts: 362
Joined: Tue Sep 18, 2018 12:44 pm

Re: Interactive Brokers (Best Kept Secret)

Post by assyadh »

tj wrote: Thu Jul 08, 2021 4:11 pm
rchmx1 wrote: Thu Jul 08, 2021 2:20 pm Oh nice. So are there any reasons now not to switch from a lite to a pro account?
Looks like the main difference is real time data.
And trading commissions of course.
calwatch
Posts: 425
Joined: Wed Oct 02, 2013 1:48 am

Re: Interactive Brokers (Best Kept Secret)

Post by calwatch »

So let's try this:
Passive investors can take advantage of low trading cost and breadth of product offerings from Interactive Brokers, provided two caveats relevant for certain investors:

1. For accounts with equity below $100,000, Interactive Brokers charges a $10/month minimum activity fee. This fee is reduced by the amount of commission generated for the month.
For US investors, IBKR Lite does not charge commissions but accepts payment for order flow. This can be mitigated by using limit orders.
2. For US investors on IBKR Pro and non-US investors, Interactive Brokers charges a fee for real time market data subscriptions. This fee is passed-through from exchanges that actually sell the data product. Passive investors are not advised to subscribe to real time market data as it is unnecessary for the investment style.
bling
Posts: 946
Joined: Sat Jan 21, 2012 12:49 pm

Re: Interactive Brokers (Best Kept Secret)

Post by bling »

atdharris wrote: Thu Jul 08, 2021 2:18 pmWith the minimums gone, what is the reason to have the Lite account over the Pro?
better margin rates and better execution. lite will sell your order flow.
User avatar
whodidntante
Posts: 9975
Joined: Thu Jan 21, 2016 11:11 pm
Location: outside the echo chamber

Re: Interactive Brokers (Best Kept Secret)

Post by whodidntante »

The changes to IBKR Pro are fantastic news for those with smallish accounts who live in peanut-butter-less nations.
tj
Posts: 4747
Joined: Thu Dec 24, 2009 12:10 am

Re: Interactive Brokers (Best Kept Secret)

Post by tj »

bling wrote: Thu Jul 08, 2021 8:06 pm
atdharris wrote: Thu Jul 08, 2021 2:18 pmWith the minimums gone, what is the reason to have the Lite account over the Pro?
better margin rates and better execution. lite will sell your order flow.
The question was why choose Lite over the Pro? Your response seems to be why have Pro over Lite.
rchmx1
Posts: 408
Joined: Sat Oct 26, 2019 6:38 pm

Re: Interactive Brokers (Best Kept Secret)

Post by rchmx1 »

whodidntante wrote: Thu Jul 08, 2021 8:22 pm The changes to IBKR Pro are fantastic news for those with smallish accounts who live in peanut-butter-less nations.
Try as I might I have no idea what this means. lol

Well, I went ahead a upgraded my account today. I will say, the various fees from IBKR still are kind of opaque to me, but my impression is that there was no reason to stay with the lite account. I'm nearly always carrying at least a bit of margin debt, so the lower margin rate alone seemed to make it a no brainer.
User avatar
whodidntante
Posts: 9975
Joined: Thu Jan 21, 2016 11:11 pm
Location: outside the echo chamber

Re: Interactive Brokers (Best Kept Secret)

Post by whodidntante »

rchmx1 wrote: Thu Jul 08, 2021 10:12 pm
whodidntante wrote: Thu Jul 08, 2021 8:22 pm The changes to IBKR Pro are fantastic news for those with smallish accounts who live in peanut-butter-less nations.
Try as I might I have no idea what this means. lol

Well, I went ahead a upgraded my account today. I will say, the various fees from IBKR still are kind of opaque to me, but my impression is that there was no reason to stay with the lite account. I'm nearly always carrying at least a bit of margin debt, so the lower margin rate alone seemed to make it a no brainer.
I've sent a number of Americans out on expat assignments and foreign business trips. About the two to the three-month mark, they realize peanut butter is either not available, or what they do find is a disappointment.

There might be some exceptions, but those who love peanut butter may want to factor this in. :P

IBKR Lite is not available in all countries.
Post Reply