Interactive Brokers (Best Kept Secret)

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xerxes101
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Re: Interactive Brokers (Best Kept Secret)

Post by xerxes101 »

AlohaJoe wrote: Sat Mar 13, 2021 7:30 am
xerxes101 wrote: Sat Mar 13, 2021 7:23 am Did you guys see that new string attached to IBKR's stock lending program? What do you make of it?...makes me little nervous when I read it before signing :shock:...I just hope this is not going to implode at some point...won't be fun to deal with.
Why does it make you nervous that they're complying with updated SEC regulations on securities lending? I feel like I'm missing something here.
Did not see a similar requirement to sign such a document from the other brokerage houses.
saver007
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Re: Interactive Brokers (Best Kept Secret)

Post by saver007 »

gtwhitegold wrote: Sat Mar 13, 2021 12:21 pm I'm looking to create a Interactive Brokers margin account soon. I was curious how dividends are credited to a margin account. Does it reduce the amount of money on margin or does it remain as cash? I'm looking to keep around 10% of assets on margin and to reinvest dividends when I make a monthly contribution.
Dividend just reduce the margin debt . For example, if you get a $2 dividend on an account with -$1000 cash balance, after dividend your cash balance will be -$998.
rchmx1
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Re: Interactive Brokers (Best Kept Secret)

Post by rchmx1 »

saver007 wrote: Sat Mar 13, 2021 9:04 pm
gtwhitegold wrote: Sat Mar 13, 2021 12:21 pm I'm looking to create a Interactive Brokers margin account soon. I was curious how dividends are credited to a margin account. Does it reduce the amount of money on margin or does it remain as cash? I'm looking to keep around 10% of assets on margin and to reinvest dividends when I make a monthly contribution.
Dividend just reduce the margin debt . For example, if you get a $2 dividend on an account with -$1000 cash balance, after dividend your cash balance will be -$998.
I was wondering about that. So even if you have dividends set to automatically reinvest, reducing margin debt takes priority?
saver007
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Re: Interactive Brokers (Best Kept Secret)

Post by saver007 »

rchmx1 wrote: Sat Mar 13, 2021 9:09 pm
saver007 wrote: Sat Mar 13, 2021 9:04 pm
gtwhitegold wrote: Sat Mar 13, 2021 12:21 pm I'm looking to create a Interactive Brokers margin account soon. I was curious how dividends are credited to a margin account. Does it reduce the amount of money on margin or does it remain as cash? I'm looking to keep around 10% of assets on margin and to reinvest dividends when I make a monthly contribution.
Dividend just reduce the margin debt . For example, if you get a $2 dividend on an account with -$1000 cash balance, after dividend your cash balance will be -$998.
I was wondering about that. So even if you have dividends set to automatically reinvest, reducing margin debt takes priority?
No idea how dividend reinvestment program effect this. May be someone who has the DRIP program activated can answer this.
gtwhitegold
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Re: Interactive Brokers (Best Kept Secret)

Post by gtwhitegold »

saver007 wrote: Sat Mar 13, 2021 9:26 pm
rchmx1 wrote: Sat Mar 13, 2021 9:09 pm
saver007 wrote: Sat Mar 13, 2021 9:04 pm
gtwhitegold wrote: Sat Mar 13, 2021 12:21 pm I'm looking to create a Interactive Brokers margin account soon. I was curious how dividends are credited to a margin account. Does it reduce the amount of money on margin or does it remain as cash? I'm looking to keep around 10% of assets on margin and to reinvest dividends when I make a monthly contribution.
Dividend just reduce the margin debt . For example, if you get a $2 dividend on an account with -$1000 cash balance, after dividend your cash balance will be -$998.
I was wondering about that. So even if you have dividends set to automatically reinvest, reducing margin debt takes priority?
No idea how dividend reinvestment program effect this. May be someone who has the DRIP program activated can answer this.
From reading their website, DRIP happens regardless of margin. If there was a reason to liquidate a portion of your holdings, then it would likely happen before the dividend anyway.

https://www.interactivebrokers.com/en/s ... stment.htm
BHawks87
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Re: Interactive Brokers (Best Kept Secret)

Post by BHawks87 »

Does anyone know how much of your portfolio you can borrow against at IB and what the maintenance call is? I looked on their website and it only talks about purchasing more securities on margin and then gives complicated calculations to figure out the margin requirement. I wouldn't be purchasing more securities I would be puling the money out of IBKR for a purchase of a house for instance.
tj
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Re: Interactive Brokers (Best Kept Secret)

Post by tj »

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Last edited by tj on Wed Mar 24, 2021 9:14 am, edited 1 time in total.
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Steve Reading
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Re: Interactive Brokers (Best Kept Secret)

Post by Steve Reading »

BHawks87 wrote: Wed Mar 17, 2021 1:53 pm Does anyone know how much of your portfolio you can borrow against at IB and what the maintenance call is? I looked on their website and it only talks about purchasing more securities on margin and then gives complicated calculations to figure out the margin requirement. I wouldn't be purchasing more securities I would be puling the money out of IBKR for a purchase of a house for instance.
Actually, those complicated calculations are the answer. Bringing in, say, $200K in cash, and using it to buy $300K of securities (ending up with a -$100K cash balance) is identical to bringing $300K of securities, and withdrawing $100K of cash from the account. The maintenance requirements for the former are the same for the latter.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
dafioram
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Re: Interactive Brokers (Best Kept Secret)

Post by dafioram »

Does anyone else see that ACH deposits take about a week to show up on the account? I have Ibkr lite so maybe pro has faster transfers.
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Steve Reading
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Re: Interactive Brokers (Best Kept Secret)

Post by Steve Reading »

dafioram wrote: Wed Mar 17, 2021 11:07 pm Does anyone else see that ACH deposits take about a week to show up on the account? I have Ibkr lite so maybe pro has faster transfers.
Yeah, they take a week. For smaller amounts, consider Bill Pay (takes 1-2 days).
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
AlohaJoe
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Re: Interactive Brokers (Best Kept Secret)

Post by AlohaJoe »

BHawks87 wrote: Wed Mar 17, 2021 1:53 pm Does anyone know how much of your portfolio you can borrow against at IB and what the maintenance call is? I looked on their website and it only talks about purchasing more securities on margin and then gives complicated calculations to figure out the margin requirement. I wouldn't be purchasing more securities I would be puling the money out of IBKR for a purchase of a house for instance.
https://www.interactivebrokers.com/en/index.php?f=24176

Or create a paper trading account and see what it says when you enter your portfolio.
AlohaJoe
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Re: Interactive Brokers (Best Kept Secret)

Post by AlohaJoe »

dafioram wrote: Wed Mar 17, 2021 11:07 pm Does anyone else see that ACH deposits take about a week to show up on the account? I have Ibkr lite so maybe pro has faster transfers.
https://interactivebrokers.com/en/index.php?f=1544

"ACH requests received by 12:00pm ET will be credited to your account same day and available to trade after four business days under normal circumstances.

ACH requests received after 12:00pm ET will be received from your bank on the next business day and credited to your account after four business days under normal circumstances."
dafioram
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Re: Interactive Brokers (Best Kept Secret)

Post by dafioram »

I'm used to my other brokers instant deposit, but I'm not complaining with the low interest rate. My current workaround for faster transferring is to ACAT securities from my other broker which seems to be only a few days (maybe 2?).
dafioram
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Re: Interactive Brokers (Best Kept Secret)

Post by dafioram »

AlohaJoe wrote: Wed Mar 17, 2021 11:22 pm
dafioram wrote: Wed Mar 17, 2021 11:07 pm Does anyone else see that ACH deposits take about a week to show up on the account? I have Ibkr lite so maybe pro has faster transfers.
https://interactivebrokers.com/en/index.php?f=1544

"ACH requests received by 12:00pm ET will be credited to your account same day and available to trade after four business days under normal circumstances.

ACH requests received after 12:00pm ET will be received from your bank on the next business day and credited to your account after four business days under normal circumstances."
Wait these say two different things. If i ACH before 12pm its credited "same day" and the other says if done after 12pm its credited "four days later". So which is it?
stormcrow
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Re: Interactive Brokers (Best Kept Secret)

Post by stormcrow »

wmvink wrote: Sat Mar 13, 2021 8:52 am
Kagord wrote: Sat Mar 13, 2021 8:13 am
tj wrote: Fri Mar 12, 2021 2:47 pm So, i tried to sell a mutual fund at IBKR, but it seemed to say that there's a limit of 500 shares. Why would there be a limit on the number of shares I can sell?
The warning looks like your doing something wrong, however, IB put some default precautionary settings to protect you from yourself. It's just the defaults that's causing this. In the IB Trader Workstaion Java client, click the Configure button, go to Presets, then Stocks, then scroll down to precautionary settings, you'll probably see the 500 there in the regular or algorithm config, you can change to match your risk tolerance for screwing up. I don't use the lite, buy maybe it's somewhere on the web interface too.

https://www.interactivebrokers.com/en/s ... ttings.htm
IBKR is a case study in poor UX design. For every trade, they display so many seemingly random and pointless warning messages that the user gets conditioned to ignoring them altogether.
This is the darn truth. By the 3rd caution pop up they've lost all meaning.
wmvink
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Re: Interactive Brokers (Best Kept Secret)

Post by wmvink »

For me, a major issue with ACH is the ridiculous 44 business days hold on your funds.

Just last month I wanted to transfer out the dividend I had received on an ETF I had been holding for 2 years. But IBKR wouldn't let me, because there had been an inbound ACH transfer in the preceding 44 business days.

The inbound transfer was completely unrelated to the ETF that had just paid me my dividend, but in the eyes of IBKR of course it's all the same: funds in, funds out.
occambogle
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Re: Interactive Brokers (Best Kept Secret)

Post by occambogle »

wmvink wrote: Thu Mar 18, 2021 8:44 am For me, a major issue with ACH is the ridiculous 44 business days hold on your funds.
This happened to me. I did a backdoor Roth which involved transferring funds from bank account > Trad IRA, then tried to do a conversion and transfer to Roth IRA. I got tripped up by the ACH 44 day rule because they consider moving funds from one account at IB to another account at IB, even when you are the holder of both accounts and they are all in your name, to be a "withdrawal" from the first account.... so.... 44 days. My advisor escalated the matter up the chain within IB and they eventually agreed to make a manual exception - but their policy is nuts.
As a result I never use ACH at IB anymore... I'll use Online Billpay for amounts under $10k and it works great if your bank sends it electronically. And for any larger amounts I would just do bank/wire transfer.
tj
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Re: Interactive Brokers (Best Kept Secret)

Post by tj »

occambogle wrote: Thu Mar 18, 2021 8:52 am
wmvink wrote: Thu Mar 18, 2021 8:44 am For me, a major issue with ACH is the ridiculous 44 business days hold on your funds.
This happened to me. I did a backdoor Roth which involved transferring funds from bank account > Trad IRA, then tried to do a conversion and transfer to Roth IRA. I got tripped up by the ACH 44 day rule because they consider moving funds from one account at IB to another account at IB, even when you are the holder of both accounts and they are all in your name, to be a "withdrawal" from the first account.... so.... 44 days. My advisor escalated the matter up the chain within IB and they eventually agreed to make a manual exception - but their policy is nuts.
As a result I never use ACH at IB anymore... I'll use Online Billpay for amounts under $10k and it works great if your bank sends it electronically. And for any larger amounts I would just do bank/wire transfer.
How does the bill pay method work?
Last edited by tj on Wed Mar 24, 2021 9:19 am, edited 2 times in total.
occambogle
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Re: Interactive Brokers (Best Kept Secret)

Post by occambogle »

tj wrote: Thu Mar 18, 2021 10:49 am How does the bill pay method wrok?
I'm having major frustrations with IB.
I can't really speak to your particular situation, but online billpay seems to work pretty much like ACH i.e. it's an online transfer. You have to set up IB as a payee in your online bank account, then you just send money up to I think $10k max. I think it depends whether your particular bank is capable of sending billpay electronically, which one of mine does, or by paper check, which one of my others can only do that. For electronic the withdrawal hold is 3 days, for paper 6 days.

https://www.nerdwallet.com/article/bank ... uld-use-it
https://www.interactivebrokers.com/en/index.php?f=1544

Side note: My experience if you do use ACH is it's better to "push" the ACH from your bank account to IB, rather than "pull" from IB from your bank account.
tj
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Re: Interactive Brokers (Best Kept Secret)

Post by tj »

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tj
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Re: Interactive Brokers (Best Kept Secret)

Post by tj »

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BHawks87
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Re: Interactive Brokers (Best Kept Secret)

Post by BHawks87 »

wmvink wrote: Thu Mar 18, 2021 8:44 am For me, a major issue with ACH is the ridiculous 44 business days hold on your funds.

Just last month I wanted to transfer out the dividend I had received on an ETF I had been holding for 2 years. But IBKR wouldn't let me, because there had been an inbound ACH transfer in the preceding 44 business days.

The inbound transfer was completely unrelated to the ETF that had just paid me my dividend, but in the eyes of IBKR of course it's all the same: funds in, funds out.
Did you mean to type "4" or is it actually "44"?! :shock:
wmvink
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Re: Interactive Brokers (Best Kept Secret)

Post by wmvink »

BHawks87 wrote: Thu Mar 18, 2021 12:00 pm
wmvink wrote: Thu Mar 18, 2021 8:44 am For me, a major issue with ACH is the ridiculous 44 business days hold on your funds.
Did you mean to type "4" or is it actually "44"?! :shock:
Not a typo. It's 44 business days, so almost 7 (!!!) weeks. Listed on their website here.

It also makes IBKR a poor choice for currency transfers - despite its great fx fees - because by definition, the originating and receiving bank will be different. Unless you choose Bill Pay or Wire, but wires are expensive (negating the fx fee savings) and Bill Pay has low upper limits.
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Re: Interactive Brokers (Best Kept Secret)

Post by Matej Vela »

occambogle wrote: Thu Mar 18, 2021 11:07 am
tj wrote: Thu Mar 18, 2021 10:49 am How does the bill pay method wrok?
I'm having major frustrations with IB.
I can't really speak to your particular situation, but online billpay seems to work pretty much like ACH i.e. it's an online transfer. You have to set up IB as a payee in your online bank account, then you just send money up to I think $10k max. I think it depends whether your particular bank is capable of sending billpay electronically, which one of mine does, or by paper check, which one of my others can only do that. For electronic the withdrawal hold is 3 days, for paper 6 days.

https://www.nerdwallet.com/article/bank ... uld-use-it
https://www.interactivebrokers.com/en/index.php?f=1544
Yup, I can speak to this from experience: Alliant Bill Pay does support electronic transfers, and the transaction limit is $20K. The funds typically post to IB on the next business day and are available for trading as soon as they post.
occambogle wrote: Thu Mar 18, 2021 11:07 am Side note: My experience if you do use ACH is it's better to "push" the ACH from your bank account to IB, rather than "pull" from IB from your bank account.
Right, the issue is that Alliant only supports push ACH with trial deposits (almost certainly due to higher risk of fraudulent transfers), which didn't work for IB last time I checked.
tj
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Re: Interactive Brokers (Best Kept Secret)

Post by tj »

Right, the issue is that Alliant only supports push ACH with trial deposits (almost certainly due to higher risk of fraudulent transfers), which didn't work for IB last time I checked.
I linked my Alliant to IB, I am able to ACH push.
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Re: Interactive Brokers (Best Kept Secret)

Post by Matej Vela »

wmvink wrote: Thu Mar 18, 2021 1:56 pm
BHawks87 wrote: Thu Mar 18, 2021 12:00 pm Did you mean to type "4" or is it actually "44"?! :shock:
Not a typo. It's 44 business days, so almost 7 (!!!) weeks. Listed on their website here.
As far as I know, this is an artifact of ACH itself — from How ACH works: A developer perspective - Part 3:
If the customer notifies the bank that they did not authorize the ACH debit (for example, in the case of a fraudster using a stolen bank account), the RDFI is allowed 60 days to return the ACH debit. Because of this, the ACH protocol is very consumer friendly, since the originator of the ACH debit must now return the money they debited and try to get back whatever was given in return for the debit.
The way that Interactive Brokers beats approximately everyone else on fees is by paring its own risks to the bone. And it does beat retail brokers once you get into the nitty-gritty — see Patrick McKenzie's great write-up How Discount Brokerages Make Money. I agree IB's documentation is insufficiently clear that all transfers out are blocked (and not just the amount transferred in) except to the originating bank.
wmvink wrote: Thu Mar 18, 2021 1:56 pm It also makes IBKR a poor choice for currency transfers - despite its great fx fees - because by definition, the originating and receiving bank will be different. Unless you choose Bill Pay or Wire, but wires are expensive (negating the fx fee savings) and Bill Pay has low upper limits.
Well, the international wire fees I've seen in the US are in the $40-50 range, so IB's FX commission of 0.002% or $2 still compares favorably to ~0.5% on Wise or ~1-3% in brick-and-mortar banks, especially for amounts greater than $15-20K.
wmvink
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Re: Interactive Brokers (Best Kept Secret)

Post by wmvink »

Matej Vela wrote: Thu Mar 18, 2021 3:06 pm
wmvink wrote: Thu Mar 18, 2021 1:56 pm It also makes IBKR a poor choice for currency transfers - despite its great fx fees - because by definition, the originating and receiving bank will be different. Unless you choose Bill Pay or Wire, but wires are expensive (negating the fx fee savings) and Bill Pay has low upper limits.
Well, the international wire fees I've seen in the US are in the $40-50 range, so IB's FX commission of 0.002% or $2 still compares favorably to ~0.5% on Wise or ~1-3% in brick-and-mortar banks, especially for amounts greater than $15-20K.
Fair. I was comparing to services such as Transferwise (which doesn't require an international wire). But even then yes I agree IB is still very competitive. Just want to make sure you don't ACH-pull funds in.
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Re: Interactive Brokers (Best Kept Secret)

Post by Matej Vela »

tj wrote: Thu Mar 18, 2021 2:24 pm I linked my Alliant to IB, I am able to ACH push.
Ah cool, so "Transfer & Pay" → "Direct Deposit/Debit" gives you a separate IB account number suitable for two-way ACH. Thanks for the tip.
BHawks87
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Re: Interactive Brokers (Best Kept Secret)

Post by BHawks87 »

Can you use the margin loan to pull money from IB to your checking account or can you only use it to purchase new securities at IB?

I have read on a few blogs that you can only use the margin loan for purchasing new securities but I feel like that is wrong.
rchmx1
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Re: Interactive Brokers (Best Kept Secret)

Post by rchmx1 »

BHawks87 wrote: Sat Mar 20, 2021 3:11 pm Can you use the margin loan to pull money from IB to your checking account or can you only use it to purchase new securities at IB?

I have read on a few blogs that you can only use the margin loan for purchasing new securities but I feel like that is wrong.
Those blogs are wrong. It's super simple. The withdrawal screen tells you:

1) "Cash Available for Withdrawal (assuming margin loan)"

2) "Cash Available for Withdrawal (without margin loan)"

It's a very nice and convenient feature to have depending upon your use case scenario.
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Re: Interactive Brokers (Best Kept Secret)

Post by Matej Vela »

BHawks87 wrote: Sat Mar 20, 2021 3:11 pm Can you use the margin loan to pull money from IB to your checking account or can you only use it to purchase new securities at IB?

I have read on a few blogs that you can only use the margin loan for purchasing new securities but I feel like that is wrong.
You can in the US (IBLLC), and can't in the EU/EEA (IBIE, IBCE, IBLUX cannot support withdrawals of borrowed funds). Not sure about other jurisdictions, contacting customer support is your best bet.
rchmx1
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Re: Interactive Brokers (Best Kept Secret)

Post by rchmx1 »

Matej Vela wrote: Sat Mar 20, 2021 3:37 pm
BHawks87 wrote: Sat Mar 20, 2021 3:11 pm Can you use the margin loan to pull money from IB to your checking account or can you only use it to purchase new securities at IB?

I have read on a few blogs that you can only use the margin loan for purchasing new securities but I feel like that is wrong.
You can in the US (IBLLC), and can't in the EU/EEA (IBIE, IBCE, IBLUX cannot support withdrawals of borrowed funds). Not sure about other jurisdictions, contacting customer support is your best bet.
Oh wow. If you have a US account you can withdraw on a margin loan to a foreign bank, though. This is at least true for a US account to a Mexican bank. Not sure if there are limits for other countries, but my impression is that there aren't. It is a little awkward to set up, you have your primary address set as your US address, but then change your mailing address to your foreign address, which allows you to add a foreign bank account for withdrawals (including withdrawals of margin loans).
gtwhitegold
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Re: Interactive Brokers (Best Kept Secret)

Post by gtwhitegold »

Does their margin requirements seem to be somewhat excessive compared to default requirements by CBOE or other exchanges requirements?

If I'm interpreting their website right, I can leverage SMC 4 times in an IRA (or 8 times in a taxable account). does this sound right to everyone else?

https://www.interactivebrokers.com/en/index.php?f=26662

Thanks.
YRT70
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Re: Interactive Brokers (Best Kept Secret)

Post by YRT70 »

Concerning DRIP, Dividend reinvestment program: I have it turned off at the moment because I like that I can rebalance this way.

I was wondering though, can having it on lead to cheaper and/or faster reinvestment?
gtwhitegold
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Re: Interactive Brokers (Best Kept Secret)

Post by gtwhitegold »

YRT70 wrote: Thu Mar 25, 2021 10:16 am Concerning DRIP, Dividend reinvestment program: I have it turned off at the moment because I like that I can rebalance this way.

I was wondering though, can having it on lead to cheaper and/or faster reinvestment?
I plan on keeping a small amount of leverage (around 5%) through margin and just allowing the dividends to reduce the level of margin. That way I don't have to worry about dividends if I need to tax loss harvest.
marky2kk
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Re: Interactive Brokers (Best Kept Secret)

Post by marky2kk »

I am a bit surprised that IBKR doesn't let me know when an ETF is being liquidated? Just noticed a chunk of cash on my account... took some digging to find out that one of my ETFs (ZCAN) was liquidated some days ago. Comes as a surprise to me (including the realized capital gains), I would have expected to at least get a notification...
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Stef
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Re: Interactive Brokers (Best Kept Secret)

Post by Stef »

Maybe you guys can help me out. I don't get the margin requirements from IBKR at all and the numbers are really confusing. My account:

Net liquiditation value: 34'983
Stocks: 38’965 (VTI)
Cash: -3982
RegT margin: 19'477
Current initial margin: 9'817

As far as I know RegT margin is the amount of equity you need to enter the margin position in the first place. Current initial margin to hold it (intraday) and RegT again to hold it overnight, right?

But why are my margin requirements that high? If the stock market crashes by -50%, I'll hit my RegT margin band and my stocks will be sold overnight? Despite still having 15.5k in equities?
hithere
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Re: Interactive Brokers (Best Kept Secret)

Post by hithere »

Stef wrote: Thu Apr 22, 2021 12:33 am Maybe you guys can help me out. I don't get the margin requirements from IBKR at all and the numbers are really confusing. My account:

Net liquiditation value: 34'983
Stocks: 38’965 (VTI)
Cash: -3982
RegT margin: 19'477
Current initial margin: 9'817

As far as I know RegT margin is the amount of equity you need to enter the margin position in the first place. Current initial margin to hold it (intraday) and RegT again to hold it overnight, right?

But why are my margin requirements that high? If the stock market crashes by -50%, I'll hit my RegT margin band and my stocks will be sold overnight? Despite still having 15.5k in equities?
The margin requirements shown on the dashboard are not "fixed", they will go down as your securities decline in price. The calculation for maintenance margin for example is Value of Securities * Margin Requirement Percentage.

Assuming 50% Reg-T end-of-day requirement, your positions will be liquidated when your securities decline to 7,964, that's -79.6% from its current value. At that moment your Equity with loan value (7,964 securities value - 3,982 debt = 3,982 Equity with loan) will be equal to the margin requirement (7,964 securities value * 50% margin requirement = 3,982). This means that your Excess Liquidity will be 0 and IB will start liquidating your positions as soon as it becomes negative.

A simple formula to figure out the value of your securities at which IB will start liquidating positions is BorrowedCash / (1 - MarginRequirementPercentage). So in your case that's 3,982 / 0.5 = 7,964.

Keep in mind that IB can change margin requirements without prior notice. Last year, they changed it temporarily from 50% to 67.5% because of the US elections. In that case, your Excess Liquidity would become 0 if your securities were to decline to 12,252 instead of the usual 7,964. So be careful with margin, there are factors outside of your control.
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Stef
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Re: Interactive Brokers (Best Kept Secret)

Post by Stef »

Thanks for the explanation!

IBKR tells me that my maintenance margin is 9'817. So it's slightly more than 7'964 and thus I would be able to survive a -75% crash.

Initially I thought VTI could drop ~90% with 1.1x leverage.
hithere
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Re: Interactive Brokers (Best Kept Secret)

Post by hithere »

Stef wrote: Thu Apr 22, 2021 1:50 am Thanks for the explanation!

IBKR tells me that my maintenance margin is 9'817. So it's slightly more than 7'964 and thus I would be able to survive a -75% crash.

Initially I thought VTI could drop ~90% with 1.1x leverage.
As I told you, the margin requirements shown on the dashboard are not "fixed" and shouldn't be treated as such. When I was starting out with margin, I also thought that if my portfolio was to decline below the margin requirements I saw on the dashboard, then IB would start liquidating. But this is not how it works. The initial margin requirement you're seeing will not stay at 9,817 - it will fluctuate along with your securities' value, because it is defined as a percentage of your securities' value. So, when you're trying to calculate hypothetical declines, the margin numbers IB is showing you right now are of no practical use. Rather, use the formula I gave you to figure out when your positions will start getting liquidated.

The margin requirements shown on the dashboard are nearly useless when borrowing long-term. The 50% end-of-day margin requirement is the one you will probably violate first on your way down, and it is nowhere to be seen, on my account dashboard at least.

If you're intending on using leverage long-term, I would suggest that you read IB's help pages to figure out how requirements work and what every term on the dashboard means. The calculations are simple, but you need to know how they're done. Otherwise, you might not even realize how much risk you've taken until it's too late and your positions start getting liquidated.

P.S. A portfolio leveraged 1.1x will be liquidated after a 81.8% decline, assuming a 50% margin requirement.
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Stef
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Re: Interactive Brokers (Best Kept Secret)

Post by Stef »

So the main risk is a change in margin requirements? While 1.1x leverage is pretty safe with 50%, it changes fast:

50: -81.8%
67.5: -72.1%
80: -54.6%
90: -9.1%

Is that correct?
hithere
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Re: Interactive Brokers (Best Kept Secret)

Post by hithere »

Stef wrote: Thu Apr 22, 2021 4:07 am So the main risk is a change in margin requirements? While 1.1x leverage is pretty safe with 50%, it changes fast:

50: -81.8%
67.5: -72.1%
80: -54.6%
90: -9.1%

Is that correct?
Yes, the uncertainty surrounding the margin requirements is a major risk. One way to mitigate that risk is to maintain a constant leverage ratio. You do that by buying/selling securities periodically so that you maintain a leverage of 1.1x, instead of doing nothing and letting it fluctuate along with the stock market. By employing this method, you will virtually eliminate the risk of ruin that comes with the use of leverage, but you may end up "selling low and buying high" with a portion of your portfolio, thus reducing your returns, and there also may be tax implications. You can also have a semi-variable leverage ratio, where you don't maintain a constant ratio, but you don't let it fluctuate freely either. Whatever the case, there's no free lunch here. You trade returns for safety and vice versa.

Those calculations are correct.
saver007
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Re: Interactive Brokers (Best Kept Secret)

Post by saver007 »

IB also has a separate daily margin statement with more details in case you haven't seen that already.
hithere
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Re: Interactive Brokers (Best Kept Secret)

Post by hithere »

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?
manuvns
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Re: Interactive Brokers (Best Kept Secret)

Post by manuvns »

margin requirements on any given security can also change if they drop below certain value
Thanks!
Tanelorn
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Re: Interactive Brokers (Best Kept Secret)

Post by Tanelorn »

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.
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Re: Interactive Brokers (Best Kept Secret)

Post by AlohaJoe »

alex_686 wrote: Thu Apr 22, 2021 8:29 pm I have never seen a brokerage actually post the SMA balance. It is such a obscure bit of technical stuff. I only know it because I used to work the margin desk.
IBKR margin users definitely know about SMA :D

It is described part way down this page:

https://www.interactivebrokers.com/en/index.php?f=24862

The SMA is displayed in Trader Workstation (the main app for using IBKR) I think.
hithere
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Re: Interactive Brokers (Best Kept Secret)

Post by hithere »

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 more 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.
Last edited by hithere on Fri Apr 23, 2021 8:34 am, edited 1 time in total.
AlohaJoe
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Re: Interactive Brokers (Best Kept Secret)

Post by AlohaJoe »

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!
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Re: Interactive Brokers (Best Kept Secret)

Post by corp_sharecropper »

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.
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