IB Exposure Fee

ughhhh. But what is a good alternative to IB? I like the mobile app and i am happy overall with it. But the exposure fee is becoming annoying. And now i am worried about my counterparty credit risk.... What is an alternative for a futures options trader with 1-2mm AUM?
I tried RJO but their futures options fees was around $7/contract. Too much!

 

I feel like I'm back in elementary school where the teacher would give the whole class detention because one punk was misbehaving.

 

Lightspeed?

 

That's outlandish, IB is probably one of the most secure places to park assets among the choices we have. Case in point their stock is trading north of where the CHF debacle took place, can't say the same for some of the bucket shops.

Look, if they want to discourage 40-1 leveraged gambling that's their prerogative just as it is ours to move on to less expensive alternatives. Personally I think doubling the fee after a fat tail is a little reactionary, but I understand the motivation.

 

It was figured out a long time ago when the fee kicks in, just keep your total loss exposure below 125,000 USD. In other words, if your position(s) move 30% up or down (equity has a special 20% up move, so calculate it based on that) overnight would your account have a negative liquidation value of >$125,000 USD – if so, you’re going to be paying the fee.

I’ve found that this exposure fee typically negatively effects option sellers, but I’ve also found that buying very cheap protection (essentially turning positions into credit spreads) just below the 125,000 USD account “exposure” no-fee limit line removes it altogether, and the long options cost less than the fee, especially if you’re holding the short options for >30 days.

I paid the fee on a number of days back when it was first introduced spanning a few months, but haven’t paid it since. If you trade any sort of volume, IB is still more cost effective compared to the others who don’t charge any fee (the commissions are higher).

I even sometimes (though very rarely) make a small profit on those deep OTM long options, but I know they accomplish two things; 1. No exposure fee, 2. Loss limiting on unforeseen, unprecedented one-way moves.

 

Gotcha, good post. Thanks.

 

I don't know why you folks are still with IB. People complain about other brokers charging high commissions, but when you factor in this exposure fee, IB becomes the most expensive broker out there for leveraged trading (such as short options). The only reason to stay with them is if you trade stocks on margin with fairly low leverage

 

I'm still waiting to hear about a reasonable alternative to IB with a good mobile app.

 

Think about this:

Just what exactly are you buying when you pay this "exposure fee."

 

That's exactly what this isn't.