At IB I believe you can 'short' stocks in an IRA account but you must use your own IRA $; you cannot use/borrow/margin IB's $ in order to short stocks. "...IRA accounts can have cash or margin trading permissions, but margin accounts are never allowed to borrow cash (have a debit balance) as per US IRS regulation...." http://individuals.interactivebrokers.com/en/trading/tradingConfiguration.php?p=t&ib_entity=llc http://individuals.interactivebrokers.com/en/accounts/iraClasses.php?ib_entity=llc I hope this helps. Tom
If the loss is more than my account balance, how can I fund the IRA account? I can't fund more than 4K a year. Say for example my account balance is -10K after a black swan and IB liquidates all my position. How does it work? Can I fund 10K to fulfil my obligation? [edit] since I trade mainly future and future options with my IRA account, I like to know the consequence.
Yip...IRS rules limit the amount you may contribute to your IRA per year...therefore it would be a nightmare. I assume you could fund then close the account but you will be penalized by the amount over the legal limit you put in. Penalties and interest would obviously depend on how much and how long you left it in. As said by ids....be very ...very responsible in your futures trading:eek: in your scenario you need to put in $10K...IRS limit is $4K so you go ahead and put in the 10K..to make it whole...close the account immediately . (Of course I'm assuming IB will ALLOW you to actually contribute more than the legal limit. )You will be penalized on $6K extra that you put in. Check with the IRS or your accountant on how much the penalty and interest would be.
We had a similar discussion on ET a year or so ago. An IB customer held some GOOG (I think) calls. On Options Expiration friday at 4PM GOOG was very slightly under the exercise price. He logged out figuring he was OK. However, he was not aware that CBOE options trade until 4:02. The options closed on the CBOE in the money. The options were auto-exercised. He bought a bunch of GOOG. His IRA account went very negative in cash - not allowed. IB's magic margin protection program sold his newly acquired GOOG first thing Monday. GOOG was down so he lost a bunch on the sale. After the sale he was still negative so his entire IRA was liquidated. He still had a negative balance. IB then liquidated a non-IRA account he had as well. He remained negative. We never heard how he resolved matters with IB and how he handled the need to contribute an "excess" amount to the IRA account. However, it can be a problem unless IB has conjured up some sort of fix to safeguard against this type of problem. Jack
There was a post last year or the year before about someone who was long 9 google calls in his IRA, let them expire and they were autoexercised because the settlement price was in the money (slightly). Google then gapped down a few points the following Monday and he was out $9000+ in the IRA, which was more than the account had. If I remember correctly IB took the funds from his other account. He was pissed at IB, but really only had himself to blame for not specifying exercise (or technically do not exercise) instructions. As for an IRA conversion (from traditional IRA or 401k to a Roth IRA) IB will not do it. However, many other brokers will, for example Scottrade. Scottrade even does recharacterizations (when you need to go back to a traditional IRA because you f**k up and aren't allowed to do the conversion). SSB
If I don't have other account with IB, what can IB do? If my IRA account is negative, and I promise to fund my account 4K every year till I cover all my loss. Will IB accept it? It seems that we can trade the IRA accounts using future funding if IB accepts my suggestion.
sorry yip I don't believe ANY firm is allowed to accept our promise in lieu of $$ Very interesting story Jack...humm I wonder since IB liquidated a NON IRA account to fund the IRA account are THEY liable for the IRS interest and penalties
I am not sure if IB has the right (legally) to liquidate your non-IRA account because each account is supposed to be segregate according to sec laws.
Well my memory of the GOOG liquidation incident wasn't quite correct. Here is what happened after the IRA was wiped out: "Our account review is now complete. Due to adverse price movements in the price of Google, your account number UXXXXX incurred a debit balance of $9,207.65, which amount you owe to Interactive Brokers. Pursuant to the IB customer agreement, IB will transfer $9,207.65 from your account UXXXXX to Interactive Brokers in order to cover your debt to us. Account UXXXXX will be closed, but all restrictions on account UXXXXX will be lifted." I guess the thousands of words in the customer agreement say IB can transfer if we owe them money. The guy involved was very upset with IB but elected not to pursue further. Jack