I'm a spread trader. My strategy is to trade futures contracts which are expiring soon, and they are only trading in a very narrow range until expiry, so I can earn spreads safely with minimal risks. Even if there is an exceptional circumstance, I could just stop out easily with a small loss if it breaks through the narrow range. As the profit is very small per trade, it is normal you magnify profit through higher leverage. Since I have the account in IB, I always gain with this spread strategy. I'm always more than fully margin compliant. I've never experienced a single instance which my margin level drops below the maintenance margin or get any warning of auto-liquidation. However Interactive brokers suddenly sent me a notice saying I'm unusually risky now. They are going to charge me an arbitrary daily fee as I hold a large position of the expiring futures contracts. They said they calculate the fee in their own discretion and use their own proprietary algorithms (which are subject to change without notice). The fee assessment is final and cannot be challenged. Based on their algorithm, they assume the expiring futures contracts (which only trade in a very narrow range until expiry) are very risky and I could have -50% loss in the worst scenario. However the daily fee rose after I bought some U.S. T-bills which are deemed risk-free assets. What the heck! Then I followed the advice offered by the tool which provide an estimation of the fee (but there is no guarantee the result is accurate). Initially the daily fee dropped from $12 to $6, but it suddenly rose to $14 after a hour or so (I made no new trades during that period). If they thought it were too risky, they would have rejected my orders in the first place. They didn't. They were happy to accept my orders and earned a good amount of commissions, but then they decided to charge me more fees daily. I asked my local brokers. None of the local brokers have this kind of arbitrary fees. ----------- What do you think? Is it legal a broker could charge any amount they want determined by a black box? They could charge me $100 next day. How ridiculous! What should I do? As a foreign non-US trader, how could I claim back the arbitrary fees? Which organization could I seek for help? Is there any other international brokerage firm which accepts foreign traders, offer low margin requirements for low-risk spread trading, and do not have any arbitrary fees? Thank you very much for your time and answer.
It won't solve your issue, but this is nothing new. IBKR is doing this for multiple years already. If they consider a trader doing things they consider risky, they let that trader pay some sort of "insurance premium". I experienced an occasion where I had two account numbers in one account at IB. One account I used for more volatile futures trading, the other for much less volatile ETF investment purposes. Once I received their notification that my futures account was operating too risky (in their view) I complained. I mentioned that I had separated the two trading strategies on purpose so that I have better visibility of the volatility of each. And that IBKR should not look at each account individually, but at both of them together. Since then am I no longer being charged this "risk premium".
it’s a fee for IB to hedge the risk you default in a catastrophic scenario. other brokers don’t charge this fee but may offer less margin or be riskier for you. you have 4 choices: 1. Pay the fee 2. Hedge the catastrophic risk yourself 3. Reduce your size 4. Find another broker the specifics of your situation and strategy will inform you which is the right decision for you
on futures, they will assess exposure fees when times are volatile, like last few weeks. if you nlv swings are too high, even margin compliant, the fees will be assessed.
But the main points are: 1. There is no catastrophic scenario that will happen in my case. There is absolutely no chance of big loss even under extreme market volatility. 2. The contracts I'm trading have extremely low volatility (always trading in a narrow range for the whole day until expiry). They never become more volatile. 3. I'm using a very safe spread trading strategy with minimal risks. Zero chance I will go default due to this. Well, Interactive brokers actually have higher margin requirements than some other competitors. If it is still not clear, I would like to emphasize my positions has: 1. No high risk involved! 2. Zero catastrophic risk! 3. Zero chance of big loss! It is just very safe spread trading strategy. I'm always profitable with this strategy. The con is the profit of each trade is very small. You need higher leverage to magnify profit.
well IB thinks it can theoretically be volatile. edit: remember oil has gone negative and short term fed funds have moved 75 bps in a random day before.
when you are a retail dealing with ib, or other big firms in general, stop considering combo and/or spread margin offsetting, that is in theory. in practice, one leg can have no liquidity and no market making. my futures account had a 25% swings few days last month because i had many lots short puts on oil around 72, it shot up to 76, forcing me to take losses and roll puts forward, there were no volume at 72-74 range, got to go to march and april contracts.
Yes they wrongly classified my account as high risk when it's actually very low risk in my case. I sent a web ticket to explain to them but I've got no reply for days. They just don't care. What else could I do? Could I complain to a third party organization? Which organization could I ask for help?
Also how come they could charge whatever amount they want and there is no way for me to know how this fee is actually calculated? If they claim the daily fee is $100 next day, I have to pay too. There is no way I could challenge the fee assessment might be incorrect. And it does really look like their algorithm is flawed. The daily fee rose after I bought some U.S. T-bills which are deemed risk-free assets. This trade shouldn't make my portfolio riskier. The rise in amount does not make sense.
https://www.ibkrguides.com/kb/article-3114.htm there is a exposure fee calculator, if you mark down your short positions by 30%, it would do.