How is this very low margin interest rate possible?

Discussion in 'Interactive Brokers' started by salamanderforex, Oct 14, 2020.

  1. IBKR has the lowest margin interest rate anywhere I have found.

    What makes this huge gap possible between them and all other brokers?

    They are probably doing something really well and are not greedy but this huge difference in interest rate (like 1% vs 5%) is enormous and makes me think how they acheiev that. On thee other hand, probably it is the other brokers that are really greedy and don't lower their interest rate even when rates are so low like now.
  2. maxinger


    Please show the evidence.
  3. ajacobson


    Lending their own balance sheet versus borrowing at broker call.
  4. IBKR vs which other one? Tell me your best one and I will reference from their site.
  5. Broker call is 2.00% and very difficult to find brokers that lend at broker call or lower.

    IBKR is one of the rare exceptions.

    Margin lending above broker call is a profit center for brokers.
  6. What is "broker call"?

    IBKR seems to be the ONLY exception. I haven't come across any other so far that is lower than 4% even (4 times IBKR).
  7. ajacobson


    Broker call is the rate at which banks lend to brokers against the pledged stock. There is generally a markup so you get charged call plus. In retail IB is pretty much as good as it gets.
    The less you borrow the more you pay. Margin lending in the institutional world used to work off of Libor plus and now it SOFR plus.
  8. ajacobson


    Their low margin rates must contribute to their "hair trigger" for forced liquidations - so in a sense, cheap money has a price too.
  9. guru


    I wonder if part of that is just marketing spin from IB offering lower margin rates but using/requiring higher margin on various trades.
    People often complain that IB requires too much margin on futures and options (I have the same problem), more than other brokers, so you may pay higher margin rate elsewhere but not use up as much of it as at IB.
  10. Requiring higher maintenence provides security for everyone. They have recently raised their margin requirements specifically due to upcoming elections; so they are rightfully very proactive. But still they provide something like 60:1 for USD for example. I am not sure how different they are with options and futures compared to others however I don't think that is what provides for better rates.

    I think there are three reasons:
    1- They have a stock sharing program that allows for lending clients equities to other clients.
    2- They are the biggest with most resources so they are using that to lend instead of borrowing from banks at ridiculous prices.
    3- They are not being greedy for whatever reason. I hope this lasts long and forces other to bring down their margins to comparable levels so a true competition happens and rates go even lower.
    #10     Oct 15, 2020