Indeed, proves again how many pro's we have on ET. What IB does gives me confidence, i know they are careful. Completely different from the 300$ margin brokers.
A couple of points: 1. Other brokers are reducing margin for the same stocks. It's prudent for all of them to do so. 2. It's at the broker's discretion as to whether they extend margin on stocks or not. End of story. 3. As for IB liking this, I don't think so. The brokers make a LOT of money on extending credit to their customers on their security purchases. They most certainly don't do this lightly as it squeezes their profits. Obviously, the risks far outweigh the reward at this point in time.
I'm guessing there were record #'s of account blow ups this past week. I've never seen a week like that in 20 yrs. Props to IB for keeping the data feed up and running without a hitch.
This is exactly what brokerage firms did right before the crash in 1929. None of the major brokerage firms collapsed when the market crashed because of the drastic change in margin rules they made at the time. Kudo's to IB for doing their research. They are just trying to ensure they will be around if/when a market crash occurs.
IB (as well as others) should publish their blow-up rate. Would be interesting to see how has it performed recently. In fact, I don't believe IB has a lot of total blowups, because of their safeguards.
"Safeguards" have little to do with the prevention of account blowups. If one is like Stock777, they might prefer the "death by 1000 cuts" method of blowing out your account. If one is like others, they might prefer the "Kamikaze" method of blowing out your account. Account blow ups are a function of inexperience, incompetence, and ineptitude. And no matter what so called "safeguards" are put in place, those kinds of traders, will blow their accounts. The only difference is longevity between start and blow up. IB's as well as other brokerages safeguards are for their benefit and theirs only.
"IB's as well as other brokerages safeguards are for their benefit and theirs only." I agree 100% in this case. IB (and other brokers) have moved to protect their capital, their business, and in the process, their clients. Remember, they are a business. They have a right to protect their business. If we as clients don't like, there are lots of other firms to deal with. We can let them know we don't like the change, but in the end we vote with our dollars. I think they are being prudent and as a client like the move.
As an IB customer the only concern I have is that I have not heard about this until today. Is there a link to an official statement from IB? Over the last while I have capped or eliminated my overnight risk and reduced my position sizes. But there have been so many short term opportunities lately I do not want to be punched in the face because I was not informed by my broker that their rules have changed. Before some call me a gambler I would just like to say that I have no problem working within a no margin world at this time as the volatility is awesome and presents massive opportunities without getting leveraged to the tits. I just do not want to be in a situation where I have my positions liquidated or am prevented to take a position because a rule change that I was not informed about directly. AAA30
Well Said Derek, Leverage (when not used beyond the risk of ruin*) does not make you go broke or get rich. It only speeds up the process of what you will end up doing anyway. Leverage itself means nothing. You must add in the average gain, the average loss and the edge to be able to know what amount if any leverage you should or should not employ. If you can't or unwilling to do that then you will either go broke or make a lot less than you would have otherwise. You also probably have no business trading either. There are others but this is one example of a death calculator risk_of_ruin = ((1 - Edge)/(1 + Edge)) ^ Capital_Units
As ProfitTakgFool has so correctly pointed out clearing firms survived the '29 crash precisely because they upped margin requirments on spec positions. In those days it is my understanding that one of the posts on the NYSE floor was actually an overnight money post. It is worth noting that unlike today rates were skyrocketing for member firms yet, unlike today, the spigot did not close as it has recently for BSC or as was feared would happen at Lehman pre the Fed intervention on the 16th. Contrary to what some seem to think the guys on the street that manage the risk exposure at major firms are not retarded ... quite the contrary they are well compensated bright guys with well thought out risk management strategies that, alhough not perfect, are what they are prepared to bet their own cash on to the tune of billions at times. A significant portion of the profit on the street comes from lending margin money. When they begin to reign in the hedge funds and others it dramatically effects their bottom line ... in plain English, IT COSTS 'EM. Take heed when the street passes on bread and butter profit secured by liquid securities. There is only one reason for them to do that: They are concerned about the liquidity of those equities in the immediate future. The risk has increased and they want more collateral. That's the take-away here.