Why not just increase margin requirements for contracts with excessive risk? IB already has excessively high margin requirements for short futures options. IB's overnight ES margin is $5406.25. IB's overnight margin for a short OTM ES put or call is $8890. I would appreciate someone at IB explaining how a short OTM ES put or call will create a larger loss in a huge overnight move than the ES future. I understand that after a huge move deep ITM options will lack liquidity and that volatility will expand in a downmove, but exactly how can the initial OTM option create a larger loss than the underlying contract?
Thanks Grdr. Personally I have only few weeks of experience in NYSE, although I have more than 5 years in stock (equity) market outside US. Al of my experience is two purchase of C and DD. Furtheremore, I have NO experience in future/option AT ALL in my life. Never open any account for future/option in any countries, as my gradfather recommended. ****************************************************** Probably the "exposure fee" is for future/option, NOT for equities? Also I never heard about ES. What is ES?
Although I have little knowledge on option and NYSE, it may implies "Since hurricane is coming, IB is recently asking more insurance premium for possible house damage" , which means that if you NOT want to pay insurance you are free to go to OTHER BROKER. But I guess many are addicted to IB so that it is hard to change broker. At least house insurance is pretty similar to option, IMHO. After the hurricane news in TV, insurance company reject new customer or asks higher premium. Forgive me if I have totally wrong in general concept.
I want to point out limit moves, up or down, also known as circuit breakers exist for nearly every (US)futures market. Here's the FAQ from CME for INDEX FUTURES... http://www.cmegroup.com/education/files/faq-eq-hours-and-limits.pdf Of note, extended market hours (this would include overnight) carry a 5% circuit breaker. Regular hours have a tiered circuit breaker structure with limits at 7%, 13%, and 20%. Also of note, when/as/if circuit breakers (for index futures) apply, ALL equity trading, and ALL equity option trading is affected. Obviously, options on futures are also affected. 30% price movement? Really? IB for futures? Not.
This reminds me of 2011 when they raised margins of Gold and Silver and people shit a brick. My guess is short vol./ premium is a bubble trade right now.
They raised the margins because volatility in gold and silver went up....very understandable to raise margins when vol increases, but when vol is at an all time low???They can't justify an increase in margin.................thus "exposure" fee.. disclaimer...not a client of IB...my concern is simply if IB gets away with this fee then others will follow...ugh
Hey IB: Who invented the exposure fee and exactly when was it created? We would like to know his name so that it can forever be recorded for posterity in the annals of trading history and enable us to pay homage on the anniversary every year.
So, in my understanding as a NYSE newbie, the exposure fee in IB is ONLY for future/option, NOT for all-cash buy equity. Isn't it? I heard, in some options, traders can lose MORE than his seed cash in investment. Probably the exposure fee is premium for insurance for future damage in IB. Possibly some other insurance company insured IB for the (potential) loss, with some MONEY that traders are supposed to pay everyday. Am I understood correctly? Sir.
There is no additional insurance, just additional income for IB. All instruments are treated the same in this calculation.
Lol, so you know what IB's positions are now? More than likely they have a hedge on and are using the exposure fee as a way to pay for the hedge while also allowing clients to keep their positions open if they want.