IB Exposure Fee

It is not really a good deal (I assume you also see that). You cannot buy a house for it. You just that have a stable situation and then someone says 'lets pretend I have loaned you mlns more and charge you a fee for that'.

If you look at interest, IB has also started a trick with what they call blended rates. When you have an account with EUR 1 mln cash and a EUR 800k margin requirement, you would think the margin is covered by your cash.

However, with the blended rate idea, IB will pay you 0% interest on you cash balance, but let you pay 1.6% on the margin. So you will pay them interest even though you give them more cash than margin you need.

 

Yes, the fee is exponential. It 'doubles' for each additional million, roughly.

 

I spoke with my IB rep a last month about this. I quite frequently short vol and he called me to warn me about this fee. He didn't think it would affect me as my leverage isn't as high as apparently a lot of people on here, hehe, but he wanted to give me a heads up.

You basically hit the nail on the head. According to him, IB is concerned about the leverage used by some of it's customers shorting deep OTM options and they want to reduce their risk to them as they got burned by people doing that during the last crash. The fee is designed to persuade people close out/reduce the positions rather than act as an income stream for IB.

The 30% number that has been thrown about here is also the number he was using. If a 30% move in the underlying (gap move with no chance to hedge and no stops you may have in place being triggered) would wipe out all your cash, you're going to be hit with the fee. The greater the risk, the greater the fee. I heard one guy was quoted a fee in the 000's of $$ per day.

 

Your representative basically confirms what I’ve so far found.

It appears the algorithm (simple calculation) is indeed quite simple. Unless provided with a maximum negative equity number, upon -30/+30% underlying/account loss in which the fee wouldn’t apply, it will be charged should this number be anything greater than $1.

If so, I have to say, it’s actually not hard to do this, and more importantly, it’s not taking excessive risk putting other clients or IB at liability.

I can see why they mention deep OTM short options as one of the probable issues; it’s probably the easiest way to create this scenario in your account. However, would this not be better solved by vastly increasing the short option minimum, well beyond exchange minimums?

We already know when volatility soars on any specific futures underlying margins are increased, and in more dramatic action, if it had 50% day margins those could be temporarily suspended too.

I just think there could have been a better way to address this, obviously biased, since this does apply to my account and it seems (though still looking) that I can’t go “no fee” without taking a small loss, or purposely reducing future potential profits (though I believe by a small amount).

Then again, maybe I eat the fee and continue on, which brings to question – Is this fee tax deductible, and if so applied automatically to my IB-generated T5008 (Canadian) slip? Please say yes.

 

I've used both GSEC and IB for this strategy. Both advertised 15% House Maintenance. For a market-neutral strategy, you always have 15% House Maintenance. But, for example, if you are long-only, GSEC's risk model puts you into a Risk Call at 20%. At IB, there is no Risk Call, but at 30%, they start hitting you with the Exposure Fee. At below $1M Exposure, it ups my lending rate from 50bp to 55bp, which is still competitive. But the fees rises logarithmically, so there's more pain as I rise from 30% up to the 15% limit.

 

GUYS.. ONE MORE HEADACHE.. HOW WILL WE REPORT THIS OUT TO THE IRS .. ie.. if they keep giving this as a line item... how do we allocate it to all our short calls/puts?

 

will this show up as commission . will this be listed on 8949.? and substracted from our profits. (or added to our losses)


i hope it is not coming up as OTHER FEES....

i hate this mess up

2-3 years back.. i used to have miscellanoes fees. .as IB charges for order modifications. it was only 150$.. and What I did was.. i manually manipulated several of my option trades which I could remeber were affected .

according to me.. this is all a BIG PAIN IN THE @!$@^##^%


- i am looking for alternative.s ASAP..

 

i said this already, didnt need to call about it. you clowns risking 500k to make 1k are the problem.

 

Does anyone know if the Risk Manager analytics tool can be used to calculate the exposure fee for a proposed portfolio or trade?

I don't see anything about it in the Risk Manager manual and I played around with the Risk Manager but there doesn't seem to be a way to generate a theoretical exposure fee for a proposed portfolio.

 

You can use the risk analysis tool. You should add a column in the equity tab: insert column > 'plot data column' > select custom and make it 30%.

Ironically, IB standard only has 15% as the maximum in the list .....