IB IdealPro Cross Currency Margin Requirements

Discussion in 'Retail Brokers' started by tedace, May 9, 2006.

  1. tedace

    tedace

    I would just like to verify if I understood the IB web page correctly. If I traded crosses like GBP/JPY or EUR/GBP, and my account is in USD, is the margin required additive, e.g., for GBP/JPY, my margin comes from the conversion of GBP to USD plus JPY to USD (with commensurate leverage)? I would just like to understand why, at 50% leverage, 17500 units of GBP/JPY has a margin of 4698.99 at IB whereas the same order has a margin of 652.89 at OANDA (where basis of margin computation is just from GBP/USD)? I am using demos for both brokers. I sense I am misunderstanding something here?
     
  2. tedace

    tedace

    I'd like to follow-up by clarifying the question with an example:

    On a USD account, I'd like to buy 17500 GBP/JPY at the ask of 207.27. I compute the margin as follows (as indicated in the website):

    On the Cross, I am buying GBP:

    GBP: 17500 x 1.8642 USD/GBP = 32623.5USD, then x .02 margin= 652.47 USD

    Now that I have my 17500 GBP, at the same time, I am selling JPY where 1GBP=207.27. Therefore 17500 GBP x 207.27 JPY/GBP = 3627225 JPY. Then:

    JPY: -3627225 / 110.50 JPY/USD = -32825.565 USD, then x .02 margin = 656.5113 USD

    Total margin for cross: 652.47 + 656.5113 = 1308.9813

    1) Is this a correct margin computation for a cross?

    2) If it is, how come I could never get this result on the "Check Margin" feature? The results are off by over $500 or more. I expect the results to be close to the computation (rate variation and all close to clicking 'Check Margin'). What am I not adding to the computation or what's wrong with the computation?

    3) This example is just for long trades. Why is there a difference in margin between long and short of the same pair on 'Check Margin'? As I said previously, I was comparing margins with OANDA (since I am seriously considering automating ForEx trades with IB and my manual account is with OANDA). The margin calculation for them is more straightforward and just based on GBP for GBP/JPY and no difference between long and short trades :
    http://www.oanda.com/products/fxmath/margin.shtml

    Can anyone please help? Is is difficult to automate without the right formulae.

    Thank you.
     
  3. alanm

    alanm

    In a live USD account, buying 17500 GBP.JPY at 208.35 (market .29 - .35), check margin gives me a req of $763.06. I, too, calc the requirement as ~$1321 based on the margin page. Perhaps there's a discount for crosses like this (as there should be).
     
  4. alanm

    alanm

    Bump. IB?
     
  5. TGM

    TGM

    IB margins both legs separately. So think of it as two positions. IB set up Ideal for Currency conversions and then made it into a FX trading platform. Technically, the margin changes at every tick.
     
  6. alanm

    alanm

    Apparently not, because the required margin is less than the sum of those required for the two positions, which is the point of the thread.
     
  7. tedace

    tedace

    Thank you for your replies! I couldn't figure it out but I think the best solution for me is to abandon IDEALRPO altogether for ForEx trading of currency crosses (by CROSS, I mean those that are not paired with the USD). From my analysis, it looks like all crosses , once ordered, is pre-split by IB to their USD components before sending it out to their liquidity providers (hence two margins). This becomes a synthetic pair, rather than a true pair. If your model is following the cross price, then your model becomes immediately invalidated by the pre-split. While it is true that the USD components determine part of the price in the model, the direct trading on the cross itself without a USD component also exerts price pressure. I may be wrong in my analysis, but another annoying thing with trading crosses with IB are those bits and pieces of currency left when you close your cross position. I know there is a workaround to it, but, it is still a workaround.