IB Margin account question

Discussion in 'Retail Brokers' started by OneHipCat, Dec 28, 2005.

  1. Can anyone help me out with this question:

    If I have a margin account with IB and I make a trade that is less than my cash balance will I still be borrowing on margin? E.g. if I had $5000 in my account and bought $100 worth of stock will IB be lending me $75 on top of the $25 margin requirement?

    When I opened my account I assumed no, you only borrow on margin when your trade exceeds your cash balance but then I called IB and the margin department told me I was wrong. Then someone else at IB told me different again! So I'm a little confused.

    Also, what is more popular among ET'ers (on IB) to trade futures, margin or cash accounts?

  2. volaray


    I can only give you the response I got from IB when I asked a similar question. I was told that if there were occassions I wanted to purchase shares with cash only, no margin, I would need a cash account, separate from my margin account.

    I dont know if this helps you really as it already seems that you have had two separate answers from IB themselves. I wonder if there is anyone from IB on here who can comment?
  3. hopback


    If you have $5k in your account and buy $100 of stock you are still at 100% equity.
    You have not borrowed any money from IB however since you are only required to maintain 25% equity, the other 75% is still available to borrow once you have no cash balance.

    Another example is if you have$5k in your account and you buy $5k worth of stock, you now have a $0 cash balance, 100% equity ( you did not borrow any $$) and 75% margin release is available. Even though you have $0 cash balance, you are only required to maintain $1250 against that position. You will see $3750 available on margin. Now you're not limited to buying only $3750 worth of more stock, it only needs to cover the margin requirement of 25%. So, after buying the initial $5k of stock you can buy an additional $15,000 worth of stock.
    Total position $20K, requirement of 25% = $5k (your initial cash balance)

    This would put you at minimum equity and in danger of being sold out if the market moved against you.

    All of this assumes that this is not a brand new account that has just been funded. If it is a new account you are subject to Reg. T requirement of 50% until your SMA becomes inflated.
  4. hopback


    Maybe I didn't spell it out well enough but I thought I basically said the same thing.
  5. hopback is right....read and re-read his post. Probably both IB people you talked to said the same thing, only they threw in free-equity and some other terms that made it confusing....customer service people are good at that.

    Bottom line -- any investment you make that uses more than your cash balance is a margin loan and you will pay interest on it (at least overnight, I'm not sure how it works if you close out at the end of the day).

  6. alanm


    No interest on margin loans intraday. You can buy $10K of stock with your $5K, sell it before EOD, and incur no margin interest.
  7. Thanks Guys for the replys.

    Sideshowbob, that was my concern, that I'll be paying interest on positions that are less than my cash balance, the IB margin rep (Matt I think) told me in no uncertain terms that I would and a seperate (very rude lol) lady told me "absolutly not, you would not".

    What do people here on ET use to trade futures, cash or margin accuonts?
  8. GTC


    OneHipCat, it is unfortunately not uncommon to get contradictory answers from IB-chat, IB-phone, IB email customer service representatives and IB's web-site. If possible, try to get the names/reference# of the representative/correspondence. I have found that certain representatives just do not seem to try hard to find the right answers at the first time. However, not all representatives are bad. Some will actually take time to answer. You may want to provide feedback to IB. Hopefully the customer service will eventually improve. By the way, what was the name/nick_name of that rude lady? (Just because she/he is rude, she/he is not necessarily incorrect.)
  9. I use margin and cash accounts for trading futures (the cash accounts are IRAs, although recently some of them became margin IRAs -- whatever that means).