One thing that bothers me though, is I invest 40k of cash into some position, now I have a margin maintenance of 10k in my account, which means I need to keep 10k of cash sitting in my account doing nothing so I could sustain a potential margin load that I don't need. Is that correct?
Okay I thought you were talking about IB's feature of allowing their clients to create what appear to be subaccounts w/in their main account.
It's not cash, it's invested in to a position. Would you be more comfortable with it if instead of it saying you need to keep $10k cash in your account that you needed the full $40k? I mean if we took it from the perspective of how you seem to want it to work, then when you open that $40k position, then your cash balance would drop by $40k and your margin would be $0 and you seem to prefer having your cash balance reduced by $40k rather than "keeping $10k unused" in your account. Think through this. What actually happens: deposit cash of $50k with margin requirement of $10k for a $40k position -- you need to keep $10k cash in your account, meaning you could withdraw the remaining $40k if you wanted to or leave it in and get paid interest. What you want to happen: deposit cash of $50k with a margin requirement of $0 for a $40k position, but in exchange for the $0 margin requirement, your cash balance is reduced by $40k to only $10k, meaning you could only withdraw $10k or get interest on it. The way it's done is better for you, but you seem to be hung up on the meaning of "margin". Margin in its simplest form is simply cash that is locked up in order to keep a position opened and margin requirements are less than if you paid for the position outright (ie $10k margin vs $40k reduction in cash).
I think I may be misunderstanding something. I thought that to keep the maintenance margin I had to actually have the unused cash balance in my account, but instead it seems that I can use my full cash balance to buy an equity (stock A), as long as the value of the equity (stock A) remains above the maintenance margin. Is this correct?
Yes, to keep the maintenance margin, you have to have "cash" in your account to cover the margin requirement, but the alternative to a 25% margin requirement is 100% paying for the position -- subtracting the cash in your account by $40k leaving you with only $10k cash uninvested rather than the current method of utilizing only $10k and leaving you with $40k uninvested. I don't really know how else to explain it. You have your account set up as a margin account, but you can switch this to a cash account. It will have the behavior you're looking for. You seem to be one of those people who just needs to see / experience it to truly get it and that's fine, so I suggest that you play around for a few weeks / months as is and then ask IB to switch you from a margin account to a cash account, then play around with that for a few weeks. This will let you see how things react differently. Alternatively, set up your IB paper account as cash with the same amount of cash ($50k) and do the same trades and see how your account numbers/balances differ.
Thanks, I'll do that, the confusion is also due to the fact that my cash amount did go down the full 40k (not just 10k as you said), but then I also had the 10k initial margin.
wow, like my expense fee margin I got today even though I had less borrowed out then yesterday, and half my positioned closed today..... no one gets to complain unless they have 10k in expense fees already this year, like me.. LOL, good old IB. if it wasn't for the low margin rates, I would have moved quicker then lightning