IB Margin Requirement Strangeness

Discussion in 'Retail Brokers' started by PopRocks, Jul 31, 2001.

  1. PopRocks


    Hello, I opened up a stock/options margin account on IB about 4 weeks ago.. and I'm noticing some funky stuff when it comes to trying to place orders...and having my orders refused due to insufficient margin.

    It seems that IB is always calculating the INITIAL margin requirement for all of my positions (OLD and NEW) whenever I try to put on a new position in determining what my entire margin requirement for the account is before ALLOWING or DISALLOWING an order to be accepted. This seems wrong and refuses me from placing legit orders. Other brokers will calculate the total margin requirement for an account by using MAINTENANCE margin requirements for all existing positions + INITIAL margin requirements for the new order you're placing.

    The effect is this in this example:

    Account Size: $10,008

    (1st order) Buy 200 shares XYZ @ $100 / share (this is allowed..since my margin req is: $10,000)

    stock then falls to $99.75 / share

    (2nd order) Sell 2 Covered calls strike 110 (this order is rejected..because IB uses INITIAL margin requirement for my first order (long 200 XYZ) which is $9975 plus INITIAL margin requirement for Covered call order which is the premium received.) Any other brokerage would accept this order.

    Any other broker would use the MAINTENANCE requirement for my first position (long 200 XYZ) which is 30 - 40% of $19950 which is: $5985 - $7980 plus the INITIAL requirement for the covered calls (premium received) which is easily met.. even with the $.25 decline in XYZ.

    The net effect of all of this... is that the MAINTENANCE requirement in used ONLY in determining if your most recent trades are reversed..to meet the MAINTENANCE requirement. And that INITIAL margin requirements are effectively applied CONSTANTLY...and will refuse any new orders..if INITIAL req are not met for ALL of your positions..OLD and NEW.

    Anyone else have experience with this? Or know what's the story with margin at IB?


  2. poprocks - to the best of my knowledge that is the way margin is supposed to be calculated, not just individual position by individual position.
  3. It sounds like IB is doing it correctly.. the initial margin applies until the next trading day afaik. Imagine if they switched to the maintenance requirement right after you executed your trade.. that means you could buy more of the same stock immediately and basically circumvent the initial margin requirement.
  4. PopRocks


    Ah, I see.. So, are you saying that after entering a new stock position.. I wait 1 day... and then it'll use the MAINTENANCE requirement for the long stock... in determining my overall account margin requirement..when considering a completely unrelated options order? That would be reasonable.

    What I don't think is reasonable is that a second completely different order on an option is rejected because of IB using an INITIAL margin requirement on stock that I've already purchased from before. Kinda weird..since they're using the MAINTENANCE requirement for that stock...all the time... up until I want to do a real trade..then they switch to the higher %: of INITIAL requirement in determining if they'll allow the new order.
  5. Looks like your example is legging in to writing a covered call. If you had written the calls when you purchased stock, you would be fine. It's just that the stock fell below 100 which brings you out of compliance with the initial margin requirement. If you held the stock til the next day (and it didnt gap down too much), then you could write the calls because the stock would be using the maint requirement. But the broker should prevent you from taking on additional positions (regardless of which stock/option it is) when you are out of compliance with initial margin. I'm not sure how else to explain it, that's just the way it is.. If you can do that at another broker, then maybe they are doing it wrong, or maybe they simply interpret the rules more loosely at the cost of increasing their own risk.
  6. trader1


    You're right the margin use at IB is unlike anything I have ever seen before. I wrote about it a couple weeks ago when I first started there. They don't use maintenance requirement to figure out your buying power for the day. They use initial margin, which is absoloutely ludicrous. I have never seen anythig like it. A previous poster was wrong when he said funds are released the next day because they are not. you will never be able to go over 2:1 margin even on positions you hold overnight.
  7. IB does not have different day trading margin requirements and over night requirements the way some brokers do. They use overnight requirement for everything.
  8. m_c_a98


    IB's margin does seem to be different than regular brokerage firms. Most regular brokers(I don't know about other direct access) seem to use a SMA account(special memorandum account) which is a journal entry not seen by the client. This type of calculation is not as strict as IB because someone could be below 50% equity and still have buying power.
    IB seems to keep the 2:1 Reg T requirement as if your entire account is cash market to market in realtime.

    If you are a longer term swing trader you might get more buying power at other non daytrading brokers.
  9. trader1


    I dont think it has anything to do with daytrading requirement versus overnight requirement. If anything they have a daytrading requirement for everything. They are supposed to use MAINTENANCE margin to calculate buying power for the subsequent day after an initial position is taken. But they treat any position as if it was opened on that day, thus they are calculatinhg margin requirements using initial requirement even on positions that should be treated under maintenace requirement. Maybe I'm not explaining this correctly but end result is you have much less buying power with IB then with any broker I've ever used on overnight swings. Can't wait for 4:1 margin to take affect.
  10. PopRocks


    Hey Trader1,

    Thanks for the info. I knew something was weird.

    I wonder if there is anyone out there... like Def.. :) that might explain why IB uses INITIAL margin requirements for ALL currently held positions, all the time, for calculating current purchase power. This DOES seem to be a real problem..and would definitely detract from people using IB as a broker. Everything else seems to be amazing at IB.. (awesome executions, orgasmic commissions) but it seems as if your $ just doesn't go as far with IB regarding purchase power. Other brokers REALLY use MAINTENANCE req for existing positions in determining current purchase power.

    The trivial covered call order example I gave before should be possible to do but isn't allowed. Is IB aware of this?

    >> Trader1: Can't wait for 4:1 margin to take affect.

    Are the margin rules set to change some time soon??


    #10     Jul 31, 2001