It is sad that the powers that be, found it necessary to impose the 25k limit. While it does have a negative impact on the small trader the new rule might turn out to be more of a curse than a blessing to those who are able to meet the requirements. 4:1 margin sounds nice but there is a steep downside to it. Everyone who has been around knows of the psycological implications of trading, how easy it is to be consumed by greed when we have a few good trades, and forget about the risk involved. IB has been here for the small guy all along. Many a trader with a small acct has been able to learn, and get a feel for trading doing small shares, while not been bled dry by commissions. It would seem that some are forgetting that IB is running a business. They are not going to expose themselves to risk or try to skirt the edges of the law just to please a few traders. Those with less that 25k could open futures accts and trade the e-minis or they could take their money and move on. Please ease up on the IB bashing.
Furthermore, there have been a number of options included on this board on how to get the 25K minimum you need to trade. Assuming you only have 5k to trade with, take out a 20k personal loan, at lets say 6.5% interest. IB will pay you LIBOR - .5% interest, so you will actually only be paying about 3.5% a year, which comes out to about 700 bucks a year. Thats a lot, but still not unreasonably so. If you don't like that option and still want to trade stocks, you could always trade a longer timeframe. A truly successful trader can adapt to almost any market condition. And who knows, maybe you're true trading ability lies in swing trading. The fact remains that IB is an excellent brokerage firm that is doing its best to work with these new margin rules.
Htrader, true. Just wanted to point out that IB only pays interest on the amount remaining after deducting $10,000. Other options (which have been mentioned before): options futures pro firms like Echo prop firms
I received an email from IB to all account holders yesterday advising yes they are offering 4/1 margin on all $25K+accounts and an advisory on how unfair they thought the new rules are and to vote with your feet and take your business to other venues such as futures, options and offshore. Also I have been in touch with the NFA in Chicago and single stock futures should get a December launch. 100 share contracts, appx. 20% margin and folks the volume will be enormous in these instruments, particularly in the big cap stuff. The securities markets shylocks have maybe really shot themselves in the foot this time. Within a matter of months they may be adjusting their closes to the futures settlements, you have no conception how big the volume in Cisco, AOL etc. could be, and I'm talkings 100's of thousands of contracts a day! Keep your powder dry!
Some people have suggested that a way round the $25,000 limit will be to trade single stock futures when they are introduced. Don't know how reliable the information is, but a futures broker has recently reported in misc.invest.futures that the $25k limit will apply to them too.
Hello Everyone! I am a new trader just starting out, presumably with IB and have a few Q's if anyone would help. My intended style would be swing trading for now (1-5 days) off of dailys at www.stockcharts.com. I have like 20ish listed stocks I follow. -if I start with 4K will I be able to short and HOW MUCH? ( I suppose 2000K worth of stock...) -why the h*** did they introduce 3 day clearance? That means I can only trade say once a week or less... -do accts. over 25k clear realtime? - DO I STAND A CHANCE??? Thank you all so much and trade well! Alex
Hello neo hr, Under new SEC margin guidelines, margin accounts under $25K will be subject to more stringent requirements that in the past. There are numerous threads here on ET discussing the new SEC rule and numerous suggestions/recommendations to those who do not meet the new minimum. You are correct that real time clearing is only available to margin accounts exceeding 25K in equity, at least at IB. I have heard there are other EDAT brokers that will update purchasing power in real time for CASH accounts, but you'll have to look into this for yourself as i do not know any of the details. The downside, obviously, is you need a margin account to short stocks. Good luck
neo hr, In my humble opinion, it's pretty hard to do with 4K, even without the new SEC rule. Don't forget that the swingtrader's nightmare is always that unexpected overnight gap-up or gap-down, which can be an analyst's upgrade or downgrade, unanticipated acquisition or merger news, and what not. (Believe me, I had enough of these gap-ups and gap-downs myself when swingtrading stocks.) With 4K, you can very easily suffer a sizable drawdown due to one of these gap-ups or gap-downs. This is especially true when you are shorting. For example, if you are short 100 shares of a $30 stock--$3000 has already been held up in your account, and all of a sudden, the stock gaps up $4 on acquisition news overnight. You lose $400. That's a 10% drawdown. It's pretty hard to make up for that. Moreover, you must be prepared for the worst, what if the stock gaps up more than $10, like HF (Heller Financial) at the end of July. If you were short that stock, you would lose more than $1500 just overnight if you just had 100 shares short. That's more than 30% of your account! If you had 200 shares short, you would lose more than $3000. Pretty scary, isn't it? I also started out swingtrading stocks with a small account. Right now, I still have a small account, but I am doing options almost exclusively. Options are a lot less risky, especially when you are short. However, since you are new to trading, I do NOT suggest that you trade options. What you might want to do is to paper trade stocks for some time, and then start with options. If you don't like paper trading, you can try with your 4K but you MUST be prepared for substantial drawdown, and you consider this 4K as money you can lose--not your rent or mortgage money. Not only that, if you are unlucky enough, you might even get a margin call for your short stock position because your account is not enough to pay for that huge gap up. That's a lot of risk you are taking on. stockoptionist
Hi, neo hr, Stockoptionist again. Since you are new to trading, the most important thing right now is education. Read as much as you can about trading. Keep up with what's going on in the economy and see how it affects the markets. That's the key. Don't jump into it too quickly, especially if you have a small account. I don't want to sound like grandpa, but I don't want to see you lose your capital unnecessarily either. In fact, I wish I had a mentor when I started out, but I didn't. That's why I had a lot of costly mistakes. stckoptionist