Today Interactive brokers sent me a message (see below) stating that it will start to charge exposure fee, if its proprietary algo detects that I am too risky. When exactly am I going to be charged and when not? The number 1.76 doesn't mean anything to me. And are these fees variable or fixed? And is there a maximum/minimum? Anyone has experience with this? Or maybe someone from IB can comment on this. Thanks The message: Dear Client, As part of its risk management policy, IBKR routinely stress tests client portfolios to evaluate their exposure to various market scenarios. These scenarios typically consider events such as price changes and option implied volatility shifts that are more extreme than those covered by regulatory margin requirements and may therefore project "worst-case" losses in excess of margin deposits. These stress tests not only serve as a monitoring tool but also form the basis for assessing a daily "Exposure Fee" to those accounts reporting an average loss. This is intended to protect IBKR and its other customers from accounts maintaining portfolios which, while currently margin compliant, would not have sufficient equity to satisfy losses were the worst-case loss to occur. The "Exposure Fee" is calculated on an account by account basis. If a client maintains multiple accounts that are considered "related and/or liked-owned", IBKR may combine those portfolios for the purpose of determining the Exposure Fee to be applied for those account. IBKR will calculate the Exposure Fee for all calendar days and charged to accounts the following trading day. The Exposure Fee charged on Monday's activity statement will reflect the charges for Friday, Saturday and Sunday. Exposure Fee calculation periods which include a holiday will be determined in the same manner as that of a weekend. While your account XXXXXXXX, is currently not subject to this fee, your exposure is now at a level that, were the fee to be charged, it would total 1.76 EUR per day. Details regarding this fee are provided in the table below. DAILY EXPOSURE FEE SUMMARY Risk Factor1 Average Exposure2 Account Equity Risk Factor Exposure Fee3 Fee Implementation Date Equity Stocks and Indices XXXXXX XXXXXX 1.76 August 25, 2022 Total 1.76 1 Risk Factor is defined by an index or ETF representing a sector, currency, or an individual stock. Accounts may have an Average Exposure and a corresponding Exposure Fee for more than one Risk Factor. 2 Calculated by averaging the unsecured debt (loss in excess of equity) over the number of scenarios specific to each Risk Factor. 3 Determined through the use of a proprietary algorithm. Please note that while this fee is not being charged at this time, your account will become subject to it effective as of the date(s) noted above. Starting then and every day thereafter, your end-of-day portfolio will be subject to the aforementioned stress tests and should your Average Exposure exceed your accounts equity, a fee will be assessed and reported on your daily activity statement. It's important to note that account holders have the ability to eliminate or reduce this fee through a combination of the following: Increasing account equity. A highly concentrated single stock position(s) exposes the account to significant risk exposure. Diversification and hedging may possibly reduce exposure. Reducing the exposure by repurchasing short positions in options. We have found that short positions in cheap options generate the largest exposures relative to capital. You can use the Risk Navigator to simulate the effects of changes in your portfolio. Again, the amount above is not being charged at this time. To avoid charges for carrying positions that have a loss far greater in the worst case than the capital of your account, we urge you to examine ways to reduce your exposure prior to the implementation date(s) noted in the table above. Additional information regarding this fee and tools for managing the fee in Knowledge Base articles KB3113 and KB3114 Interactive Brokers
This bullshit made up fee from IB has been around for many years, maybe even over a decade. Really IB should be the ones paying all their customers a risk exposure fee every month, due to risk of blowing up themselves.. This is the firm that lost over $100 million when oil prices went negative...
I thought they lost that money because they made good on paying the waylayed investors who got caught up in IB's fiasco of not handling the negative run properly. I.E., not allowing people to trade negative through their platform. They basically fessed up and bit the bullet.
It appears they let people load up on futures contracts because the IB risk algo had not been told that prices could go negative. Like if a stock is $1, the max loss on a long position is $1, so a broker will happily let you buy 10,000 shares if you have a $10K account. The broker isn't going to lose anymore. IB risk management algo made similar assumption about CL. You could of bought 1000 contracts with a small account if you had wanted to when the price was $1. I don't know if anyone with a small account did buy 1000, but at least one trader with a small account said they bought over a 100 contracts and they lost a shed load when prices continued to go negative. That trader went public with his story around the time of the incident.
I do not recall that being the issue. The underlying price of the instrument did not affect the performance bond, I can swear it all fell apart when the longs could not get out because when price went negative, the longs had no exit ability, so got margin called when the price settled at -38 on exchange, but they were stuck long near zero because the software would not let them trade below the fake 0.01 limit price the exchange had in place, which was obviously violated, heh.
I tracked down the news story for you. According to Bloomberg, one trader was able to buy 212 crude oil contracts even though he only had $77,000 in his IB account. Based on the margin requirements at that time the trader should have only been able to buy around 7 contracts, maybe even less. And then his loss would have been 'only' $250,000 in this case, not $9 million. After the crash, Syed Shah, a 30-year-old day trader in Toronto, received a notification from Interactive Brokers saying he owed the firm a whopping $9 million. He had started the day with $77,000 in his account, Bloomberg reported. As oil crashed, Shah bought 212 futures contracts for what he thought was $0.01 per barrel, not realizing that oil was actually trading at negative $3.70 per barrel, Bloomberg said. "I was in shock," Shah told Bloomberg. "I felt like everything was going to be taken from me, all my assets." Shah added that he didn't sleep for three days after the incident. https://markets.businessinsider.com...illions-on-brokerage-glitch-2020-5-1029186688
This has been around for years. There's barely any leverage available anyway. Wishing IB could take its tech stack and create a new broker with a completely separate risk team.