My thoughts regarding IB safety and VIX products margin: Brokers can fail for 3 reasons: Losses or funding shortfalls on proprietary trading (this is what happened at MF Global) Operating losses of the business (this is what happened at PFG. Wasendorf essentially used customer cash to fund operating losses) Customer losses resulting in negative equity in their accounts, and the sum of negative equity account balances exceeding the firm’s own equity. Re 1 - With Timber Hill sold, IB no longer has proprietary trading. Even before, they said that the broker would not be responsible for liabilities of the market maker. When TH profits declined, Peterffy did not cross-subsidise it with profits from brokerage, to the contrary: The IBKR dividend was instituted and paid from TH, at a rate of 10pc of TH’s equity annually. Thus, any ROI below 10 percent automatically shrank the business. Re 2 - Due to IB’s automated business model, it is highly profitable even when offering one of the lowest commissions and rates in the market. Their overhead is small compared to both the gross profits they are generating, and their equity. During a market crisis, trading volumes would jump, increasing their profits, not decreasing it. Unless you think they are Enron and faking their accounts, the possibility of operating losses (excluding absorbed customer losses, see point 3) large enough to threaten their equity is essentially nil. With reason 1 and 2 virtually impossible, IB is wise (and indeed, as customer, I expect them to) to control reason 3 so that no single event, instrument or scenario will cause their equity to be materially depleted. One such scenario would be a sudden spike in VIX affecting all linked securities. I strongly suspect that, with articles like https://www.nytimes.com/2017/08/28/business/dealbook/vix-trading.html (How to become a multi-millionaire shorting VIX products), the popularity of „short VIX“ trades in all variations has exploded, and to make matters worse, those accounts that do use the strategy seem to be essentially „all in“ on these trades. That would mean that there’s a fair amount of accounts that would go from a +50K account balance to a -200K balance in a heartbeat during a serious VIX spike. Or from a +2M balance to -5M… Think about that. Add all these potential losses together among IB’s customer base and you arrive at the potential loss. And, I guess it is not just individual traders that are „blind“ to the risk as they do not look further back than over the recent, benign history. I guess there are also „professionals“ that know the risk full well, but they don’t care because they handle other people’s money in a limited liability structure. As long as things go well, they earn a percentage of profits to finance their lavish lifestyle. If things go bust, their investors will eat the loss up to the fund’s asset base, while the broker (and potentially you and me and it’s other customers) will have to eat the remainder. That’s the situation IB is in. The popularity of these trades has skyrocketed so much that the potential aggregated loss to IB has crossed a certain threshold, and to their credit, they have acted before other brokers. The increase in margin is designed to (1) reduce the amount of customers who hold these positions and (2) reduce the concentration of these short vol positions in a customer’s account - both would lower the potential aggregated loss. They are willing to forego short term commission revenue to protect their long term stability. Had every financial firm this kind of foresight and DNA, the financial crisis would not have happened. The problem is that not every firm has the luxury to do that. If you only have a 5 percent profit margin and a high fixed cost base, you cannot afford to be conservative. You have to chase business, risks be damned. But if you have a 50 percent profit margin with a largely variable cost base, you can afford to take a long term view (you also have much more to lose, namely your fantastic business, if you don’t). So IB’s margin increase re volatility products shows both their financial strength as well as their long term thinking. (Please do not answer this with examples how IB miscalculates margin on certain instruments/ sides. I did not look at it in this detail. Obviously, margin should not be higher than maximum possible loss.)
I don't think we can easily tell what is going in a giant corp just by reading news and annual report. There are so many things could screw it up that we have no idea before it is too late.
Since Schwab migrated OptionsXpress into there system, there Java based charts are worse than ever, plus there commissions are way too high.
Depends what you're doing. In many cases IB is cheaper, although not dramatically so at this point. In many cases is isn't. OptionsXpress i$4.95 + $0.65 per contract for options trades. IB is $1.00 per contract if you want to direct route, so anything 14 options contracts for direct route is more expensive at IB. The breakeven is higher when you let them choose your routing, but even with the best combination of pricing on their chart the breakeven is well within the volume of a retail options trader. More importantly, OptionsXpress price is inclusive of the exchange fees, so for CBOE products like SPX options it's significantly cheaper than IB. Similar story for futures and FOPs, where the inclusive commission is competitive and sometimes cheaper than what you pay at IB. And I'm not even saying OptionsXpress is all that, I'm just pointing it out as an example and showing out that a blanket statement of "there commissions are way too high" simply isn't true. I don't use charts so I couldn't comment on the java charts, I'll take your word for it. Couldn't you use anyone's charts though and trade where you want? Like I said, I'm not a chartist so I could well be missing something on that.
Yes, you are correct, I should have been more clear. On the futures side of it they are more expensive. Its one of those age things,