What is IB's Margin Rate?

Discussion in 'Retail Brokers' started by qll, Jun 29, 2007.

  1. qll

    qll

  2. JackR

    JackR

    The rate you show is what IB would pay you if you had a cash balance (free cash).

    Look at the link you gave in your post and go to the Interest Charged on Short Balances section. That is what IB would charge you. It is always LIBOR+ when you pay and LIBOR- when IB pays.

    The rate changes at $1M and $3M.

    Note that they also pay on "fictitious credit" credit balances produced by short sales.

    Jack
     
  3. GTC

    GTC

    JackR, Credit balance generated through short sales should not be considered as fictitious. IB pays for credit balances from the short sales when it is over $100k.
     
  4. JackR

    JackR

    GTC:

    I use the term "fictitious" to differentiate it from the real (or cash) balance. As long as you have a cash balance you will never get a margin call. The value of your account can vary all over the place, indeed approach $0, and you'll never be auto-liquidated by IB's magic margin system. (Forget the $10 maintenance fee)

    If you have "cash" in your account due to a short sale and the short goes against you IB would auto-liquidate if you hit the margin limit.

    Its just a term I use to keep things straight in my head. I think I picked it up years ago from my broker.

    gll - see for further info:
    http://www.interactivebrokers.com/en/accounts/fees/interestMethods.php

    Jack
     
  5. You can finance your positions, held at IB, by buying EFPs instead of relying on broker margin loans. If you do, you will pay an interest rate substantially less than the margin rate charged by any broker.
     
  6. qll

    qll

    Isn't it called - Interest Charged on Short Balances? I only hold LONG positions, that rate is for SHORT positons.
     
  7. JackR

    JackR

    I think we are saying the same thing. If you are short stock IB shows your stock balance as "minus" X shares.

    If you have a margin loan you are "short" that cash and it shows as a "minus balance".

    The descriptive terms on the Web page are IB's, not mine. Note there is an:
    "Interest Paid on Short Sale Proceeds" and an
    "Interest Charged on Short Balances" as well as
    "Interest Paid on Long Balances".

    You are in the "Short Balances" category.

    Jack
     
  8. qll

    qll

    if you are right, then IB can only offer 6.8%, that is even higher than what I got currently 6.75%. just2trade offers 6%, the lowest published rate.
     
  9. No, IB currently charges much less than 6% margin rate for balances above $1m.
     
  10. JackR

    JackR

    You don't indicate what type of balance you are carrying. Let's assume it is $600,000 ($600K). You need at least $500K to get the 6% rate at just2trade(J2T).

    In looking at the J2T web site I see that they have 5 tiers to reach their lowest margin rate of 6%.

    I did a quick calculation of the simple interest rate on $600K using their five tiers and IB's two tiers.

    J2T = 6.81...%
    IB = 6.48...%

    The rates begin to converge as you approach $1M. After that IB pulls away as their over $1M rate of 5.899% kicks in.

    You might give it a try with your real average balance.

    Jack
     
    #10     Jun 30, 2007