I will let the experienced IB users answer your question. Just fyi, if your positions are liquidated at market price and the spreads are not that wide, the only "cost" is slippage (the spread and commissions incurred). Not much harm done to your account.
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Can IB just increase my Liquid ETFs to 100 margin/no margin?
- Thread starter MikeinCanada
- Start date
I will let the experienced IB users answer your question. Just fyi, if your positions are liquidated at market price and the spreads are not that wide, the only "cost" is slippage (the spread and commissions incurred). Not much harm done to your account.
Qaz thanks for your response but how is that the case, as per my eg above,if they were to increase my 2 ETFs to no margin, then that will liquidate me totally and wipe me out as per my understanding unless you can please explain.
LEts say my Equity w Loan is 115k and Margin Maintenance is 110k(coz have about 30k put options as well that I sold naked) so have excess liquidity of 5k and Stocks portfolio value is 150k and my cash amount is -100k. So lets say they increase the etfs to no margin, then my margin maintenance will become 110 to about 190k, which will be more than 80k more than my equity w loan so will get margin call of 80k, which will sell 80k of my already crashing ETF prices. So then m stocks value remaining will be 70k and I owe still 100k margin loan and 30k put options which will cause more margin calls and a spiral of margin calls, basically it will almost wipe me out this increase in margin whereas if they remained at 30% margin the ETF's after this crazy volatility will increase back up in prices most likely and they give me dividend as well. And will only get slight margin calls if they remain at 30%.
So not sure how my only cost is slippage here if they increase it to 100 margin/no margin, if they do this to most ETF's, it will crash the entire market I believe to unimaginable levels.
LEts say my Equity w Loan is 115k and Margin Maintenance is 110k(coz have about 30k put options as well that I sold naked) so have excess liquidity of 5k and Stocks portfolio value is 150k and my cash amount is -100k. So lets say they increase the etfs to no margin, then my margin maintenance will become 110 to about 190k, which will be more than 80k more than my equity w loan so will get margin call of 80k, which will sell 80k of my already crashing ETF prices. So then m stocks value remaining will be 70k and I owe still 100k margin loan and 30k put options which will cause more margin calls and a spiral of margin calls, basically it will almost wipe me out this increase in margin whereas if they remained at 30% margin the ETF's after this crazy volatility will increase back up in prices most likely and they give me dividend as well. And will only get slight margin calls if they remain at 30%.
So not sure how my only cost is slippage here if they increase it to 100 margin/no margin, if they do this to most ETF's, it will crash the entire market I believe to unimaginable levels.
So again for any elitetraders or someone from IB, please tell me if ETF's that are lets say crashing to price near 2 or 3 dollars USD but highly liquid and give dividend, can just become No margin/100 margin and if this happened in 2008? And also what needs to happen for IB to do this like do they need instruction from FINRA to increase the margin on this crashing index ETF to no margin? Imagine if SPY got increased to no MARGIN, the forced sellings that will cause wow
So again for any elitetraders or someone from IB, please tell me if ETF's that are lets say crashing to price near 2 or 3 dollars USD but highly liquid and give dividend, can just become No margin/100 margin and if this happened in 2008? And also what needs to happen for IB to do this like do they need instruction from FINRA to increase the margin on this crashing index ETF to no margin? Imagine if SPY got increased to no MARGIN, the forced sellings that will cause wow
A broker can do what they want with margin but the likelihood of what you are thinking is extremely low assuming your ETF's are diversified industry and have a high market cap.
Also curious what the lowest level of margin at IB was in 2008 and 2000 if anybody knows. I did get a message a couple days ago in the bulletin system of TWS saying that as a guidance margins can be "expected to increase roughly 50% from current levels". I am not sure if that already happened or not. My margin seems unchanged. Of coarse the broker can do whatever they want with margin at any time, so this is always a risk even in good times.