That NY Post story seems to have boiled down to this: "guy takes giant VIX futures position, sees an expiration date on IBs website that's 1 day sooner than the real expiration, does nothing hoping they will settle on the day he thinks, and loses a boatload when the market moves against him on the following day and they actually expire". If you're trading $200M worth of futures, you owe it to yourself to check the contract specs!
Customers of Interactive Brokers file class action complaint over management of portfolio margin acc
- Thread starter ajacobson
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I have some sympathy for people hurt by margin requirement changes, although of course they agreed to this in the margin terms. I think margin requirement increases, especially during times of high volatility, is an under-appreciated risk factor for those trading on margin. I worry about this myself.
As for PM accounts, I have traded one for a long time now. The good side is obvious - more leverage is great when you're doing well. The downside, aside from the obvious if you start losing, is that it becomes quite difficult to understand exactly what the margin requirements are for any given position or how certain market or position moves may effect your requirements. I've had good days for my portfolio where my available funds went down by a noticable amount, and this wasn't because I got a notice of a margin change on any positions (those happen too, but rarely).
At some point, you've just got to leave a big enough buffer that this sort of stuff is manageable. A few years back IB started requiring a 10% extra margin buffer, i.e. between initial and maintenance margin, for PM accounts. I hated the change at the time since it meant I was making 10% less money (couldn't be fully invested any more), but it does let you trade close to your available funds limit while still being 10% away from being liquidated. Now it doesn't seem too unreasonable.
As for PM accounts, I have traded one for a long time now. The good side is obvious - more leverage is great when you're doing well. The downside, aside from the obvious if you start losing, is that it becomes quite difficult to understand exactly what the margin requirements are for any given position or how certain market or position moves may effect your requirements. I've had good days for my portfolio where my available funds went down by a noticable amount, and this wasn't because I got a notice of a margin change on any positions (those happen too, but rarely).
At some point, you've just got to leave a big enough buffer that this sort of stuff is manageable. A few years back IB started requiring a 10% extra margin buffer, i.e. between initial and maintenance margin, for PM accounts. I hated the change at the time since it meant I was making 10% less money (couldn't be fully invested any more), but it does let you trade close to your available funds limit while still being 10% away from being liquidated. Now it doesn't seem too unreasonable.
Let me see if I understand it correctly.
Those guys used leverage, and used naked options on one of the most volatile products. When the market went against them, they lost money, and now they say it's the broker fault? Am I getting this right? Or am I missing something?
Those guys used leverage, and used naked options on one of the most volatile products. When the market went against them, they lost money, and now they say it's the broker fault? Am I getting this right? Or am I missing something?
Kim, the point of contention here is that the margin was changed midstream. And also, IB made some major administration errors which cost a trader 23 million. Everyone has a different opinion on this but it is something to be aware of. I think everybody agrees that one should check margin reqs frequently and verify expiration dates of futures contracts with the exchange. Now how culpable is IB in these traders' woes? That's up for debate. I myself understand IB's position but I find their policies too harsh.
One more thing...In the case of the trader who lost 23M, the court ruled against IB and levied a fine of 2M and change.
Gambit, I was talking about the first post where two plaintiffs lost 150k and 175k after the market tanked. It was clearly a case of over leverage using highly risky products. IB is far from perfect, but in this case, I just fail to see how this is their fault.
People just won't take responsibility and blame others for their mistakes. I see it every day. And greedy lawyers of course take advantage of those situations.
People just won't take responsibility and blame others for their mistakes. I see it every day. And greedy lawyers of course take advantage of those situations.
P.S. As for using margin/leverage - personally, I never have more than 70-80% invested in my options trading account. And I use defined risk strategies only, never naked positions, and mostly market neutral strategies. Yes, my returns could be higher, but they are good enough for me, and I sleep very well at night. Matter of perspective I guess. Learned it the hard way in 2008.
My approach too Kim. And it's what Taleb recommends as well.
Kim, I was referring to two vxx traders as well. I agree the brunt of the culpability falls on the traders' shoulders but IB is no angel in this case. Changing margin midstream is within IB's rights but a courtesy call to the traders ("trim your goddamn position in VXX short calls") would have resulted in a better outcome for all parties.
We can certainly agree on that one. They seem to be pushing and pushing the limits. Obviously for them it doesn't matter, the risk management team can make a presentation on "how well we are protecting ourselves" and everyone claps...except the customers.
I just looked, for one listed pharma name (500 million cap), to short with PM, the initial margin is 5.5 times cash. So, to short $10k worth you need $55k in your account. This is indefensible.