Did IB get freaked out so it still holds 100% intraday margin in some markets?

[Trader_Herry]

The previous volatility occurred a few months ago. IB was the only brokerage which decided to raise most of the intraday futures margin up to 100%. In other words, the intraday margin is exactly the same (100%) as the overnight margin, in contrast to 50% off intraday margin advertised in IB website. Take a look at Futures Maintenance and Overnight Margin Requirements.

Several months passed. No brokerage has been closed down. IB is only willing to bring back some to 50%. Some others are still sticking at the new 100% intraday margin, including ECBOT, NYMEX, GLOBEX (a few instruments), CBOT, CFE, CME. Read the full list of futures which still hold 100% (they used to be 50% only) on the next post.

People should think IB is doing the right job to protect our assets since it is a professional firm (so it must be right). While some degree of prudence is good but a firm doesn't need to go too far. If you are too worried about any single risk on the market, you shouldn't trade or do business at all. In fact IB already has a very special mechanism which is more than enough to protect us even in financial crisis or especially volatile periods:
- it doesn't make any margin call in whatever case
- it will liquidate your positions instantly once you fall short of margin
- it places a non-cancellable market stop to bring you back above the margin requirements
- all are done in real-time, up to the second

Did IB get too freaked out due to previous volatility? Imagine you are trading intraday. Tell me which liquid market can kill you all 50% intraday margin in a matter of seconds (or even minutes). IB is only dangerous if the market is so fast that even a non-cancellable market stop can't help to get you out before all your 50% intraday margin is used up.
Why does this firm has to be so paranoid? What are the reasons behind?

It is good to be prudent but IB doesn't know how to take a balance. There is a spectrum of brokerage, from overly conservative (IB 100% intraday) to very aggressive (e.g. $500 intraday margin for ES).
IB is being the most conservative brokerage in the US. If IB is the only one who is doing the right job, it implies all other brokerage is going to go bankrupt in the next financial crisis. Nevertheless, in reality, there are still many moderately conservative to moderately aggressive brokerage which still survive after decades. Why can those less prudent (but not too aggressive) brokerage still survive even without taking some of the strictest measures like IB does? Why? IB should learn from them.

IB please seriously consider whether there is any necessity to hold 100% intraday requirements, or even raise intraday margin up to 100% again next time. Don't forget you have a real-time monitor and you will liquidate our positons instantly once we fall short of margin. Your risk is already lower than even those of the conservative brokerage but why are you still being so paranoid about it?

 

[Trader_Herry]

Here's the full list of futures which still hold 100% (they used to be 50% only).
I'm not interested in all markets but I still show all for completeness.

Part1:

Part2:

Please inform me if I make any mistake.

 

[FT79]

IB is the best broker there is!! It's very understandable that IB uses 100% instead of 50% with these kind of markets. IB should protect there company (with result there clients) for these kind of markets. I have been trading for app. 10 yrs, if you can't make money with 100% than you will certainly won't make any money with 50% (or $500 per contract). And why the worries, close your account I look for a another broker!

 

[just21]

They are increasing margin for short ES puts as well but why have IB got all their cash balances in Citibank if they are worried about the stability of the financial system?

 

[Trader_Herry]

FT79,

It's very understandable that IB uses 100% instead of 50% with these kind of markets. IB should protect there company (with result there clients) for these kind of markets.

Did you read?

You are repeating the same point mentioned in my first post.

Let me ask you in other ways since you can't get my points.
Do you think it is the only way to keep IB safe (raising intraday margin to 100%)?
Do you think IB will be in great danger simply if IB gives 50% intraday margin?


Provided that:
- IB doesn't make any margin call in whatever case
- it will liquidate your positions instantly once you fall short of margin
- it places a non-cancellable market stop to bring you back above the margin requirements
- all are done in real-time, up to the second

Under the above conditions, how come you can lose all your 50% margin before IB liquidating your positions?

If you know a way to lose all 50% intraday margin before IB liquidates your positions, please tell me. I'm interested in reproducing it.
(Okay, I know some "smart guys" will pop up and give me examples to show how the market can gap up or down next day, so it is right for IB to set at 100% intraday margin. )


How dangerous is it for IB to offer 50% intraday margin? Think about it.

if you can't make money with 100% than you will certainly won't make any money with 50% (or $500 per contract).

Once again, this point is totally irrelevant and invalid although I don't know why you didn't notice it. Do you really think whether someone make money has something to do with the justification of a margin policy?

Based on what you say, no one can or should challenge any sorts of margin policy. Even if IB set the margin at 5% or 1000%, you can still able to make money anyway (if you are capable), whether 5% or 1000% or whatever.

I know some people always feel IB is right because IB is IB. But please be objective during discussion. Please read and think before reply.

If you don't see why 50% can still make IB safe, read again. If you think my reasonings are wrong, please point out where I am wrong. Thank you.

 

[ids]

This poll is pretty strange. You cannot really affect our corporate policies this way. Instead you are using it to make several incorrect statements.
We do not liquidate immediately. There is 10 minutes grace period.
We do not liquidate when market is shallow in general.
We do not liquidate even if we like to liquidate some positions if there is no correspondent offer. This situation could be ugly if market moves fast.

 

[SideShowBob]

What if the market is down? What if GLOBEX or ECBOT gets overwhelmed with orders and crashes (ECBOT crashes every time I sneeze loudly)? Just a thought...I'm not sure 100% margins are needed in all markets, but if this truly affects you then you're really just one adverse market event from wiping out anyway.....

 

[mwerbe]

Are you saying that IB has the same margin requirement for futures as stocks, if that's the case why do I need 100,000 liquid net worth to trade ordinary futures when I can trade single stock futures at 20% margin.

 

[OldTrader]

Really this involves two separate questions:

1) What intraday margin does IB need to protect itself
2) What intraday margin does the customer need to protect himself.

Let's start with #2 first. If you have an account of let's say $12K, and you're trading 2 CL contracts at $6K each, this is about what overnight margin is. So from this standpoint you have protected IB. But everyday lately, intraday, we have $2-$3 moves in a matter of minutes. In case you don't know, for CL, each $1 is worth $1,000. That means on a $2 move with 2 contracts you've lost $4K, or 1/3 of a $12K account.

Now, I don't know about you guys, but I don't want to expose my account to that type of major drawdown within minutes. I'd just as soon go to Vegas....at least I could get some free drinks with it.

Now, as bad as that is, we have guys posting on here about how the margin is too restrictive. So that $6K per contract that IB sets should be $3K lets say. So maybe they want to trade 4 contracts instead of 2. So that $2 move? Now that move becomes a 66% drawdown withink minutes.

Think not? $1.75 move down on Tuesday in 15 minutes into the close. Wednesday, a $2.50 move up in 20 minutes after the EIA. Today, this AM, we had a $2.50 move down in 45 minutes, followed by a $2 move back up in about 45 minutes. Then, this PM, we had $1.50 move down 20 minutes, followed by $1.50 back up in 10 minutes.

You know what? With this type of volatility, there is more than enough leverage to trade CL with using IB's intraday margin boosted to the overnight level. In fact, I personally use significantly more margin than IB mandates.

Ok, now #1. What does IB need to protect itself? Well, I can't go through each of these futures contracts. I did this analysis in a prior post for ES back when IB has increased the intraday margin. That analysis showed to my satisfaction that IB was overmargining trades intraday, even with the increased volatility.

So with that, take CL. $6K margin intraday amounts to a $6 move in oil before IB starts to lose money. If you look at the trading history, you just don't see those types of moves within let's say 1 hour....more than enough time for IB's close out program to take place.

So I think the answer here is that IB is requiring more intraday margin for many of these contracts than is necessary for their protection. On the other hand, given the volatility no responsible trader needs more. So, to my way of thinking, this is almost a moot question. IB asking for more than they need, but the trader should be trading with more anyway...probably more than IB asks for.

OldTrader

 

[tortoise]

Having recently left IB for another broker, I'm at a loss to explain what took me so long to make the move, and why so many subject themselves to the arrogance and curious ineptitude of that place.