That you deemed your post necessary speaks volumes to the quality of ET posters.
Financial stability of Interactive Brokers
- Thread starter TimeCorrosion
- Start date
Sure. Whale client X has a margin account or has sold a stock short. A major event happens regarding that stock and suddenly that client's account has been wiped out. IBKR may be on the hook to cover any losses that were not covered by the assets in the client's account.
Theoretically, IBKR would close out the position before the losses would hit them. Practically, that might not even be possible in certain scenarios.
For example, when shorting a stock, losses can be much more than the amount that was put up to short the stock.
A short squeeze in particular is a quite scary scenario. The client who sold short at $1 might just decide to go bankrupt it the stock hits $1000, but IBKR is on the hook to deliver that stock if their client defaults so they have to pay the $1000 price.
A $1 million loss by a client could become a $1 billion loss for IBKR in this scenario.
The Gamestop situation exposed a major flaw in the system when there isn't adequate reporting of open short interest to all the various players in the system in a timely enough manner for the brokerages to protect themselves.
I'll give IBKR credit that Peterffy seems to at least be aware of this risk.
I suspect that worst case scenario for IBKR would be a big, stepwise move in all the markets simultaneously. Like what might happen if China invaded Taiwan. If that happened at a time when the markets are closed, they might not be able to close out positions before losses start hitting IBKR directly.
(Just my opinion.)
Yeah but this can happen at any time. Why scrutinize now all of sudden? If the economy as a whole is indeed in trouble, wouldn't this "whale client X" be profiting by shorting? Second, are you aware of IB's margin policy? IB has very stringent margin policy and many times pre-emptively adjust them in participation of higher volatility and many times, imo unnecessarily no. So in this case, this "whale client X" wouldn't have been able to short a large amount in the first place. And second, I don't know if you are aware, IB has very strict force liquidation rule, at any time, when it sees that your position might not meet the margin requirement, it doesn't wait until you are in a huge loss and not able to pay up, it would liquidate your position without your consent. IB has done this to us retail traders, I don't know if they do the same to their "whale clients" that would be a question that I would not know. If Patterfy is aware of this, then he should perhaps enforce the stringent margin policy and force liquidate more zealously with their "whale clients" rather than always being on our case.
But this is a risk that all brokers face. Don't understand why scrutinize IB? Imo many brokers are at even more risk than IB. If anyone is concerned about broker risk, IB would be the last one that they should worry about.
IBKR chart
Definitely, it is not on a downtrend.
In fact, it is rising on a gentle bullish trendline.
When those banks collapse,
they didn't collapse suddenly / overnight.
Take for example SVB bank.
The chart was very kind and gave you lots and lots and lots of warnings months ago;
you could see the highs keep on getting
lower and lower and
lower and lower and
lower and lower and ....
So many people were already aware SVB was having a real problem.
Definitely, it is not on a downtrend.
In fact, it is rising on a gentle bullish trendline.
When those banks collapse,
they didn't collapse suddenly / overnight.
Take for example SVB bank.
The chart was very kind and gave you lots and lots and lots of warnings months ago;
you could see the highs keep on getting
lower and lower and
lower and lower and
lower and lower and ....
So many people were already aware SVB was having a real problem.
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op, for a real world example, check out how IB fared when the swiss removed the peg in 2015. 20% move, most clients highly leveraged. Several FX brokers went bust, Alpari was the biggest retail one, FXCM nearly went under. IB's clients lost around $150m and IB was on the hook for around $50m (presumably the amount that exceeded the customer deposits).
Their diversity is their strength, it did hit them, but barely touched the sides ... so yes it is a risk, but they're the best positioned of the lot I reckon.
Their diversity is their strength, it did hit them, but barely touched the sides ... so yes it is a risk, but they're the best positioned of the lot I reckon.
I don’t think brokerage accounts should have the same risks. Their job isn’t to invest your “deposit” the way a bank does. They earn on commissions and on interest margin spread (ie they repo at X and charge you x+y).
%%
THAT;
+ consider the risk + pain of never risking anything @ all.
That would include but not limited to inflation risk. Even 2% inflation = 20% over 10 years.
Somebody asked.
The thing that sticks out with IBKR is their low margin rates. And that they quote rates up to a $3.5 million borrow amount.
That would suggest to me that they have multiple clients borrowing at least 3.5 million. They seem to be specifically targeting customers who want to buy on margin.
Imagine a world event causes a 50% downturn in the market, and that event happens when the market is closed.
Unlike a buy and hold cash account broker, IBKR would have to be out there selling to protect themselves. Even if there even was just a brief flash crash, IBKR would have to panic sell and lock in losses.
To be clear, I don't think IBKR is super shaky. I have an account with them. I find it interesting and useful to think about what could happen to a counterparty that could hurt me.
Actually, if you have a margin account they loan out your shares.
I have discussed about IB's margin policy in my previous post. You obviously didn't read it so I am going to quote it here again:
IB's margin rates might start low but they get adjusted higher in anticipation of increased volatility in the market. IB has done that on several occasions. If you have an account with IB, you would know that because IB would send out margin rate change emails every time they change their margin rates for certain securities.
That's not true. You can also participate in this what's called the "Stock Yield Enhancement Program" if you have a cash account with at least $50K equity. Here is the link regarding this program: https://www.interactivebrokers.com/...tra income on the,pay interest to borrow them.