How is margin interest calculated?

K

kubilai

I just noticed on my MBTrading account, margin interest = maximum margin used during month * monthly interest rate. For example, last month I carried a $10k margin for one day, at 6% annual interest comes out to $50. I always thought margin interest is charged on your margin use on a day-by-day basis, and here I am, charged a month of interest for a day of margin usage.

Is this true of other brokers?
 
Please let us know how you end up. And if you have an answer to how they would treat loufah's question too...this would be apppreciated...

Sounds like usury.....(Does MB trading have a Vinnie working there? :))

Michael B.


Quote from kubilai:

I just noticed on my MBTrading account, margin interest = maximum margin used during month * monthly interest rate. For example, last month I carried a $10k margin for one day, at 6% annual interest comes out to $50. I always thought margin interest is charged on your margin use on a day-by-day basis, and here I am, charged a month of interest for a day of margin usage.

Is this true of other brokers?
More...
 
Throughout that month, I didn't use any margin except that one day where I used about $10k worth. Now I think the interest roughly matches the maximum margin used because of a coincidence. I trade stocks, holding them for 1-3 days mostly. If interest get charged between trade date and settlement date (instead of trade date and trade date), my monthly charge might match what was charged. Bet that's the case.

I just sent MBT an email asking about that. Will post their reply...
 
It should be either based on trade dates or on settlement dates, not a mix of the two. Anyway, that still wouldn't explain it. 3 days would be ~$4.92.

If you have $10K cash, buy $20K of stock, hold it overnight, and sell it the next day, you owe interest on $10K for one day.
 
Got an update.

I've been talking with Brad from MBT over email about this. He thinks the May interest charge was wrong, due to a failed money market sweep at Penson.

I looked over my trading records since last Dec when I started with MBT. It appears that the margin interest charges were many times higher than it should be since January, but was ok in Dec. I suspect Penson may have had a computer glitch since Jan. Brad said it'll take him a few days to look it over.

Anyone else with MBT care to check over your records?
 
I have one month since December with a margin interest charge (Feb) and it does appear that they charged me margin interest for the entire month although I probably only used margin for a single day during that month.

3/1/2005 Debit Interest -$5.31 6.200% 02/02-02/28 $1147

Please post updates as you find out more, I'm going to email them too.
 
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