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IB Exposure Fee
- Thread starter mastacoli71
- Start date
This is their way of protecting themselves without protecting the client, and at the same time not hurting their revenue. If they were interested in protecting themselves and the client, they'd simply raise the margin requirements. But that would reduce commissions as it'd prevent people from opening as many positions as they open now.
If you figure in this cost, it makes them very expensive versus other brokers.
If you figure in this cost, it makes them very expensive versus other brokers.
I think this is just an ordinaire cost increase.....
The calculation is very arbitrairy and currently they use 30%, but they can make it 40% tomorrow, This makes a big change. They do not take into account anyuthing like volatitlity etc.
Also, the amount might seem a small number (e.g. 20) but it is a per day charge, so it will become several 1000's per year. The fee also increases in a 'log' way. It would have been better to keep the inactivity fee as they do not earn from these accounts, while they now charge people that already pay fair amounts of commissions.
You can wornder why they need this as they also have an outoclose option when margins are not respected. So reaching -30% is very unlikely.
Finally, the email is a bit missleading.
first, they call it a kind of insurance, but an insurance would also cover some liability. I do not think they will take over any liability..
Secondly, they indicate that OTM options with low value have the highest weight, but that is not correct. ATM and ITM have a much higher value in the calculation than OTM options. It is the strike that is important. This is logic, because these strikes will deviate more from the underlying value - 30% than OTM options.
Finally, they mention that it will only apply to a small minority of the accounts. I have two accounts and both got this mail. Basically all accounts with some naked options will receive the fee.
No matter how they try to cover it, it is just a firm and ordinairy cost increase.
The calculation is very arbitrairy and currently they use 30%, but they can make it 40% tomorrow, This makes a big change. They do not take into account anyuthing like volatitlity etc.
Also, the amount might seem a small number (e.g. 20) but it is a per day charge, so it will become several 1000's per year. The fee also increases in a 'log' way. It would have been better to keep the inactivity fee as they do not earn from these accounts, while they now charge people that already pay fair amounts of commissions.
You can wornder why they need this as they also have an outoclose option when margins are not respected. So reaching -30% is very unlikely.
Finally, the email is a bit missleading.
first, they call it a kind of insurance, but an insurance would also cover some liability. I do not think they will take over any liability..
Secondly, they indicate that OTM options with low value have the highest weight, but that is not correct. ATM and ITM have a much higher value in the calculation than OTM options. It is the strike that is important. This is logic, because these strikes will deviate more from the underlying value - 30% than OTM options.
Finally, they mention that it will only apply to a small minority of the accounts. I have two accounts and both got this mail. Basically all accounts with some naked options will receive the fee.
No matter how they try to cover it, it is just a firm and ordinairy cost increase.
I think this is just an ordinaire cost increase.....
The calculation is very arbitrairy and currently they use 30%, but they can make it 40% tomorrow, This makes a big change. They do not take into account anyuthing like volatitlity etc.
Re the stress test and short options in a plus or minus 30% scenario: if they plugged in an implied volatility change on top of a 30% price change in the underlying, a lot more people would be receiving these notices. Every portfolio is different, of course, but maybe what they're really trying to protect against is a 10% move (to pick a number) and knowing the IV would likely increase in such a scenario, perhaps 30% "covers" them.
There is also the matter of margins. In a highly volatile scenario margins would also increase rapidly and further diminish the customer's ability to hang in there and/or adjust positions.
first, they call it a kind of insurance, but an insurance would also cover some liability. I do not think they will take over any liability..
They would cover the liability if a client blows up an account and for whatever reason they can't collect, or collection is significantly delayed. They created this fee to compensate themselves for taking this tail risk - and perhaps to steer customers towards trading at lower levels of leverage.
They would cover the liability if a client blows up an account and for whatever reason they can't collect, or collection is significantly delayed. They created this fee to compensate themselves for taking this tail risk - and perhaps to steer customers towards trading at lower levels of leverage.
All brokers bear this risk and the margin balance is designed to account for this risk. And no brokerage firm charges a fee for tail insurance (that doesn't even payout to the insuree).
This smells like IB passing their own liability expenses to their customers.
Re the stress test and short options in a plus or minus 30% scenario: if they plugged in an implied volatility change on top of a 30% price change in the underlying, a lot more people would be receiving these notices. Every portfolio is different, of course, but maybe what they're really trying to protect against is a 10% move (to pick a number) and knowing the IV would likely increase in such a scenario, perhaps 30% "covers" them.
There is also the matter of margins. In a highly volatile scenario margins would also increase rapidly and further diminish the customer's ability to hang in there and/or adjust positions.
You might like the extra fee. I do not.
It is calculated very arbitrary. the 30% is just a guess and they can change it tomorrow. The calculation often results in an exposure value that is like 10 times or more the normal margin value.
You should not forget that if they make it say 40%, your fee will explode as the exposure will probably double or so, but also the fee is set 'log' style, meaning that your daily fee will triple. It will become instead of a few 1k's a few 10k's easily.
Further, there is no additional guarantee for anyone. they will still auto-close your positions (due to margin requirements) well before you reach this exposure level and will claim any money from you in case it all ends with a negative. Also for the other clients, there is no additional guarantee.
It is just a fee that does not shows in the comparison with other brokers, so they still look good. However, they start to become the broker with 'hidden' cost. All fees are charged as extra.
I donât want to argue the value or fairness, however I wonder have people been getting this all the time, or has this recently been more prevalent?
Iâm thinking people have received this before, not bothering to post about it perhaps in embarrassment (which really shouldnât be the case). However, if this has been more wide scale recently it might point to increased, more conservative risk parameters at IB.
Iâm thinking people have received this before, not bothering to post about it perhaps in embarrassment (which really shouldnât be the case). However, if this has been more wide scale recently it might point to increased, more conservative risk parameters at IB.
I donât want to argue the value or fairness, however I wonder have people been getting this all the time, or has this recently been more prevalent?
Iâm thinking people have received this before, not bothering to post about it perhaps in embarrassment (which really shouldnât be the case). However, if this has been more wide scale recently it might point to increased, more conservative risk parameters at IB.
This is totally new and a fee that will be introduced as per the end of next week.
One more remark on it. IB suggest that you can add money to your account to avoid the charge. However, to compensate for the (large) exposure they calculate, you will have to add a lot of cash in such a way that you will large exceed the amount of cash that is guaranteed by IB and its guarantee program. This will increase your risk to the extend that you not only risk your own account, but also risk loosing when others go under.
I donât want to argue the value or fairness, however I wonder have people been getting this all the time, or has this recently been more prevalent?
Iâm thinking people have received this before, not bothering to post about it perhaps in embarrassment (which really shouldnât be the case). However, if this has been more wide scale recently it might point to increased, more conservative risk parameters at IB.
My buddy has been doing the same strategy for 6+ years. Risk varies but when he received notification his risk was very low at the time. Not to mention they give a forewarning which he has NEVER received before.
I think you are spot on with more conservative risk parameters at IB. In order for something like this to occur they must have gotter burned with an account in the recent past.