IB Exposure Fee

[NeutronJuan]

My daily statement of 7-7-14 (Mon) shows exposure fees charged for 7-3-14 (Thu) and 7-5-14 (Sat).

So I guess the "intermittent arbitrary nuisance fee" is turned back on again.

I suppose I should take a college level course in Hungarian logic and ethics so that I could have a better understanding of what appears to me to be total nonsense.

 

[IB-AN]

You should expect this exposure fee to be assessed on any day other than a weekend. It was not assessed for a number of days in June due to closing price anomalies on the part of the OCC, from whose data is used in these computations.

In addition, the fee is not assessed upon expired contracts

Lastly, we’d note that there is no expectation or desire on our part for this fee to generate any meaningful level of revenue. Rather, it is intended to incent clients whose exposure is deemed excessive to adjust positions and/or increase collateral. Should you have any questions regarding the fee or believe that your account was assessed incorrectly, please call us and ask to speak to a member of the risk group.

 

[RichardRimes]

Rather, it is intended to incent clients whose exposure is deemed excessive to adjust positions and/or increase collateral.

Isn't that what margin is for? Why not increase margin requirements?

Perhaps because increasing margin requirements would incentivize clients to trade less?

 

[Gldr]

Lastly, we’d note that there is no expectation or desire on our part for this fee to generate any meaningful level of revenue. Rather, it is intended to incent clients whose exposure is deemed excessive to adjust positions and/or increase collateral. Should you have any questions regarding the fee or believe that your account was assessed incorrectly, please call us and ask to speak to a member of the risk group.

I wonder if you believe it yourself. At the same time, IB says that trading is slow and commissions are low....

If it really was to reduce exposure, why not increase margins. And IB has already the 'auto position closing' that would reduce risk as well. This is just to gain more money or try to force people trade more by adding reverse positions (which results in the same, more income for IB).

If IB really wanted to reduce exposure, they would have taken a more trader friendly option.

 

[J.P.]

I just discovered this exposure fee on my statement.

I trade ES, I have always had plenty of funds in this account and I use tight stops. However, this exposure fee seems to imply that I need to maintain sufficient funds in my account to cover a 30 percent adverse move in ES (regardless of my tight stop) or pay this fine every day.

Do I understand this correctly? IB now charges 30 percent margin on futures or a penalty fee is imposed?

I have been trading for decades and been trading the same way with IB for years and I never heard of such a thing.

I got absolutely no notice of this; I just discovered the fees on my statements when I tried to balance my account. Is it legal for a broker to both invent and deduct fees, at any time and of any amount, from a trading account without warning?

 

[Gldr]

I just discovered this exposure fee on my statement.

I trade ES, I have always had plenty of funds in this account and I use tight stops. However, this exposure fee seems to imply that I need to maintain sufficient funds in my account to cover a 30 percent adverse move in ES (regardless of my tight stop) or pay this fine every day.

Do I understand this correctly? IB now charges 30 percent margin on futures or a penalty fee is imposed?

I have been trading for decades and been trading the same way with IB for years and I never heard of such a thing.

I got absolutely no notice of this; I just discovered the fees on my statements when I tried to balance my account. Is it legal for a broker to both invent and deduct fees, at any time and of any amount, from a trading account without warning?

Yes you have understood it correctly. They charge you for as if you have a 30% margin (which is ridiculous for index based products). They have had some pre announcement email, but probably only to people that had such position in the week before it started.

All others did apparently not get a warning. Further, on the web page, the explanation is very general. It does not tell you they calculate 30% (they leave it open to change at their discretion) and also they do not tell that the fee is logarithmic: when the exposure doubles, the fee triples or more..

 

[actionzip54]

I wonder if you believe it yourself. At the same time, IB says that trading is slow and commissions are low....

If it really was to reduce exposure, why not increase margins. And IB has already the 'auto position closing' that would reduce risk as well. This is just to gain more money or try to force people trade more by adding reverse positions (which results in the same, more income for IB).

If IB really wanted to reduce exposure, they would have taken a more trader friendly option.

This is trader friendly. They could just close all your positions.

 

[jk90029]

I just discovered this exposure fee on my statement.
IB now charges 30 percent margin on futures or a penalty fee is imposed?

Forgive my English and lack of NYSE experience.

30% margin means

1) purchase with 30% cash+ 70% loan
2) purchase with 70% cash + 30% loan

Which one (out of two) does it imply?

 

[jeb9999]

Forgive my English and lack of NYSE experience.

30% margin means

1) purchase with 30% cash+ 70% loan
2) purchase with 70% cash + 30% loan

Which one (out of two) does it imply?

Futures trading margin is a performance bond and does not involve a loan.

In futures 30% margin means you would put up 30% of the contract value in cash.

For ES futures 30% margin would be $30,000.

 

[Gldr]

Forgive my English and lack of NYSE experience.

30% margin means

1) purchase with 30% cash+ 70% loan
2) purchase with 70% cash + 30% loan

Which one (out of two) does it imply?

Non of these really.

What IB does is that when you are short on ES for instance, you get the following example:

• ES is at 1960
• You have cash of 75000 on your account
• When you sell a 5 puts ES (any month) at 1860 (multiplier 50) at USD 5 (receiving USD 1250 - commissions)
• The margin would be around 25000

So you are well within the margin requirements, but still the exposure fee kicks in.

For the exposure fee, IB does the following calculation:
If the ES goes down 30% (590 to 1370; 30% is their unlikely risk scenario) the say your risk exposure is 5 * 590 * 50 = 147500

Risk 147500 - cash 7500 - income 1250 = 71250 risk,

Based on this 71250 risk, they will charge you a fee every day the position exists. The fee is however logarithmic.

I hope this helps understanding.