Possibly IB insured IB by itself, so small money is accumulated everyday for potential big loss.
It is important that many traders are addicted, such as by their proprietory API and other reason(s). They know that it is VERY hard to change broker.
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IB Exposure Fee
- Thread starter mastacoli71
- Start date
Possibly IB insured IB by itself, so small money is accumulated everyday for potential big loss.
It is important that many traders are addicted, such as by their proprietory API and other reason(s). They know that it is VERY hard to change broker.
Hello American comrades from here in the Russian Federation. It is distressing to see that you are being oppressed by a Hungarian born American oligarch through financial exploitation with unfair rentier fee. Does anyone know if this American oligarch is a secret member or contributor to the ultra right wing fascist neo-nazi Jobbik Party in Hungary? Is this where the money goes?
Obviously I am not an American lawyer, but it seems to me that the first rule of being a Risk Manager is to not waive a red flag in the face of regulators. For example, in Interactive Brokers (IB) message to affected accounts (see post #6), wouldn't the utilization of phrases such as "purchasers of insurance" and "charging of a premium" garner the attention of 50 separate state Insurance Commissioners? I bet they search to see if IB is registered as an insurance company in each of their states. Right? If IB is not registered, then they contact their state's Department of Financial Institutions (or equivalent) and their state's Attorney Generals office. Right?
Then there is political risk. I can imagine political demagogues such as Benjamin Lawsky (New York state superintendent of financial services) and/or Eric Schneiderman (New York Attorney General with the powerful Martin Act) seeking to investigate a Republican Party demagogue who happens to be a Hungarian born American oligarch and IB's CEO. Surely this would advance their political careers. Right?
Then there are other regulators that may be forced into action, such as the CFTC and FINRA. What about the CME? Won't these rentier fees reduce trading volumes on the CME venue? That might just piss them off a little bit. Right?
Then there's IB blaming the OCC for problems in charging the fee rather than IB taking responsibility for what is clearly a poor algorithm. Maybe the OCC say, hey, stop misusing our data and drawing us into your foul methodology and then blaming us for a problem of your creation: the audacity!!
Others have already mentioned the difficulty of reaching a 30% loss in the underlying given all the circuit breakers. IB's CEO brags on CNBC about how great is their probability lab. Try for 30% loss in underlying in IB's great probability lab and what do you get? IBGYBG (I'll be gone, you'll be gone) because we'll all be dead and IB will fall upon a heap of Refco, MF Global and PFGBest.
So now I end my tirade and express my sorrow for my American comrades. In mean time, I reach out to my contacts in FSB and others in Russia to see if IB is misusing it's privilege on Russian comrades.
Obviously I am not an American lawyer, but it seems to me that the first rule of being a Risk Manager is to not waive a red flag in the face of regulators. For example, in Interactive Brokers (IB) message to affected accounts (see post #6), wouldn't the utilization of phrases such as "purchasers of insurance" and "charging of a premium" garner the attention of 50 separate state Insurance Commissioners? I bet they search to see if IB is registered as an insurance company in each of their states. Right? If IB is not registered, then they contact their state's Department of Financial Institutions (or equivalent) and their state's Attorney Generals office. Right?
Then there is political risk. I can imagine political demagogues such as Benjamin Lawsky (New York state superintendent of financial services) and/or Eric Schneiderman (New York Attorney General with the powerful Martin Act) seeking to investigate a Republican Party demagogue who happens to be a Hungarian born American oligarch and IB's CEO. Surely this would advance their political careers. Right?
Then there are other regulators that may be forced into action, such as the CFTC and FINRA. What about the CME? Won't these rentier fees reduce trading volumes on the CME venue? That might just piss them off a little bit. Right?
Then there's IB blaming the OCC for problems in charging the fee rather than IB taking responsibility for what is clearly a poor algorithm. Maybe the OCC say, hey, stop misusing our data and drawing us into your foul methodology and then blaming us for a problem of your creation: the audacity!!
Others have already mentioned the difficulty of reaching a 30% loss in the underlying given all the circuit breakers. IB's CEO brags on CNBC about how great is their probability lab. Try for 30% loss in underlying in IB's great probability lab and what do you get? IBGYBG (I'll be gone, you'll be gone) because we'll all be dead and IB will fall upon a heap of Refco, MF Global and PFGBest.
So now I end my tirade and express my sorrow for my American comrades. In mean time, I reach out to my contacts in FSB and others in Russia to see if IB is misusing it's privilege on Russian comrades.
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Lastly, weâd 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. ....
The calculation of "exposure" is opaque (using âproprietary algorithmsâ), yet IB chat tells me that itâs based on the âStress Testâthat can be viewed under "Manage Account".
That "Stress Test" categorizes by "equities", "commodities", "fixed income", and fx, which sounds reasonable, but if you hold an etf like TLT, that goes into "equities" simply because it trades as a stock. That makes no sense.
Then within those categories it applies a 30% haircut to all positions ---including very lower volatility positions like ticker IEF â which is an etf holding 7-10 year treasuries. Presumably even ticker SHY, which holds t-bills, would get the same haircut.
So at an extreme, I could be holding t-bills in the form of SHY, and it will assess me a 30% "equities" exposure on that position.
Of course it's possible the chat rep was mistaken.
The calculation of "exposure" is opaque (using âproprietary algorithmsâ), yet IB chat tells me that itâs based on the âStress Testâthat can be viewed under "Manage Account".
That "Stress Test" categorizes by "equities", "commodities", "fixed income", and fx, which sounds reasonable, but if you hold an etf like TLT, that goes into "equities" simply because it trades as a stock. That makes no sense.
Then within those categories it applies a 30% haircut to all positions ---including very lower volatility positions like ticker IEF â which is an etf holding 7-10 year treasuries. Presumably even ticker SHY, which holds t-bills, would get the same haircut.
So at an extreme, I could be holding t-bills in the form of SHY, and it will assess me a 30% "equities" exposure on that position.
Of course it's possible the chat rep was mistaken.
Your analysis is correct, and much further below is some more of my own.
Excluding the calculation done to your âcashâ holdings, all other positions (and your account) are recalculated in the event of a 30% down move, with what appears to be no bias toward underlying risk â equity index, stock, bonds, options, futures, and so forth are all equal in this case. This is not proprietary, and can indeed be viewed in the stress test report.
The 30% up move (+30%) calculation appears to not be important with regards to the exposure fee, even if it creates exposure in the account, and furthermore, exposure higher than the -30% calculation of which you may or may not have been charged the actual fee.
The only proprietary calculation is when and how much of a fee is charged. However, I have posted a guideline previously which starts at the $1 million mark of exposure and goes higher. Other members on the forum have commented this is an exponential fee; it rises on an exponential basis.
Due to its proprietary nature itâs difficult to fully explain, however, my recent account scenario might shine some light on the maximum amount of exposure allowed before the fee is posted to accounts, if this fee is calculated on a pure dollar for dollar exposure amount (so account size, product, position concentration are irrelevant).
The last few trading days have had the following -30% and +30% exposures, with the fee charged next to it (if applicable, and numbers in Canadian dollars);
(Report Date) Jul 9 â (-30%) 131,582.53, (+30%) 201,230.66, (Exposure Fee) no exposure fee charged
Jul 10 â 133,547.25, 196,551.05, no exposure fee charged
Jul 11 â 137,158.01, 193,443.78, no exposure fee charged
Jul 12 â 137,158.20, 193,444.46, 1.08 charged
Jul 14 â 131,469.65, 205,466.49, no exposure fee charged
Comments;
1. Iâm not sure why July 11 and 12 are essentially the same, the 12 being Saturday and only that one is charging me a fee, but looking beyond that;
2. It appears that the maximum -30% exposure is somewhere between 133,547.25 and 137,158.20 before the fee kicks in. If true, this is good information to know and can be used to expect (or not) the fee to be charged to your account the next day.
3. Iâve had all days with much larger +30% exposures, none of which seem to matter with regards to the fee calculation â however this is by no means proof it is not.
to clarify from your post --
the fee looks at -30% OR +20%
the fee is not charged on Fridays, but on Saturdays, since Friday is a weekly option expiration.
comments --
I hate this fee, paying it everyday.
It does nothing to make the customer change their strategy nor does it protect IB from exposure risk.
All it does is make IB more money in the interim. If all things blow up, from a giant -70% in 1 week move or something, IB will still blow up and this 1% fee will have done nothing to protect them.
All it does is make shareholders a tiny bit more money.
the fee looks at -30% OR +20%
the fee is not charged on Fridays, but on Saturdays, since Friday is a weekly option expiration.
comments --
I hate this fee, paying it everyday.
It does nothing to make the customer change their strategy nor does it protect IB from exposure risk.
All it does is make IB more money in the interim. If all things blow up, from a giant -70% in 1 week move or something, IB will still blow up and this 1% fee will have done nothing to protect them.
All it does is make shareholders a tiny bit more money.
to clarify from your post --
the fee looks at -30% OR +20%
the fee is not charged on Fridays, but on Saturdays, since Friday is a weekly option expiration.
comments --
I hate this fee, paying it everyday.
It does nothing to make the customer change their strategy nor does it protect IB from exposure risk.
All it does is make IB more money in the interim. If all things blow up, from a giant -70% in 1 week move or something, IB will still blow up and this 1% fee will have done nothing to protect them.
All it does is make shareholders a tiny bit more money.
Thanks, those two clarifications differently make sense based on what Iâve been finding. I fundamentally agree with your comments.
to clarify from your post --
the fee looks at -30% OR +20%
the fee is not charged on Fridays, but on Saturdays, since Friday is a weekly option expiration.
comments --
I hate this fee, paying it everyday.
It does nothing to make the customer change their strategy nor does it protect IB from exposure risk.
All it does is make IB more money in the interim. If all things blow up, from a giant -70% in 1 week move or something, IB will still blow up and this 1% fee will have done nothing to protect them.
All it does is make shareholders a tiny bit more money.
I fully agree with your comments.
All it does is make shareholders a tiny bit more money.
I fully agree with your comments.
slight correction.--- all it does is makes the GREEDY. owner -Thomas Peterffy. more rich by nickel and diming us....
and btw. if and when they do blow up... he would have siphoned all his profits out and IB will go BK.... then GUESS WHO WILL PAY.. for the MESS>>>>> ???? u and me- the US taxpayers...
the beauty of capitalism, if it works.. its my profit.. if not.. its the taxpayers loss.. HA HA.
I fully agree with your comments.
slight correction.--- all it does is makes the GREEDY. owner -Thomas Peterffy. more rich by nickel and diming us....
and btw. if and when they do blow up... he would have siphoned all his profits out and IB will go BK.... then GUESS WHO WILL PAY.. for the MESS>>>>> ???? u and me- the US taxpayers...
the beauty of capitalism, if it works.. its my profit.. if not.. its the taxpayers loss.. HA HA.
All rationale for this exposure fee is completely bogus.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, weâd 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.
IB proffers two reasons for its invention:
1. "To protect IB and its customers from those accounts that have very risky positions."
I can state definitively that there is no man, woman or child on the face of the earth, who, if they had the will and the means to somehow get past all of IB's systems and trade down their account not only past all margin requirements but down to zero and beyond, would be deterred in the least from doing this by any prospective exposure fee.
2. "To compensate IB for the risk in servicing such accounts."
This compensation should be borne by IB as a part of the cost of doing business, like every other broker. However, it is commendable that IB wants to offset this. So it would be reasonable to add to all account agreements, if it is not there already, that any debt must be paid within one business day and that any and all costs incurred by IB in the collection any debt will be paid by the debtor, and that this will also include a service fee (f.k.a. an exposure fee), equaling ten percent of the amount owed.
That's the responsible way of accomplishing these goals.
I have left Interactive Brokers due to their Exposure Fee. I have been with them for 5 years and you should consider moving to RJO' Brien if you are trading Futures/Future Options.