I trust their decisions in regards to keeping my account safe. They have always been proactive when it comes to making sure their clients can't put them on the hook. There must be a valid explanation for why they have decided to add this exposure fee. You may be an innocent bystander for who they are really targeting, or maybe not. Anyway, I would trust IB's judgement over yours any day.
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IB Exposure Fee
- Thread starter mastacoli71
- Start date
I trust their decisions in regards to keeping my account safe. They have always been proactive when it comes to making sure their clients can't put them on the hook. There must be a valid explanation for why they have decided to add this exposure fee. You may be an innocent bystander for who they are really targeting, or maybe not. Anyway, I would trust IB's judgement over yours any day.
My question is are they just pocketing these fees or are they actually putting off the risk by using this money to buy some offsetting positions (deep out of the money options, for instance)Thanks for the followup.
It's now even stranger to me...
$1 per 100K of "excessive exposure" X small number of clients affected = safety from catastrophe.
Carry on.
My question is are they just pocketing these fees or are they actually putting off the risk by using this money to buy some offsetting positions (deep out of the money options, for instance)
If that's the case, it would probably make the whole thing palatable by most.
Given the fee is daily, and the underlying that triggers the fee (or not)can be anything held in an account from one day to the next, seems to me there would be more risk attempting to acquire and when necessary disposing offsetting positions based solely on client holdings (of whatever type) one day to the next.
Carry on.
I don't think they would try to do direct offsetting positions because that would expose them to regular trading losses.If that's the case, it would probably make the whole thing palatable by most.
Given the fee is daily, and the underlying that triggers the fee (or not)can be anything held in an account from one day to the next, seems to me there would be more risk attempting to acquire and when necessary disposing offsetting positions based solely on client holdings (of whatever type) one day to the next.
For instance if they were trying to put off black swan risk against my long NQ position they would buy deep out of the money puts on NQ, something that would cover losses beyond what the cash in my account would cover - these would be fairly inexpensive I would imagine.
If I closed my position then they would need to sell the puts the next day. I agree that the small amount of money they are charging does not seem sufficient to cover the costs of doing this but maybe when they aggregate across all customers it works out - and of course they are in the options business so their transaction costs are low.
volpunter and sprstpd:
You can have a billion dollar account, buy one share of IBM and IB can impose an exposure fee that exceeds your account size plus the value of your stock thus taking all of your money and stock and have you owing a deficit. That's what it says and that's a fact, volpunter. It doesn't matter if you believe it or not. It doesn't matter if you like it or not. And it doesn't matter if you understand it or not.
And sprstpd, so you've "traded with IB for many years and I have come to trust their decisions." Well, daily exposure fees started to be deducted from my account in early July with no notice; I only discovered them when I tried to balance my account.
Well thats not hows its worded technically. They say it is a black box and the algo can change any time, and their rates can change. So yes, you are kinda on their graces there in terms of fees. Lets ignore this part for now.
They say they only charge if you give them risk of loss if your account goes negative equity. So, if you had a billion dollars cash, and you buy 100 shares of IBM, the risk is defined. Even worst case scenario of IBM at $0 you will still not get negative equity at IB. They will not charge you anything as its an impossibility for IBM to be negative share price.
Mostly I think its for people who trade futures who get hit the most. If you trade equities and options, the chances are not high that you get hit. If you trade futures, the notional value is often so much higher yet exchanges set relatively low margin requirements, and so the leverage can be massive. I would think forex positions, given the even higher leverage, might be an even more pressing issue.
This leaves me to wonder, has anyone gotten the fees due to forex positions? I mean, you can leverage so much with forex, and if their algo also assumes "30%" move on forex... wow.
I don't think they would try to do direct offsetting positions because that would expose them to regular trading losses.
For instance if they were trying to put off black swan risk against my long NQ position they would buy deep out of the money puts on NQ, something that would cover losses beyond what the cash in my account would cover - these would be fairly inexpensive I would imagine.
If I closed my position then they would need to sell the puts the next day. I agree that the small amount of money they are charging does not seem sufficient to cover the costs of doing this but maybe when they aggregate across all customers it works out - and of course they are in the options business so their transaction costs are low.
I think they should be transparent and use the proceeds to buy the offsetting positions. They can buy it at a strike that basically caps off their risks, so at the point where a trader is near $0 in equity.
Because its really not insurance in the conventional sense. If say a black swan does happen and a trader gets into negative equity, they'd still come after you for the now uncollateralized debt. Its not like you walk away with the difference paid for by IB's "insurance".
Anyway, simple enough. People should just buy far OTM options to cap their losses, then this fee will be gone. Instead of paying the daily fee, use that money instead for some good risk management and cap positions against black swans with OTM options. Might even save a few bucks vs IB's fees.
your post then comes across as utterly thick because it really does not matter whether IB starts charging such fee this month or next or 3 months hence. Yes, there are a lot of people who moan on this thread about Wall Street firms that privatise gains and socialize losses, yet, they do not want to accept that their exorbitant overleveraging potentially affects other people, people like me who trade with the same broker but run at prudent risk levels. I cheer IB for charging for each and everything that clients engage in and that puts the firm and hence other customers at excessive risk. But even worse is people who try to count peas, it does really not matter for the sake of this broader issue when IB starts charging such fee.
Reread my question and don't jump to conclusions. I am asking if anyone has actually been charged any money for this exposure fee yet or if all the moaning about it has been because they have been just warned (and not charged). If no one has been charged yet for "overexposure", then effectively IB is giving people time to adjust to this new policy. In which case, a lot of the posts on this thread come across as annoying/whiny.
That is utter bullshit, and I hope someone from IB steps in soon to disprove your lies. The more BS you post here the more you come across as a tout for the competition. So, where is your proof. You say "it does not matter whether I believe you or not". Yes, so far you appear to be full of shit and yes, I do not believe you, and I hope nobody else does. And I do understand this matter a lot better than you "native English speaker" (something you mentioned as differentiating factor between people who understand and others who don't).
Again, reduce your insane leverage, the small exposure fee SHOULD BE THE LEAST THING YOU SHOULD WORRY, sooner or later you will with almost 100% certainty blow up. Idiot.
Again, reduce your insane leverage, the small exposure fee SHOULD BE THE LEAST THING YOU SHOULD WORRY, sooner or later you will with almost 100% certainty blow up. Idiot.
volpunter and sprstpd:
You can have a billion dollar account, buy one share of IBM and IB can impose an exposure fee that exceeds your account size plus the value of your stock thus taking all of your money and stock and have you owing a deficit. That's what it says and that's a fact, volpunter. It doesn't matter if you believe it or not. It doesn't matter if you like it or not. And it doesn't matter if you understand it or not.
And sprstpd, so you've "traded with IB for many years and I have come to trust their decisions." Well, daily exposure fees started to be deducted from my account in early July with no notice; I only discovered them when I tried to balance my account.
Seems native English does not necessarily make up for stupidity, at least not in J.P.'s case. Some are just so extremely short sighted that it is a pleasure knowing they are in the market place and that I am trading against such individuals. I would reckon to guess (do not have proof though) that IB won't charge such fee for any long positions, no matter how large, because they can easily reign in risk taking though margin limits. Long options are fully paid for so no issue there, futures have margin rates that exist for the very same reason this exposure fee exists and more and more popular futures contracts trade round the clock (I said more not all for anyone wanting to pick this part apart). Long equity are capped as well. The only case that could be made on the long side is currencies that can currently be leveraged around 40:1 or so (if I remember correctly, depending on specific currency pair). But the case against currencies can be made by stating that they trade 24/5 and that only positions over the weekend may be subject to such exposure fee. But the probability of one of the major currencies move 20-30% either over the weekend or at once during the trading session cannot even be measured in terms of a single digit sigma event. Anything in major currencies I remember over the past decade or more is the swissie revaluation by about 10%, not even the flash crash moved currencies by anything remotely close to 10%.
I repeat, I am all in for more transparency but I am against allowing stupidity to rule this world. Let's reign in the dumbest comments that really make little to no sense...
I repeat, I am all in for more transparency but I am against allowing stupidity to rule this world. Let's reign in the dumbest comments that really make little to no sense...
Well thats not hows its worded technically. They say it is a black box and the algo can change any time, and their rates can change. So yes, you are kinda on their graces there in terms of fees. Lets ignore this part for now.
They say they only charge if you give them risk of loss if your account goes negative equity. So, if you had a billion dollars cash, and you buy 100 shares of IBM, the risk is defined. Even worst case scenario of IBM at $0 you will still not get negative equity at IB. They will not charge you anything as its an impossibility for IBM to be negative share price.
Mostly I think its for people who trade futures who get hit the most. If you trade equities and options, the chances are not high that you get hit. If you trade futures, the notional value is often so much higher yet exchanges set relatively low margin requirements, and so the leverage can be massive. I would think forex positions, given the even higher leverage, might be an even more pressing issue.
This leaves me to wonder, has anyone gotten the fees due to forex positions? I mean, you can leverage so much with forex, and if their algo also assumes "30%" move on forex... wow.
Why do you care what they do with those fees? I much more would prefer to pay extra to again have all my accounts insured by Lloyds TSB. That is what I trust, I do not trust any broker in whatever they say, they could tell you they hedge excessive exposure but do not. They could tell you they do not touch segregated accounts but do. Anything can happen with dishonest employees/owners, but an insurance contract is an insurance contract that is absolutely enforceable.
I think they should be transparent and use the proceeds to buy the offsetting positions. They can buy it at a strike that basically caps off their risks, so at the point where a trader is near $0 in equity.
Because its really not insurance in the conventional sense. If say a black swan does happen and a trader gets into negative equity, they'd still come after you for the now uncollateralized debt. Its not like you walk away with the difference paid for by IB's "insurance".
Anyway, simple enough. People should just buy far OTM options to cap their losses, then this fee will be gone. Instead of paying the daily fee, use that money instead for some good risk management and cap positions against black swans with OTM options. Might even save a few bucks vs IB's fees.