IB is going to start charging a daily exposure fee

beefcaketrade said:
I think they should use the revenue from the exposure fee and actually use it to on hedges that the customer refuses to buy themselves. At least it will end this controversy. I mean, how much dough are they raking in with this exposure fee? Hardly enough to raise the EPS. Is the controversy worth the fee? It's easy enough to end all controversy if the money is actually spend on hedges and they are transparent about it.

For example, we charge you $10 over the span of the trade. And this is what I'm doing with the $10. I'm buying puts similteanous to your short put trades to cap the loss. If you had purchased the puts yourself, it would have costed you $8 + 2 trading commission. So we are flat. We are doing what you're not doing. The end. It would look a lot better.
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If they cared about what their customers thought they'd be doing a couple dozen things differently/better. They couldn't give a crap, they offer low prices and lots of products to suck you in and count on most customers sticking with them and the loss of the more rational one's as the price of doing business.
 
beefcaketrade said:
Ultimately I agree that if the ultimate goal is to influence behavior of their customers, that it can already be done with tweaking margin requirements for positions without this exposure fee invention.
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Not really. Margin addresses an individual position's risk and is the same for all customers. The exposure fee addresses portfolio risk and is unique to each customer.
 
fbell50 said:
Not really. Margin addresses an individual position's risk and is the same for all customers. The exposure fee addresses portfolio risk and is unique to each customer.
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You can break it down to the individual parts and affect the overall portfolio risk as a sum of it's parts.

Obviously individual position is not portfolio risk. But if you set margin requirement high enough for individual positions, on it's own, then the sum of it's parts (the portfolio) can have similar safety net.

If the target is a 30% drawdown protection, this means to me you need cash to cover 30% drop in position value. For a $10K stock, you need $3K at least to hold it. Margin will be 30% position value minimum for stocks. For ES futures with 50 multiplier at 2350, it is a $117,500 nominal position per contract. So instead of CME suggested around $5K margin, lets just say I want $35,250 maintenance margin instead to cover a potential 30% droop. We can continue with examples.

Obviously for ES they are not that extreme. Instead they let you trade ES at slightly higher than CME margin requirements, and then charge you an exposure fee if you're "over exposed". But they could scrap the maintenance fee and go out and ask for $35K maintenance margin per contract if they want. That should protect against a 30% one day move at today's prices for everyone's portfolio.

So you very much CAN individually tailor individual position margin, to cover for 30% adverse move. And the overall portfolio? It will be covered for 30% adverse move as a whole with enhanced margin requirement. It is marked daily. Which means after it drops 30%, you would have been auto liquidated. And in the off chance you slip negative, there is margin call.
 
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Assume using margin to emulate exposure fee, a 10k acct and you are short 10000 super volatile stock like DRYS at 1. You are also long 10000 DRYS calls strike 1. IB thinks margin should be 5 for the short to cover possible extraordinary 1 day moves and zero for the call, for a total margin of 50k. Obviously this doesn't make sense. As long as you have the call the true exposure is zero.

IB cannot reduce stock margin to zero for you without reducing to zero for everyone. It makes more sense to set stock margin at likely largest one day move, say 200% and then evaluate the position in context of the portfolio. You can devise similar portfolios in the ES via calendar spreads.

As a practical matter, margin changes are broadcast and then frequently implemented over several days. The are not designed to respond quickly to changes in underlying volatility, so implicit in your argument is a fundamental change in how IB implements margins.
 
I think the exposure fee is ridiculous and i get charged a material amount (enough to feed many many kids in africa). The issue is I can't find another broker with similar commissions for stocks/options.
 
yulin2001 said:
Good point. That's also the question I asked IB but have no answer. If IB charged the risk fee, and bought the insurance to full cover the tail risk of my account, I am actually ok with the charge. The problem is that IB just wants to charge the fee but do nothing. Even IB says that it as an insurance business, it sells me the policy and cover the risk in my account, I am fine too.

Do you have a good broker to recommend? Thanks!
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for option traders, tastyworks is supreme :)
 
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