IB Margin change

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I'm not saying its wrong or right. I wasn't involved or consulted on the decision but i'm speculating that the move came from reguatory concerns about clauses such as "knowing your customer" and "making sure futures are a suitable investement". Nevertheless, I believe a 2K minimum is not to gain more commissions. Someone with 1K vs 2K in there account will not necessarily trade more. If anything, it will cost us customers.

The way I read the communique it just means that you need to have a base value in your account of 2K in order to trade futures. Most firms won't take clients w/o 5-25K in their accounts, thus I don't think 2K is unreasonable.
 
Every broker has different requirements for minimum day trading margins. It's all about risk, folks. Futures are high leveraged instruments and it is possible for large movements to result in large losses. It's not like you're getting 4:1 leverage trading stocks which is much less risk than with futures.

Especially when you consider SSF, what happens if a stock is halted and when trading resumes the gap wipes out > $2k? Even in index futures a sudden shock of 5% would do what, ~$2300 in damage.

Personally, if I was running a futures broker I'd probably implement similar rules. Would you trust a bunch of day traders with less than $2k in equity trading leverage instruments that given an external shock could wipe out the account and leave you holding the bag?

I'm not defending or supporting IB specifically, but am saying that different brokers have different risk tolerance and minimum requirements. Shop around. In fact, every futures broker that I know off the top of my head requires $5k minimum to open an account.
 
Originally posted by def
I'm not saying its wrong or right. I wasn't involved or consulted on the decision but i'm speculating that the move came from reguatory concerns about clauses such as "knowing your customer" and "making sure futures are a suitable investement". Nevertheless, I believe a 2K minimum is not to gain more commissions. Someone with 1K vs 2K in there account will not necessarily trade more. If anything, it will cost us customers.

The way I read the communique it just means that you need to have a base value in your account of 2K in order to trade futures. Most firms won't take clients w/o 5-25K in their accounts, thus I don't think 2K is unreasonable.
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right so it really has nothing to do with margin then. Man they could have been clearer. So daytrade margin is still half exchange minimum. So nothings really changed, except you need a minimum account balance of 2k. Ok, that's good, but still, you shouldn't need to have a discussion about what an email means, should you?
 
How about stock options? Can you give us some insight on why PDT margin rules should be applied to stock options? Don't you think small players should be given some space and freedom to play and practice? Don't you think broker can be also benefited without additional risks?

Thanks.
 
Originally posted by qdz
How about stock options? Can you give us some insight on why PDT margin rules should be applied to stock options? Don't you think small players should be given some space and freedom to play and practice? Don't you think broker can be also benefited without additional risks?

Thanks.
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I don't agree with PDT rule at all.

Well, I do trade a lot more futures than stocks... maybe PDT rule brining more fish into the futures markets.... so maybe I do like it. :)

But in principle it's bogus. It's America. Let people gamble as much as they want. Let the financial institutions loan as much risk to their clients as they are willing.
 
Originally posted by def
The way I read the communique it just means that you need to have a base value in your account of 2K in order to trade futures. Most firms won't take clients w/o 5-25K in their accounts, thus I don't think 2K is unreasonable.
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Sorry again Def, I know that stuff like this is not your call but...

What your describing is something like this, I want to start trading with Bright Trading. I need a initial deposit amount of $25,000.00. Fine, I am then allowed to go and lose the entire amount. What IB is doing would be like Bright saying that if your account balance falls below $25,000.00 you can't trade! That's ridiculous! If the initial deposit is $5,000.00 or $25,000.00 so what? You can still lose all of your money. There is no rule that says if your account is below $25,000.00 you just can't trade. To my knowledge there is no other broker doing what IB is now doing. IB is stating that you are not allowed to trade futures and options with less than $2,000.00 in your account, regardless of the initial margin amount. Take a AT&T SSF. What would the initial margin be on that contract? Around $280-$300. So if someone had $1,800.00 in their account why can't they trade this contract?! There is not another broker in the world (to my knowledge) that does this. Please let me know if I'm wrong.

Now, what about traders who have been with IB for 6 months. They started with a $5,000.00 account. Now their account is at $1,500.00. IB is saying that they are no longer allowed to trade futures or options until they deposit $500.00. As small as that may be it's not right. They still have the money to satisfy the initial margin. How can IB just change trader agreements like that? NO WARNING AT ALL! What if I started at Bright with $20,000.00 with full knowledge that I would be able to trade until I ran out of money or could not satisfy initial margin. 6 months later my account is at $14,000.00 and Don walks in one day and says, "if your account is not above $20,000.00 you are no longer allowed to trade." That's BS! Traders would be outraged!

What is IB's stance on the issue? Well, it's only $2,000.00 so...

SO WHAT, It's money! It breaks the trader agreements that traders sign when they start their IB account. And IB can't even explain why they put the rule in place. MONEY, MONEY, MONEY!

What if I was a new trader who over the last 3 or so months had become very excited about trading SSF's. They had very low initial margin and I figured I could trade them for awhile with a $2,000.00 account. I had an extra $2,000.00 so I made my initial deposit to an IB account. (Maybe IB had the best rates) Now, on the eve of trading SSF's IB comes out and says that a traders $2,000.00 deposit is not enough. BS!!! Why were new traders not told about this change months ago?! Was IB afraid they wouldn't open the account?

This is bad. Now brokers are telling traders what they can and can't trade, regardless of initial margin requirements. If IB wants people to have a minimum of $2,000.00 why not just raise initial margin on all contracts to $2,000.00? Oh, I forgot, they would lose all of their traders!!! The way they did it gets them more money with out losing traders. I can only imagine what trading will be like 3, 4, 5 years down the road. Oh boy!
 
For what it's worth, I think the IB ruling is a good one.

I think they made a ruling that is intended to protect IB, and rightfully so.

Years ago I can recall stock margin accounts requiring a minimum $2K in equity. If you wanted to short stocks it used to be $10K minimum. Write naked calls....$25K. Only $2K to trade futures...that sounds downright reasonable to me.

I don't suppose it's occurred to you that perhaps the reason you're losing money is because you're trading with so little to begin with. This is "scared money", "desparate money"...call it what you will.

But whether that statement is true or not...IB has a right to make financial requirements designed to protect itself. I can remember in 1968 trying to open a futures account with Merrill Lynch. They told me I needed $50K! In 1968! LOL. I had $4K. Know what I did? I found another broker.

In your case I would either find a broker willing to take this minimal amount (and there may not be any), or find a job and make some dough. $2K is just not that much.

OldTrader
 
Originally posted by dottom
Every broker has different requirements for minimum day trading margins. It's all about risk, folks. Futures are high leveraged instruments and it is possible for large movements to result in large losses. It's not like you're getting 4:1 leverage trading stocks which is much less risk than with futures.

Especially when you consider SSF, what happens if a stock is halted and when trading resumes the gap wipes out > $2k? Even in index futures a sudden shock of 5% would do what, ~$2300 in damage.

Personally, if I was running a futures broker I'd probably implement similar rules. Would you trust a bunch of day traders with less than $2k in equity trading leverage instruments that given an external shock could wipe out the account and leave you holding the bag?

I'm not defending or supporting IB specifically, but am saying that different brokers have different risk tolerance and minimum requirements. Shop around. In fact, every futures broker that I know off the top of my head requires $5k minimum to open an account.
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This is all true. And every broker has different initial margin amounts. Fine. IB needs to change their initial margin amount then. There is no other broker, with an initial margin amount on a contract set at $1,000.00 who says you can't trade the contract with less than $2,000.00. Risk sets the initial margin. Brokers can make that amount whatever they want. IB is doing something completely different. WHY? they don't want to lose traders. Why do you think some people join IB over a broker like Alaron? Much lower initial margin. (and many other reasons but you get the point) Alaron lets you trade your account until you are below margin requirements. IB is doing something completely different.
 
my first post here ever.....

I am a very satisfied Canadian customer since IB finally came here in June. It's so good to be able to use a true daytrading workstation, fast executions and cheap. I discovered the world of futures , eminis etc. and im liking it. But dammit....Im waiting for my wire to get there for $1300.00 so i can get going on the NQ. I've papertraded my system (successfully), got Quotetracker going an hour ago and now this? I need $2000? this isnt just for SSF is it? its for all futures? this really bites....cant i be grandfathered....even for just a week! geezuz....I met the requirements when i opened the account and I think i still meet the requirements. This way they can deduct that $10 for 199 months till its gone i guess.....brutal.
 
anchor,

other brokers will also make margin calls. IB doesn't. No cash, no play. This policy protects the firm and the balance of the clients who have little risk of any client overextending the firm. This policy has been clear from day 1 and for any large account it is a major selling point. In any event, any firm or exchange are explicitly allowed to change their margining policy at their discretion. IB has given notice of such a policy change via a communique.

PDT:
I've read that the PDT rules are supported by many of the larger houses that don't have the ability to monitor or control risk on a real time basis. They want room to make margin calls and cover losses.

Back to the policy...
For every ATT which you mention there is a CSCO, IBM, MSFT where a 5% move could wipe out the account. I think it would be a more confusing policy to say stocks under $5 with a beta of X require a min margin of Y and so on. What are the odds of an account with < 2K xfer funds back into the account when they have a large loss and a negative balance? Policies like this also allow the firm to maintain low commissions.

Also, I don't think it is fair to compare IB to a prop house. Many prop houses wouldn't take your business even if you gave them 1 million in capital but only generated a few hundred bucks in commissions. IMO, many of the trading rooms encourage overtrading. Sure they'll even let you go negative if you show some promise. Then again, they also take a cut of your profits and aren't doing it for altruistic purposes. Those that don't cut the mustard are quickly canned.

Someone mentioned that the low margin is great for a new trader. However, IB isn't designed as a newbie playground. The cost of maintaining such accounts is probably much higher than commissions generated (my guess are that such accounts disproportionately contact customer service, load up their screens with hundreds symbols, etc). I didn't make the decision but I have to admit I agree with it.

Lois,
Canadian accounts, if i'm not mistaken, need 3000 CAD to open which is about the same as 2KUS. In any event, I'm afraid there is no grandfathering. With 1300 in your account though, I highly discourage you from trading futures. You hardly have any room for losses before you fail to meet even day time margin requirements. About the data fee: you can avoid charge by unsubscribing to the quotes via your account page on the web site.
 
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