IB Margin Changes

[newwurldmn]

Quote from jayre:

I am glad you are agreeing mostly with the facts that stated (I’m still in middle of completing the rest of the facts). Now my concern is NOT that I was liquidated on a couple of spreads, the loss there was a negligible amount, my concern is that IB has a problem answring questuions straight forward, acknowledging the truth, and that a “conflict of interest” re margin/liquidation actually exists due to the fact they have a partner company a market maker with a preference on market orders.

You know that EVERY discount broker has this partnership agreement. Schwab sends (or at least used to) all their orderflow to UBS. Etrade to other firms (Citadel or Citigroup I think).

And as long as you are getting NBBO or better on your trades then you shouldn't worry about where the orders are directed.

Your only complaint can be that they are auto liquidating in order to generate more market orders. If that's your problem then you have a problem with the margin policy. Either they are acting within the agreement of their stated margin policy or they are not. If they are, then it's your fault. If they are not, then they should be sued.

 

[jayre]

Quote from newwurldmn:

You know that EVERY discount broker has this partnership agreement. Schwab sends (or at least used to) all their orderflow to UBS. Etrade to other firms (Citadel or Citigroup I think).

And as long as you are getting NBBO or better on your trades then you shouldn't worry about where the orders are directed.

Your only complaint can be that they are auto liquidating in order to generate more market orders. If that's your problem then you have a problem with the margin policy. Either they are acting within the agreement of their stated margin policy or they are not. If they are, then it's your fault. If they are not, then they should be sued.

You hit the nail on the head.

I don’t think they do anything they are not allowed to do under the agreement; the agreement gives them the max possible rights on the world, but I think they are probably taking advantage of their ignorant costumers, and as you can see they refuse to come clean on that.

 

[newwurldmn]

Quote from jayre:

You hit the nail on the head.

I don’t think they do anything they are not allowed to do under the agreement; the agreement gives them the max possible rights on the world, but I think they are probably taking advantage of their ignorant costumers, and as you can see they refuse to come clean on that.

It doesn't matter who trades on your market order.

Their agreement is written in plain english. And they market to professional and/or sophisticated traders. Hell, their last ad is geared toward victims of the Volcker Rule.
Secondly, their ability to control their risk (which is why I see them doing this) allows them to offer products like Portfolio Margining and "comingled" futures and stock accounts and the ability to do lots of trades.
When you open an account with them, they are short a put on you. If your account equity goes below zero they are likely to be on the hook. And they offer firepower that can easily cause an account to drop below zero.
Finally they have to conduct their business by some set of rules for liquidation. If those rules are clearly written then there's nothing to complain about.
If those rules are consistent with the sophistication of the clients they seek to attract then there is nothing to complain about.
If those rules are enforced as they are written then there is nothing to complain about.

That's it. It seems as all of these are true. Just beecause Timberhill can make money on customer market orders doesn't mean that IB is doing something shady. They gave you the ability to turn the market into a casino (no one else does) and they tell you what the rules of the game are. If you blow up then they will protect themselves - this is understandable.
It's your job to be prudent that you don't lose money and are profitable. Not theirs.

 

[jayre]

Quote from newwurldmn:


If those rules are consistent with the sophistication of the clients they seek to attract then there is nothing to complain about.
If those rules are enforced as they are written then there is nothing to complain about.

Sorry, but there is nothing consistent when they increase margin requirements with short notice like they did in September on the small cap stocks (from 25% to 100%).

Yes they have the right to do that, (they have the right to change the margin requirements to 100% for ALL stock as well, with a 1 day notice) But is that way you handle your clients absolutely not, no other broker handles their clints that way, and people should be aware about that before they take a penny of margin from IB.

 

[newwurldmn]

Quote from jayre:

Sorry, but there is nothing consistent when they increase margin requirements with short notice like they did in September on the small cap stocks (from 25% to 100%).

Yes they have the right to do that, (they have the right to change the margin requirements to 100% for ALL stock as well, with a 1 day notice) But is that way you handle your clients absolutely not, no other broker handles their clints that way, and people should be aware about that before they take a penny of margin from IB.

It's definitely a risk that people should be aware of in the future. But markets change and when they do margin requirements should as well.

They could have handled it better.

This is a different issue than what you have been ranting about. You've been ranting about auto-liquidation, not a change in their margin policy.

 

[jayre]

Quote from newwurldmn:

It's definitely a risk that people should be aware of in the future. But markets change and when they do margin requirements should as well.

Then why was IB the only one to implant these changes? The market didn’t change by other brokers??

 

[jayre]

Quote from newwurldmn:

It's definitely a risk that people should be aware of in the future. But markets change and when they do margin requirements should as well.

They could have handled it better.

This is a different issue than what you have been ranting about. You've been ranting about auto-liquidation, not a change in their margin policy.

It all comes down to the same point. Every other broker takes the necessary steps to avoid liquidations and to make sure its only done when necessary, because they know that liquidation is bad for them as well as for the costumer. IB makes drastic margin changes more then any other broker, puts the changes in effect quicker then any other broker, and the auto liquidates faster then any one else. THERE IS A CINFLICT OF INTEREST.

You keep saying that what they are doing is legal, I agree. But MF global’s investments in Europe with X40 leverage was legal as well. The fact if is legal or not is not relevant here. What’s relevant here is, that trading on margin with IB is more risky then trading with any other broker. Trading with IB on margin, is picking up nickels in front of a bulldozer.

 

[newwurldmn]

Quote from jayre:

It all comes down to the same point. Every other broker takes the necessary steps to avoid liquidations and to make sure its only done when necessary, because they know that liquidation is bad for them as well as for the costumer. IB makes drastic margin changes more then any other broker, puts the changes in effect quicker then any other broker, and the auto liquidates faster then any one else. THERE IS A CINFLICT OF INTEREST.

You keep saying that what they are doing is legal, I agree. But MF global’s investments in Europe with X40 leverage was legal as well. The fact if is legal or not is not relevant here. What’s relevant here is, that trading on margin with IB is more risky then trading with any other broker. Trading with IB on margin, is picking up nickels in front of a bulldozer.

You are one of the few who feel that way. So while IB might be wrong for you, everyone clearly thinks their model is good.

Other firms don't give you the same market access that IB does. That's probably one reason they are so strict on auto liquidation. They feel that they offer tools that professional sophisticated investors want. And the strict liquidation is to get out those who shouldn't have had that kind of account in the first place.

I fail to see the CONFLICT OF INTEREST argument. Every firm gets payment for orderflow. Etrade charges 75 cents a contract for QQQ options. They get $2 (at least used to) for payment for orderflow. IB has timberhill so maybe their economics are 2.5 dollars/contract. But the incentives are the same.

FYI - the reason I didn't go with IB is their liquidation policies. I know that I run the risk of liquidation when its the last thing I need. That is my particular situation. Others will have different ones.

 

[sprstpd]

Quote from jayre:

What’s relevant here is, that trading on margin with IB is more risky then trading with any other broker.

I agree with this statement. However, I don't view that as a bad thing. If you view this as a bad thing, then maybe have two accounts, one at IB where you force yourself never to go on margin, and another at a place that will give you more slack in that regard.

 

[jayre]

Quote from newwurldmn:


I fail to see the CONFLICT OF INTEREST argument. Every firm gets payment for orderflow. Etrade charges 75 cents a contract for QQQ options. They get $2 (at least used to) for payment for orderflow. IB has timberhill so maybe their economics are 2.5 dollars/contract. But the incentives are the same.

What are you talking about? We are not taking about overflow, we are talking about having the ability to consistently buy option contracts (that’s the most profitable part of TH) at distresses prices. The seller is FORCED to sell for what ever bid is available. And TH only has to match the highest bid, that’s a huge advantage.