Interactive Brokers and automatic liquidation

Quote from JackR:

As I understand the IB forex system, IB has a small standalone network set up on which some banks and all customers may enter offers to buy and sell. It is not, to the best of my knowledge, tied to the interbank forex system, but is tied to some banks that deal in the inter-bank forex market. So I doubt that your the trade would appear on Bloomberg or Reuters.
More...

IB states that they are the counter-party to their customers' forex trades:

The off-exchange foreign currency trading you are entering into is not conducted on an interbank market, nor is it conducted on a futures exchange subject to regulation as a designated contract market by the Commodity Futures Trading Commission ("CFTC"). The foreign currency trades you transact are trades with the futures commission merchant or retail foreign exchange dealer as your counterparty. WHEN YOU SELL, THE DEALER IS THE BUYER. WHEN YOU BUY, THE DEALER IS THE SELLER. As a result, when you lose money trading, your dealer is making money on such trades, in addition to any fees, commissions, or spreads the dealer may charge.

https://www.interactivebrokers.com/...tration_1/forex_mult_curr_risk_disclosure.jsp
 
Quote from Options12:

IB states that they are the counter-party to their customers' forex trades:

The off-exchange foreign currency trading you are entering into is not conducted on an interbank market, nor is it conducted on a futures exchange subject to regulation as a designated contract market by the Commodity Futures Trading Commission ("CFTC"). The foreign currency trades you transact are trades with the futures commission merchant or retail foreign exchange dealer as your counterparty. WHEN YOU SELL, THE DEALER IS THE BUYER. WHEN YOU BUY, THE DEALER IS THE SELLER. As a result, when you lose money trading, your dealer is making money on such trades, in addition to any fees, commissions, or spreads the dealer may charge.

https://www.interactivebrokers.com/...tration_1/forex_mult_curr_risk_disclosure.jsp
More...

Your FX broker always maintains counter party risk on all your FX trades. That does not mean they were the counter party on each trade. They will never tell you who the other side of each one of your trades is. Remember, FX trading is trading of a non-deliverable forward contract. You're only making an agreement to pay or receive the difference between when you put the trade on and unwind. You don't receive anything but a profit or loss. Nothing changes hands before that. Your broker takes a deposit from you to make sure each party gets paid.
 
Quote from rmorse:

Remember, FX trading is trading of a non-deliverable forward contract. You're only making an agreement to pay or receive the difference between when you put the trade on and unwind. You don't receive anything but a profit or loss. Nothing changes hands before that. Your broker takes a deposit from you to make sure each party gets paid.
More...

rmorse, IB has described their forex system as different from the traditional model in this excerpt:

Quote from IB-AN:

. . . that it is not a contract (e.g. commodities which specifies future delivery or OTC which relies upon a continuous roll). Rather, we actually deliver the currencies to the account in the quantity as specified at the time of the order and not some fixed contract quantity upon settlement.
More...

from the thread:

Yet Another IB SIPC Sweep Question

http://www.elitetrader.com/vb/showthread.php?s=&postid=3439947#post3439947
 
Options12:

I think the disclosure below is also important. However, it does bring up the fact that you may be trading against an "IB affiliate". Whether IB goes to the same "equal or better routine" they run with stock and options is unclear. I also know I have read here on ET, a post from an IB-type that stated that we may be trading against another IB customer. That does not seem to be covered in the disclosure quoted below. Perhaps inter-customer trading has changed since IB began its forex operation.

RISK DISCLOSURE STATEMENT FOR FOREX TRADING
AND IB MULTI-CURRENCY ACCOUNTS
--snip--
G. Nature of Foreign Currency Exchange Transactions Between Customer and IB:_ When Customer enters into a foreign exchange transaction through IB, Customer will be entering into a privately negotiated transaction with one of IB’s affiliates or with a third party bank. In such transactions, IB’s affiliate or the third party bank ("the Forex Counterparty") is acting solely in the capacity of an arm's length contractual counterparty in connection with the transaction and not in the capacity of a financial adviser or fiduciary. _Customer should be aware that the Forex Counterparty may from time to time have substantial positions in, and may make a market in or otherwise buy or sell instruments similar or economically related to, foreign currency transactions entered into with Customer. _The Forex Counterparty may also undertake proprietary trading activities, including hedging transactions related to the initiation or termination of foreign exchange transactions with Customer, that may adversely affect the market price or other factors underlying the foreign currency transaction entered into with Customer and consequently, the value of such transaction.

Jack
 
IB have come back to me to reconfirm that the order was triggered, and, in short, that their prices do not match the interbank market, and when you sign up to them, you accept this.

So the lesson from this is: For FX, be very careful of IB. You are at the mercy of their FX Market Making. They do not have a professional approach. They make money from a proprietary trading business (TimberHill) and it seems to me that they have no concerns about using client orders in their prop books.. this is very unprofessional behaviour.

We are a fund, and will now start looking to move our FX trading onto a more professional platform.

There are plenty to choose from.

RW
 
Quote from wadders:

IB have come back to me to reconfirm that the order was triggered, and, in short, that their prices do not match the interbank market, and when you sign up to them, you accept this.

So the lesson from this is: For FX, be very careful of IB. You are at the mercy of their FX Market Making. They do not have a professional approach. They make money from a proprietary trading business (TimberHill) and it seems to me that they have no concerns about using client orders in their prop books.. this is very unprofessional behaviour.

We are a fund, and will now start looking to move our FX trading onto a more professional platform.

There are plenty to choose from.

RW
More...
Hi Wadders
These is paintful experience, please keep us inform which broker will you park your fund later.
Thank you in advance.
 
There's apparently lots of confusion out there on the auto liquidation policy. On 5/7/10, the day after the flash crash, an apparent IB employee in programming proclaimed,

Quote from ids:

We never auto-liquidate instantaneously. You always have 10 minutes to deal with a problem.

Many vigorously challenged this statement although I do not know whether it was ever retracted by IB within the ET forums.
[/B]
More...


I have been playing a lot with margin requirements on my IB demo account. Here is what I saw, every-time I tried it:

- took a futures position using all margin available during the day-session

- around 2:15pm EST (+/- 5min) got a warning (message box) from TWS that margin requirements were about to change, and I needed to change my position accordingly

- about 10min later, position was auto-adjusted to meet overnight margin requirements. I did this many times on CL futures, every-time the position was self-adjusted 5 to 10min before the pit-close (ie., before 2:30pm EST).


I remember IB flashing Info messages on TWS when the exchange changed their margin requirement for Gold & Silver.


I think as long you stay on top of current margin requirements for the products you trade, you'll be fine.
 
You must log in or register to reply here.
Back
Top