Interactive Brokers fails Risk Management 101

[southall]

Even contracts like Eurobor do not move much in absolute terms, the aggregate net notional exposure for a broker may look very different.

Also risk of black swan events. like when saddam invaded kuwait.
The first iraq war sent crude oil up something like 100% in the overnight session.
Also god forbid the risk of something much worse than 9 11 happening out of nowhere.

 

[Zzzz1]

Exactly, I wish to still access my funds the morning after such event rather than have it wiped out because some crazy cowboys gamed the system and fucked it up for everyone else.

Also risk of black swan events. like when saddam invaded kuwait.
The first iraq war sent crude oil up something like 100% in the overnight session.
Also god forbid the risk of something much worse than 9 11 happening out of nowhere.

 

[KCOJ]

There are two sides to every story, and we don't even know the full context of your side

Yes Tim I agree, there are always two sides … however I’m not sure what else I can add to my experience … feel free to ask further questions if you feel there are facts missing. Alternatively if you feel my version is biased then please simply refer to my E Mini S&P example … this is generic and would apply to any IB client

They have every right to put in place controls that they see fit.

Agree, as I said …

I appreciate that IB have every right to charge clients whatever they wish

Don't like it ? Go elsewhere.

Thanks for the tip. Like I said …

I’ve started to allocate more of my equity and energy trading elsewhere

I trade and often hold overnight dozens of millions of usd equivalent notional exposure in various fx positions, both long and short. I was never once charged exposure feeds.

That’s correct, FX positions do not incur any Exposure Fee, which I guess is part of the point I was trying to make.

the Exposure fee is calculated only for the following products


· Equity with coordinated volatility change


· Crude Oil and Refined Oil


· Volatility

So a client can very aggressively trade a highly volatile market like (for example) Natural Gas and be subject to no Exposure Fee. If IB were serious about “protecting IB and its customers from those accounts that have very risky positions” then they would have applied the Exposure Fee to all potentially volatile markets. Why would they exclude FX particularly following their experience with Swiss Franc crosses in Jan 2015.

There's a lot on this. And the issues you state aren't the only ones. See

https://www.elitetrader.com/et/threads/ib-exposure-fee.284323/

Many thanks JP ... excellent thread

IB is no place for a futures trader; hasn't been for years now.

Well it may sound that I’m trashing IB, but really it’s only related to this one issue. I do have other accounts and have used several brokers over the years, but I gotta say that outside of this issue I’m generally OK with them. Would very much appreciate it if you could expand on why I’d be better off elsewhere, keeping in mind that customer service is not really an issue for me as I rarely contact them. But truly global futures coverage is a key requirement as well as a solid API offering.

A lot of people are moaning about IB but so far none of them volunteered their new great brokers. Very telling.

Agreed, I’m not sure exactly why there is such a reluctance to make specific recommendations. Perhaps because all brokers have pros and cons and the minute someone names their preferred broker, up pops Tommy Troll with all the reasons as to why that broker is incompetent.

I think the fee is IB saying they really don't want these types of higher risk accounts.

If that’s the case then they should simply raise margin requirements… that would be a much more transparent and honest way of dealing with this issue.

The first iraq war sent crude oil up something like 100% in the overnight session.

Hmmm, slight exaggeration there … more like 10-15%

 

[Chubbly]

I think the fee is IB saying they really don't want these types of higher risk accounts.

They obviously know which products they are exposed to the most, so that list must be it.

FX products that the OP mention as an example probably don't pose so much of a risk based on what their clients are holding.

This is good for IB & other IB Customers who dont take so much overnight risk.
The highest risk customers will go elsewhere to avoid this fee.

That is fine if they don't want this type of exposure. They should just raise the margin rates to whatever they feel is a safe amount

This is nothing but a revenue generating scheme (cash grab)

 

[Zzzz1]

Sure maybe it is. Awesome. Then they don't need to raise commission for the rest. Let those who run higher risk pay up. I am not saying every risk metric IB runs makes sense and should not be questioned. What I am saying is that those with more exposure should pay up. I rarely hold very large fx positions overnight anymore, usually i reduce fx exposure to a below 5:1 risk and that only when there is no known event risk, something I can survive in the major pairs in most every event. I would never hold large positions in assets that can fluctuate 20 or 30% overnight. Natural gas does not show such volatility patterns. It is generally only stocks and currency pairs that are exposed to event risk that can at move by 20 or 30% or even more. And I don't want to have to pay up for some other stupid clients who thought they can freeload on account protection probabilities.

That is fine if they don't want this type of exposure. They should just raise the margin rates to whatever they feel is a safe amount

This is nothing but a revenue generating scheme (cash grab)

 

[sprstpd]

So a client can very aggressively trade a highly volatile market like (for example) Natural Gas and be subject to no Exposure Fee. If IB were serious about “protecting IB and its customers from those accounts that have very risky positions” then they would have applied the Exposure Fee to all potentially volatile markets. Why would they exclude FX particularly following their experience with Swiss Franc crosses in Jan 2015.

Just theorizing, but it may be that IB knows its total exposure and only charges this fee to clients who are holding securities that IB is exposed to the most.

 

[sprstpd]

This was very typical of all my interactions with these clowns before I left. First their customer service tells you something that is just point blank, 100% wrong. They suffer no consequence for this. Then, in my experience they defend this just obviously silly incorrect statement long past any semblance of reasonableness. They they pull some BS about how they're just being prudent about risk, when they clearly don't even have the first concept of risk. If you look at other threads I've posted here the IB rep chastises me about my criticism of one of their alleged "risk" policies that I pointed out was trivial to go around. They then ended the argument with something about how I didn't know their "secret" procedures to prevent that from happening, which clearly they don't either because I was able in practice to easily circumvent their idiotic "risk" policy.
This is a company staffed by morons of the highest order. They clearly spend as little money as possible on hiring and could give two craps about what customers think of their customer service, depending on you sticking with them because of their offering and pricing. When you take the time to look around, taking into account what you're actually trading, in my experience you're always able to find a reputable firm with a lower price point and decent, competent humans to help you. It's beyond me why anyone would stay with these fools after having any interaction with that joke they call "customer service" and running into one of the many idiotic policies they have, i.e. charging margin on a debit spread, charging more margin than it's possible to lose on a credit spread, auto liquidations galore, holding orders inside the spread because they in their infinite wisdom think the spread is too large....the list goes on and on. Just look around, you can certainly find a better provider than these guys at a lower or equivalent price.

You obviously have had some bad experiences with IB. There are always customers and companies that don't jive well together and that is the case with you and IB. I've had mostly positive experiences with IB since the turn of the century.

 

[Sig]

You obviously have had some bad experiences with IB. There are always customers and companies that don't jive well together and that is the case with you and IB. I've had mostly positive experiences with IB since the turn of the century.

Great. You can't dispute the policies I listed or the complete and utter lack of logic behind them, but in your case and perhaps others you're not impacted by them and you're OK with working with a company run by people of that intellectual caliber. Certainly you're aware of it and have decided you're fine with it, you're not my target audience. My target audience are people like me who went in with no idea, invested a lot of time developing for their proprietary API, and had to leave it all behind when the idiocy just became too much. If I can save a couple other people from that fate it's worth posting.

 

[southall]

perhaps others you're not impacted by them and you're OK with working with a company run by people of that intellectual caliber.

The people who run IB made $Billions from options trading over the years.
Peterffy was trading options in the 80s, so he must of traded through the 87 crash.
EliteTraders like you who are claiming intellectual superiority over IB on the topic of risk management is just retarded.

 

[Sig]

The people who run IB made $Billions from options trading over the years.
Petterffy was trading options in the 80s, so he must of traded through the 87 crash.
EliteTraders like you who are claiming intellectual superiorty over IB on the topic of risk management is just retarted.

I think the pejorative term you were looking for was "retarded", that way you can get an insult in on the mentally challenged as well as me?
-Can you explain why a debit spread on ES, where I've paid the full premium in advance and can never lose more than that premium should charge margin at IB but no other broker?
-Can you explain why a 5 point SPX credit spread, which can never lose more than 5 points, should be treated as if it could lose 7 points when the bid/ask goes out of whack which results in autoliquidation of a position that was never leveraged and was literally impossible to lose money on beyond the 5 point risk?
The truth is Petterffy has no clue what's going on in his company. Proof of that can be found in conference calls where an analyst asks him about a particularly idiotic policy that was just implemented and he is clearly baffled by both the fact that it happened and why it happened. I have no doubt if I had a conversation with Petterffy about the two things I listed before he'd be the first to admit they're idiotic and he'd probably work to get them fixed. But he's built a company staffed by morons that ensures he'll never find out about the problems and the morons will continue to propagate new ones. Just because you traded options through the 87 crash doesn't mean you know how to run a company well, and the problem here is the fact that he's cut corners by hiring the cheapest possible labor and they are both completely incompetent and insulate him from ever finding out about their incompetence.
Again, if you like dealing with a company staffed by whatever passes for "professionals" at IB then please, carry on. I'm making no attempt to convince you otherwise. I would have liked to have known about this when choosing a broker, since there are plenty of other options with similar pricing and competent employees, so I'm simply paying forward the favor of letting potential customers know.