Interactive Brokers fails Risk Management 101

[KCOJ]

Well as expected there’s been a wide variety of opinions as to the merits or otherwise of IB’s Exposure Fee. As the OP perhaps I can summarize some of these and provide my 2 cents.

Starting with a couple of the less well thought through replies … and I’m paraphrasing here …

“It’s up to IB to charge whatever they like, it’s their business”​

Yes, I think we already understand this

“Stop moaning, if you don’t like it shut up and go somewhere else”​

Not entirely helpful. This particular forum is about “Retail Brokers” so it seems more than appropriate to discuss the pros and cons of different brokers and a fee that seems to be unique to one in particular, or for that matter to comment on the quality of their customer service. Everyone is already aware that there are alternatives, but to me, these sorts of discussions be they positive or negative help in the decision making process.

So, as to the Exposure Fee itself, several posters seem very much in favour of it …

This is good for IB & other IB Customers who dont take so much overnight risk.

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.

What I am saying is that those with more exposure should pay up

I don't want to have to pay up for some other stupid clients who thought they can freeload on account protection probabilities.

I am in favor of IB doing what they need to do, to prevent some people from over-levering and putting the firm at risk.

In isolation, I find myself agreeing with these sentiments. Of course I also don’t want any broker that I trade with to be lax when it comes to risk management and I’m actually in favour of IB’s auto liquidation policy which I think is pretty much unique in the industry.

My beef is that the Exposure Fee is not risk management … it’s not even close. Seriously, how many experienced futures traders would have a single 30% move in notional value as your sole risk metric and then apply that to only a select few markets and totally ignore the rest of your portfolio.

So I can only come to one of two conclusions. Either IB has absolutely no understanding whatsoever of even the basic tenets of Risk Management, or the Exposure Fee is in fact just a blatant grab at revenue collection … or maybe even both

As I’ve said earlier, if IB are genuinely concerned about their exposure to Equity Indices and some Crude Oil products then they could simply raise margin on those positions to a level that they feel comfortable with. Of course I wouldn’t be overjoyed about this either but at least it would be effective, equitable and transparent.

As seems clear, they have no intent on doing this as it would likely reduce commission volumes instead of generating extra revenue as their Exposure fee does. And really, do the above posters truly believe that IB are putting aside their Exposure Fee revenues in a little rainy day fund to protect you all from traders like myself that occasionally hold - God forbid - long positions in equity indices.

BTW for those interested there are many more issues raised relating to the Exposure fee here …

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

thanks again J.P. for the link.

 

[southall]

As I’ve said earlier, if IB are genuinely concerned about their exposure to Equity Indices and some Crude Oil products then they could simply raise margin on those positions to a level that they feel comfortable with.

Thats would prevent clients who only occasionally use max leverage.Would also lead to more margin calls/forced liquidations.

With the fee approach only a small number of clients, the most leveraged on a regular basis, are effected.

Either these clients stop doing it so often, or they go elsewhere, or they can choose to pay the fee.

Some times IB suspends double intra day futures margin, normally this happens when the VIX goes over 40, or somewhere around that level.
Personally I would rather pay an exposure fee in this case, than have my margin doubled.
As in the past, on a few rare occasions, it has prevented me from taking on the size i had wanted for a short term day trade.

 

[Zzzz1]

you got it, it has nothing to do with risk managing the positions on which the exposure fee is assessed. It has, however, everything to do with IB building a cushion to compensate for future excess losses that clients cannot cover because their account is depleted. Now, whether IB net net retains some money for its profit coffers after everything is said and done I do not care nor mind.

It is actually very helpful to recommend those who cannot accept this exposure fee to simply move on to another broker. No need to waste time to moan about something that exists for a logical and clear purpose but which someone wants to misunderstand its purpose of.

my 2 cents.

Well as expected there’s been a wide variety of opinions as to the merits or otherwise of IB’s Exposure Fee. As the OP perhaps I can summarize some of these and provide my 2 cents.

Starting with a couple of the less well thought through replies … and I’m paraphrasing here …

“It’s up to IB to charge whatever they like, it’s their business”​

Yes, I think we already understand this

“Stop moaning, if you don’t like it shut up and go somewhere else”​

Not entirely helpful. This particular forum is about “Retail Brokers” so it seems more than appropriate to discuss the pros and cons of different brokers and a fee that seems to be unique to one in particular, or for that matter to comment on the quality of their customer service. Everyone is already aware that there are alternatives, but to me, these sorts of discussions be they positive or negative help in the decision making process.

So, as to the Exposure Fee itself, several posters seem very much in favour of it …
















In isolation, I find myself agreeing with these sentiments. Of course I also don’t want any broker that I trade with to be lax when it comes to risk management and I’m actually in favour of IB’s auto liquidation policy which I think is pretty much unique in the industry.

My beef is that the Exposure Fee is not risk management … it’s not even close. Seriously, how many experienced futures traders would have a single 30% move in notional value as your sole risk metric and then apply that to only a select few markets and totally ignore the rest of your portfolio.

So I can only come to one of two conclusions. Either IB has absolutely no understanding whatsoever of even the basic tenets of Risk Management, or the Exposure Fee is in fact just a blatant grab at revenue collection … or maybe even both

As I’ve said earlier, if IB are genuinely concerned about their exposure to Equity Indices and some Crude Oil products then they could simply raise margin on those positions to a level that they feel comfortable with. Of course I wouldn’t be overjoyed about this either but at least it would be effective, equitable and transparent.

As seems clear, they have no intent on doing this as it would likely reduce commission volumes instead of generating extra revenue as their Exposure fee does. And really, do the above posters truly believe that IB are putting aside their Exposure Fee revenues in a little rainy day fund to protect you all from traders like myself that occasionally hold - God forbid - long positions in equity indices.

BTW for those interested there are many more issues raised relating to the Exposure fee here …

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

thanks again J.P. for the link.

 

[Windlesham1]

Good old Elite Trader, a bunch of nasty people sniping at the OP instead of trying to understand -trading is bloody hard people we should all be supportive of each other-and honest

 

[Zzzz1]

are "we" not? What "we" don't want, however, is for some gunslingers to put all our hard earned assets at risk.

Good old Elite Trader, a bunch of nasty people sniping at the OP instead of trying to understand -trading is bloody hard people we should all be supportive of each other-and honest