The following has resulted in a huge initial margin amount at IB for me when trading contracts in deferred months out a year or two. On spreads, it appears that they charge it on both sides of the spread without increasing the credits for the spread.
It does not affect maintenance margin, but it limits what other trades can be placed in the account and in my opinion can therefore increase risk instead of decreasing it.
Is this policy is unique to IB?
Dear Trader,
In an effort to accurately recognize the correlation and liquidity risk inherent in longer-dated derivative contracts (which includes ALL non-single-stock derivatives), IB is implementing an Illiquidity Charge (defined as an in-house additional initial margin) for these positions.
Since this only affects initial margin, this charge can not directly result in a margin deficit, though it will decrease an account¿s buying power. Therefore you see a difference between initial and maintenance margin.
For each contract, there will be a start date and an end date - depending on the product category and maturity calendar (monthly vs. quarterly etc). Contracts that mature on or after will have illiquidity charge (additional initial margin) = 125% of existing maintenance margin. Contracts that mature before or on do not have an additional charge. Contracts that mature between the and are charged the prorated amount.
As indicated, this will not affect the maintenance margin requirements, only the initial margin. Your current margin requirement has taken into account the spread margin reduction. Please note, in terms of calendar spreads, if one (or both) legs of the spread are being assessed an illiquidity charge, this will be on top of any existing spread offset margin reduction and will apply to each affected leg separately. Any portion of the initial margin requirement over and above the indicated standard margin for that contract, should be attributed to an illiquidity charge.
It does not affect maintenance margin, but it limits what other trades can be placed in the account and in my opinion can therefore increase risk instead of decreasing it.
Is this policy is unique to IB?
Dear Trader,
In an effort to accurately recognize the correlation and liquidity risk inherent in longer-dated derivative contracts (which includes ALL non-single-stock derivatives), IB is implementing an Illiquidity Charge (defined as an in-house additional initial margin) for these positions.
Since this only affects initial margin, this charge can not directly result in a margin deficit, though it will decrease an account¿s buying power. Therefore you see a difference between initial and maintenance margin.
For each contract, there will be a start date and an end date - depending on the product category and maturity calendar (monthly vs. quarterly etc). Contracts that mature on or after will have illiquidity charge (additional initial margin) = 125% of existing maintenance margin. Contracts that mature before or on do not have an additional charge. Contracts that mature between the and are charged the prorated amount.
As indicated, this will not affect the maintenance margin requirements, only the initial margin. Your current margin requirement has taken into account the spread margin reduction. Please note, in terms of calendar spreads, if one (or both) legs of the spread are being assessed an illiquidity charge, this will be on top of any existing spread offset margin reduction and will apply to each affected leg separately. Any portion of the initial margin requirement over and above the indicated standard margin for that contract, should be attributed to an illiquidity charge.
