Interactive Brokers, New Account, Margin Maintenance

D

danwaterloo

Hi,

I am planning to switch an account to Interactive Brokers to take advantage of the very low margin interest rates (CAD 1.75% interest charged, vs. 3.75% currently).

At the moment, I have an account with questrade in Canada with a value of about $170,000 (mostly USD stocks, with $35,000 of options) and a negative cash balance of $28,500.
I also have a line of credit with a balance of $43,000.

I want to gradually switch over to Interactive Brokers using a couple of partial account transfers.

However, I am a little confused by the maintenance margin requirements. During the day, the maintenance margin appears to be 25%, so I could have borrow as much as $75,000 for a $100,000 market value. However, it says the margin maintenance overnight is 50%, so I can borrow $50,000 for a $100,000 market value. That seems like a very steep increase from during the day to overnight.

Is my reading of IB's maintenance margin correct and why is there such a large difference?

Ideally, I would like to borrow the entire line of credit and the negative cash balance in my margin account from Interactive Brokers, for a total borrowing of $71,000. I couldn't do that with the current value of my common stocks of $135,000. I'd probably only try to borrow about $30,000 from Interactive Brokers and pay off my other debt with it. My stocks tend to be larger caps with some big ETF's, so they are fairly stable, I expect I'd be able to react quickly enough if I was coming close to margin maintenance.

Does the $30,000 of margin debt for an account value of $135,000 (stocks only) seem prudent?

Also, could I transfer (mostly USD) stocks from questrade to IB, and then withdraw, say $30,000 CAD from my IB acct to my personal bank account without selling any stocks?

Sorry for the long first post, and thanks for any help.
 
You are dealing with three different things:

1) Day Trading Margin. US rules allow a person whose account has a real value of greater than $25,000 (US) to "day-trade" and obtain a 4x loan value (25% initial margin). You must exit the trade at the end of the day. Be sure to read IB's rules further as they may make you exit somewhat before the close to ensure you do not exceed your "day-trade" margin. This is dangerous if your account is close to $25K, (does not seem to apply to you) but if you go below $25K you get locked out of making new trades.

2) Regular margin. This is the 2x loan value (50% margin). This margin is available to any person with a margin account. You need 50% or better to enter the trade.

3) Maintenance Margin. This one is much trickier as IB moves the amount around depending on market and issue volatility (risk). It varies between about 35% to 100% (no margin). This is both the overnight margin and the intraday value that IB's auto-liquidation program uses during the day. IB does not issue margin calls. It liquidates very quickly during the trading session if your account falls below the overall maintenance margin number. See:

http://individuals.interactivebrokers.com/en/p.php?f=margin&ib_entity=llc

Jack
 
Quote from JackR:


3) Maintenance Margin. This one is much trickier as IB moves the amount around depending on market and issue volatility (risk). It varies between about 35% to 100% (no margin). This is both the overnight margin and the intraday value that IB's auto-liquidation program uses during the day. IB does not issue margin calls. It liquidates very quickly during the trading session if your account falls below the overall maintenance margin number. See:

http://individuals.interactivebrokers.com/en/p.php?f=margin&ib_entity=llc

Jack
More...

Thanks very much for your reply, it was very helpful.

One other question, am I able to withdraw cash from the account despite a negative cash balance provided I have plenty of margin excess? I'm allowed to do that with questrade, and I can't see it being a problem with IB.

My current discount brokerage (questrade), seems to use similar margin to that, and I assume most brokers do. Most of my securities currently require 35% maintenance margin because they are generally higher priced, larger cap stocks. I am ok with it changing depending on market and issue volatility, as I had to deal with that with questrade back in the scary days of February and March (Bank of America for example went from 35% to 50% margin and Ford bounced around from 50% to 100%, and is now back to 35%). Eventually I will borrow solely to invest in large ETF's like SPY which always kept the 35% margin, and I expect will continue to unless the world collapses, so I am not very concerned about IB moving the maintenance around.

I figure with $135,000 in common stocks, mostly with 35% maintenance margin currently, I will easily be able to borrow around $70,000 at the low margin interest rates of 1.75% (that's better than a variable rate mortgage in Canada, and I'll probably amortize the $70,000 like a small mortgage).
 
You can borrow against your account even if you have a debit. See: http://ibkb.interactivebrokers.com/node/971

IB can be quite conservative in establishing/changing its maintenance margin requirements. They have be known to do so with virtually no notice in times of market stress. So If for some reason you borrow against your account do so with caution or you might find yourself with some positions auto-liquidated.

Can you as a Canadian have a US account with IB? There might be a difference with IB Canada.



Jack
 
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