Portfolio Margin Broker Comparison

[DirectTrader]

Quote from hedgex:

They are crazy, well, dumb, in another way. As my PM margin soared in the day, I tried to close some positions. To my surprise, a $50 trade (10x5c short call contracts ) brought down the margin by $20000. Those contract were 6 days to expiry. I guess they just wanted to force me to buy back worthless shorts.

Another compliant from a former IB customer:
http://www.elitetrader.com/vb/showthread.php?s=&threadid=163992

He questioned how IB actually calculates buying power. The result IB returns is largely underestimated. He got much less buying power than what he expected. Then he found the problem is caused by some IB silent changes on margin policy:

according to latest info on this issue from IB-they did applied some changes back in august of 2008 regarding those corp bonds. basically according to those "new rules" pretty much ALL corporate bonds are not marginable anymore. that is-you cannot borrow a dime against ANY long bond position,regardless to it's rating,liquidity or size. you got super liquid AAA GE bond in your portfolio? IB doesn't give a f*k about it. you can borrow against GE stock, but not against GE bond..nice job! brilliant..why bother with real risk valuations right? let just create the rules and all possible and impossible problems will go away..but..along with some customers..

there is another "new rule" in town(for those,who suggest to liquidate bonds positions)-your order will sit on IB's server (status will be "submitted", mean accepted by exchange, according to IB definitions of status colors) and will not be submitted to exchange until there is BOTH BID AND ASK presented on this exchange from some third party. that is-you can' t just place an order to sell your existing position at any price. you have to wait until someone else will provide any prices at the bid and ask. which on some not really liquid bonds may take a months, if not years.basically-i'm stuck with all those bonds because of those "in house" changes and even if it's not really fair(compare to margin for stocks)-there is nothing i can do about it.

read this, potential IB customers and think twice,before you sign up the agreement..

IB suffers from paranoia after global financial turmoil. It has lost its head and refuses to listen to its customers.

IB acts like an ordinary grandma now who likes to steer clear of anything in the financial market because she believes this is only a place which you would lose everything suddenly one day.

It feels like magnifying risks and claiming it's good risk management. Well I can actually hire my grandma to manage my portfolios now. She has very good risk management too.

The next plan IB should do is to charge customers at 200% maintenance margin. In fact 200% is safer than 100%. Does anyone disagree?

 

[hedgex]

I figure IB has a list of high-risk stocks on which the margin is 50-100% of the underlying value, regardless of how far OTM the short call is.

 

[drcha]

I have a small cash (IRA) account in IB. I find their margin calculations strange--or maybe I just don't understand them. Here is one theoretical example:

1. RUT, using Oct iron fly: +540p/-600p/-600c/+660c

For this fly, the credit is about $3225, but the margin is $12,000, and the credit does not change that. So I have to set 12K aside in cash to put on this spread, a spread for which the real risk is $2775. This spread is not worth taking the accompanying level of risk for, since I exit early, so that even in the very best circumstances, my percentage return would be in the low single digits. If, for example, I can make 10% of my real risk on the spread, the return would be 277/12000 = 2.3%.

2. RUT, using Oct call fly, same strikes: +540c/-600c(two)/+660c

For this fly, the debit is about $2775, and the margin is zero. Making the same assumption as above, my return would be 277/2775 = 10%.

They have done this to me a couple of times, so I just use the call flies now in that account.

Maybe I don't understand this very well, so please comment.

In the iron case, I suppose that IB does not think they can safely assume that I'll take the whole iron position off at once. Well, okay, it's true that if I were stupid enough and the market were uncooperative enough, I could indeed lose 6K on both sides (minus my credit). But by the same thought process, shouldn't they assume that I could take the debit spread half of the calls off, and then lose 6K on the other side? Shouldn't they be charging me 6K in margin?

(Please note that these options are European style, as are all spreads in the IRA account, per their regulations.)

 

[MegaDeth]

Wow, there are bigger issues with IB than what I was aware off. Hmm...

I did research ThinkOrSwim and found out that their portfolio margin calculations is well documented and transparent - margin requirement is based on TIMS @ 40% volatilty and +6/-8% for broad based indices and +10/-10% for other indices. They do limit a portfolio margin account at 200 short contracts on both put and call side per $100,000 account. For FOTM contracts this seems to restrictive for my trading style. Besides I have heard that there is insane intraday swings for the margin requirements but no overnight jumps like IB.

OptionsHouse needs $1 mil to open a portfolio margin account.

OptionsExpress - pending research.

I did not intend this to be a venting thread where people complain about IB. I was looking for alternatives but seems like the alternatives are few.

For the more seasoned traders, is IB justified in the way it calculates margin requirements? I specifically am thinking about the one day couple weeks ago when overnight the margin requirement on my account doubled (to almost $250,000) and I was forced to liquidate positions at the same price I bought them for. Basically I paid roundtrip commissions amounting to $1000+ for this fuck up. Do we have any legal recourse in this? Or is our only option to put up or shut up?

I am open to joining a prop firm or something similar if it suits my trading style. I am looking for high leverage for options trading and reasonable commissions. What options there are?

 

[drcha]

You must remember signing dozens of pages of legalese gobbledegook when you opened your IB account. Did you read it? (Me neither.)

Anyway, I'm sure their butt is covered. Doubtless it says that they can change your margin requirements whenever and however they want to. Plus they have more lawyers, guns and money then we do. So you can probably forget the legal recourse part.

As for alternatives, it is worth a try, but I'm not sure that others are going to be better. All brokers have some form of this clause, basically: "the rules apply to you, but not to us."

 

[weewilly]

Quote from MegaDeth:

They do limit a portfolio margin account at 200 short contracts on both put and call side per $100,000 account.

For FOTM contracts this seems to restrictive for my trading style

"Hi my name is Wild Bill MegaDeth, can I short thousands of OTM options at your firm? No? Aw come on. Why not?"

Sounds like you are every risk manager's nightmare.

 

[MegaDeth]

Quote from weewilly:

"Hi my name is Wild Bill MegaDeth, can I short thousands of OTM options at your firm? No? Aw come on. Why not?"

Sounds like you are every risk manager's nightmare.

Your skepticism is understandable, however, I manage my trades and risk very closely. Please let us stay focused and not disgress from the intent of this thread. Thanks.

 

[erol]

peace sells... but whose buying?

 

[dagnyt]

Quote from drcha:

I have a small cash (IRA) account in IB. I find their margin calculations strange--or maybe I just don't understand them. Here is one theoretical example:

1. RUT, using Oct iron fly: +540p/-600p/-600c/+660c

For this fly, the credit is about $3225, but the margin is $12,000, and the credit does not change that.

At IB, the margin is $6,000. Not $12,000. And you can use the cash collected as part of that 6k.

Where did you get the impression that margin is 12k

Mark

 

[Cache Landing]

Quote from MegaDeth:

Wow, there are bigger issues with IB than what I was aware off. Hmm...

I did research ThinkOrSwim and found out that their portfolio margin calculations is well documented and transparent - margin requirement is based on TIMS @ 40% volatilty and +6/-8% for broad based indices and +10/-10% for other indices. They do limit a portfolio margin account at 200 short contracts on both put and call side per $100,000 account. For FOTM contracts this seems to restrictive for my trading style. Besides I have heard that there is insane intraday swings for the margin requirements but no overnight jumps like IB.

OptionsHouse needs $1 mil to open a portfolio margin account.

OptionsExpress - pending research.

I did not intend this to be a venting thread where people complain about IB. I was looking for alternatives but seems like the alternatives are few.

For the more seasoned traders, is IB justified in the way it calculates margin requirements? I specifically am thinking about the one day couple weeks ago when overnight the margin requirement on my account doubled (to almost $250,000) and I was forced to liquidate positions at the same price I bought them for. Basically I paid roundtrip commissions amounting to $1000+ for this fuck up. Do we have any legal recourse in this? Or is our only option to put up or shut up?

I am open to joining a prop firm or something similar if it suits my trading style. I am looking for high leverage for options trading and reasonable commissions. What options there are?

I was with ThinkorSwim for a long time. Then I switched to Tradestation. Now I am switching to IB.

The problem with ToS was two fold. First that the charts and data only refreshed every 1 second. That was killing me. Then, they didn't get up and running very quickly on the futures contracts that I wanted. Once they did, the margin req was double that of Tradstation.

The move to Tradestation solved the problems. Real time chart and quote streaming. Level II data. And good margin reqs. The problem there was that I would run into frequent data lags that would ruin my trades. For example, Buy order for 30 ES contracts @ 1,000. Order would get filled and my account would immediately show a large loss. Turns out that the quotes were sometimes up to 3 minutes stale. The worst part is that I would enter the trades as a conditional order, so they would fill my order above the market price and then my stop would be immediately hit. Sometimes the lag would be 5 seconds, and sometimes a few minutes. It got to where I was noticing a lag about 3-5 times each day. NOt acceptable.

We'll see how IB works out.