Your experiences with being auto-liquidated by IBKR's strict risk management
- Thread starter helpme_please
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The way I understand a Reg T account, is if you get a margin call you can either add money or liquidate the position (for which you get a strike). IB certainly has a right to minimize your position, but if they do it, they should do it in a responsible way. If there is not an immediate monetary risk with your position, they should allow you to liquidate yourself within the time of the margin call deadline.
If I misunderstand a Reg T account and a firm must immediately liquidate the positions on their own, someone can correct me.
Three is you weren't including me already!
Seeing this thread late, but will add my own info/experience, as I've had intra-day margin deficits several times though luckily have never been auto-liquidated ("ALQ"). (Not vouching for the 100% accuracy of everything below; just sharing my experiences.)
- They refuse to divulge any substantive info about their ALQ algo or the logic it employs to determine which positions to close, in what order, and in what quantity, etc. Spent a while on phone asking very general non-sensitive Q's, but by and large they won't tell you jack, claiming it's proprietary.
- Have been told that (a) they never ALQ anything outside of regular market hours (makes sense), and (b) that when the market opens you've got ~10 minutes to cure the deficit yourself before ALQ kicks in. That seems to align with what people ITT are reporting re: ALQ's kicking in around 9:40am.
- They're somewhat tolerant of intraday deficits (have spent several hours in modest deficits myself) but someone there intimated to me that their ALQ will kick in with an hour or two left in the trading day if your deficit persists. I also assume that if your deficit rises above a certain $ or % threshold, they'll just ALQ you at any point during the day. Above all, they stressed that they make no promises about when it will / won't kick in, and that any time you're in the red by even a dollar you're at risk of having positions ALQ'd however their algo deems fit.
- I get popup warnings in TWS when my available margin drops below 5% of my account balance, and then another more urgent-sounding warning when I drop into actual deficit. Those warnings are also emailed to me, though somewhat annoyingly they do often get sent hours after-the-fact. I've complained to IB that high-priority warnings like margin/ALQ should be sent in real-time -- seems weird that you'd get them in real-time in TWS but they couldn't sync the mail alert with that? -- but they've just shrugged their shoulders. There's some account-level notification you can set up that will send you an email/text when your available margin drops below some $ or % threshold that I think you can define, though I've never used it.
- They do indeed have that "liquidate last" radio box that purports to let you have SOME say in the order in which things are liquidated, but a rep told me that they make no guarantees that the preference expressed there will be followed, so it's not clear if that actually has any effect in practice, which seems to defeat the purpose. Not sure why it would be so hard to let a client set the order in which they want their positions to be liquidated if it came to that.
- One phone rep, while refusing to get into specifics about how the ALQ algo works, hinted that there's at least some reasonable logic behind it...I pointed out that it would be most reasonable if, for example, it looked first for tight-spreads rather than ALQ illiquid things with stupid-wide spreads, and he very vaguely seemed to confirm that things like that are indeed baked into it.
- I was told they actually have the ability to temporarily disable ALQ on individual accounts, but it requires the approval of a manager who only does so under extremely rare circumstances; like if you wanted to wire additional money to cure a large margin deficit rather than closing positions, they could (theoretically) disable ALQ on your account while waiting for the wire to hit, but would only consider doing so if you faxed them documentation from some financial institution confirming the wire had been sent...but I was told not to bank on them approving this as it's only done rarely.
were they boxes with American style options or European style?
European for me, SPX. Of course we understand the early exercise concept!
Exactly!
The real answer is that they're a low cost focused operation so they try to automate everything and hire the cheapest possible employees with the theory that they don't have to know anything since "the algorithm" takes care of everything. The first part isn't a terrible thing to do, I do it in my own company. The problem with IB is that the second part, which has resulted in a culture where the line staff don't know enough to even know what a customer is talking about so they must always assume the customer is wrong and thus never provide feedback to the wizards sequestered in the windowless room who feed and care for "the algorithm" so inevitable mistakes in programming are never fixed or at least hang on for years.
So if you never do anything but straightforward stock trading, they're probably great. If you do anything else, you're eventually going to get screwed twice, once by "the algorithm" that's going to autoliquidate you to great loss on your part, far more loss than any savings IB has provided you over the years. Second when you call up IB to ask about it and have to deal with a series of morons who have only the faintest idea how the basic instrument you're discussing operates, let alone understanding of the actual issue.