Advice on margin

[OfficeWallly]

Hi all,

Just registered and recently opened an account at Interactive Brokers. I plan to start trading, a mix of investing and daytrades but having read IB's info regarding margin, am still a little confused.

I think I understand initial and maintenance margin but wonder how it may be applied in practice.

For example, I have an account of 30k with a reported 120k buying power. I wish to swing trade XYZ, I buy 1000 @ 15 and hold. I gather this requires 7.5k to maintain. Therefore, by doing so, would my cash balance rest at 22.5k, thus contravening PDT rules if I wished to daytrade? I will also have to pay interest on the held stock value of 15000 @ 1.7%, despite having more than enough cash to cover the trade alone?

I apologise for the simplistic nature of my questions and await an education.

Thanks in advance.

 

[pboyles]

Hi all,

Just registered and recently opened an account at Interactive Brokers. I plan to start trading, a mix of investing and daytrades but having read IB's info regarding margin, am still a little confused.

I think I understand initial and maintenance margin but wonder how it may be applied in practice.

For example, I have an account of 30k with a reported 120k buying power. I wish to swing trade XYZ, I buy 1000 @ 15 and hold. I gather this requires 7.5k to maintain. Therefore, by doing so, would my cash balance rest at 22.5k, thus contravening PDT rules if I wished to daytrade? I will also have to pay interest on the held stock value of 15000 @ 1.7%, despite having more than enough cash to cover the trade alone?

I apologise for the simplistic nature of my questions and await an education.

Thanks in advance.

Tell me you didn't put £30,000 of real money into a trading account.

 

[OfficeWallly]

Not 30k, no. I appreciate I am operating from a position of misunderstanding with regards margin, so was hoping someone may be able to shine a light.

 

[TheLastBear]

Hi all,

Just registered and recently opened an account at Interactive Brokers. I plan to start trading, a mix of investing and daytrades but having read IB's info regarding margin, am still a little confused.

I think I understand initial and maintenance margin but wonder how it may be applied in practice.

For example, I have an account of 30k with a reported 120k buying power. I wish to swing trade XYZ, I buy 1000 @ 15 and hold. I gather this requires 7.5k to maintain. Therefore, by doing so, would my cash balance rest at 22.5k, thus contravening PDT rules if I wished to daytrade? I will also have to pay interest on the held stock value of 15000 @ 1.7%, despite having more than enough cash to cover the trade alone?

I apologise for the simplistic nature of my questions and await an education.

Thanks in advance.

You basic math is correct, yes. In case you have a 30K account and open a position where the margin requirement is 7.5K you will have 22.5K left. You always pay overnight financing as you essentially borrow money for the trade since only the margin requirement is taken out of your account.

 

[Splitlink]

Tell me you didn't put £30,000 of real money into a trading account.

It looks like he did!

Take my advice, go to a spreadbet firm and trade 50 pence per point until you do not need to ask basic questions on here. I don't mean to be sarcastic, but all that money with a serious trading company like IB, when you do not know what you are doing, will last you no time at all, In fact, the speed that you will lose it will be astonishing.

If you do not use the money in IB for trading you could, possibly, change it into a favourable currency until you do need it and they used to charge 10 pounds account maintenance fee per month for an account not trading. Or you could take it out for the time being. Don't put it all in a spreadbet company, either!

A trade will cost you 10 pounds per point because you trade a contract Don't do it.

 

[Splitlink]

Ok, OfficeWallly, if you haven't put the money in, yet, I am breathing easier. But my post still stands as advice to anyone else. IB is a straightup company, but the stakes are high for the unwary.

Did you notice how they ask the questions that they are legally obliged to ask? You tick a box. If it is the wrong answer you keep ticking until you give the right answer. That way, they can say that you knew what you were doing when you opened the account. After that, you are on your own.

 

[Wallly]

Thanks for the advice.

I take it I pay 1.7% on 15000, even though I've only 'borrowed' 7500, yes? Essentially the interest is 3.4% then, which means I need to make at least that on the stock before I profit. That's tough.

With regards the PDT, in my example, the cash value of the account drops below 25k and therefore I cannot daytrade, is that correct?

I don't remember IB questioning my understanding about margin before I opened the account but am beginning to appreciate the importance it can have on my trading. Neither do I see how spreadbetting will help me learn about margin and neither is it an area I am interested in. As for the concern for my financial security, I will only trade with money I can afford to lose and plan to start once I have a better handle on the practicalities. That's why I'm here asking questions.

 

[Wallly]

Thanks for the advice.

I take it I pay 1.7% on 15000, even though I've only 'borrowed' 7500, yes? Essentially the interest is 3.4% then, which is a nice earner for IB.

With regards the PDT, in my example, the cash value of the account drops below 25k and therefore I cannot daytrade, is that correct?

I don't remember IB questioning my understanding about margin before I opened the account but am beginning to appreciate the importance it can have on my trading. Spreadbetting is not of interest to me, I don't see how that could teach me about margin but perhaps that is more a reflection of my understanding than of spreadbetting itself. As for the concern for my financial security, I will only trade with money I can afford to lose and plan to start once I have a better handle on the practicalities. That's why I'm here asking questions.

 

[Splitlink]

Thanks for the advice.

I take it I pay 1.7% on 15000, even though I've only 'borrowed' 7500, yes? Essentially the interest is 3.4% then, which is a nice earner for IB.

With regards the PDT, in my example, the cash value of the account drops below 25k and therefore I cannot daytrade, is that correct?

I don't remember IB questioning my understanding about margin before I opened the account but am beginning to appreciate the importance it can have on my trading. Spreadbetting is not of interest to me, I don't see how that could teach me about margin but perhaps that is more a reflection of my understanding than of spreadbetting itself. As for the concern for my financial security, I will only trade with money I can afford to lose and plan to start once I have a better handle on the practicalities. That's why I'm here asking questions.

I left IB ten years, or more ago. I did not give it much of a chance to succeed, really, and lost 50%, removing the rest to more peaceful climes!

However, because of the time lapse, I can't tell you what conditions are, to-day, but there are posters around here who will be more up to date, I'm sure.

 

[TheLastBear]

Thanks for the advice.

I take it I pay 1.7% on 15000, even though I've only 'borrowed' 7500, yes?

No, you only pay financing on the amount used for the trade. So if the margin requirement was 7.5K you only pay overnight financing on that amount.