How to avoid using margin?

[ggaribaldi]

Hi all,

apparently a margin account is easier to open on IB and gives you access to all stocks everywhere (i want to trade on NYSE, NASDAQ and BIM) and i'd be buying and holding for mid-long term.

Long story short: i don't want to use my margin at all, but playing around with the demo TS i couldn't see how. Is that even possible?

I understand that, since i'd be opening a Euro account most likely, they'd be lending me USD to buy on NYSE but i'd expect them to take my Euros at the end of the trading day to pay for ALL the USD they lent me. Is this correct? So is this what i'd be at most using my margin for? What would happen if the stock drops before the trading day is over? Would they sell my other stocks to cover the losses?

Thanks

 

[Rhody Trader]

Effectively speaking, if you do not purchase more stock than the cash in your account directly allows, then you're not using margin. I cannot, however, speak to the issue of buying US stocks from a non-USD based account and how the mechanics of that work. You'll want to speak with someone at IB to clarify it all.

 

[ggaribaldi]

Tried to ping them on that (last week!) already but haven't got a reply yet.

If you read this old post[1] it's pretty clear that having a Euro account and purchasing US stocks they would be lending you money (that's what you use the margin for) but what's not clear is when Gary speaks about building US losses and interests you pay on those. Shouldn't they use the actual Euros i have in my account to pay for the stocks purchased at the end of each day?

Thanks

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[1] http://www.trade2win.com/boards/brokerages/10334-problems-opening-ib-account.html

 

[timsk]

I cannot, however, speak to the issue of buying US stocks from a non-USD based account and how the mechanics of that work.

I can - and the answer is very badly!
I had a base currency in GBP when I first opened my account with IB, although I was trading U.S. stocks. I realised (somewhat belatedly I'm embarrassed to admit) that something was wrong when I'd had what I thought was a (small) profitable month, but my account showed a loss. This, it turned out, was entirely due to all the FX transactions, converting from GBP to USD and then back again with each opened and closed trade. As I wanted to trade equities and not FX, I resolved to put half my trading capital on deposit here in the U.K. and the other half I left with I.B. and switched the base currency from GBP to USD. With the benefit of hindsight, I would have been much better off putting the whole lot into USD. Such is life! Anyway, the tactic - although crude - worked well enough. ggaribaldi - based upon my experience, I recommend that your deposit with IB has USD as the base currency for trading U.S. equities. Thereafter, I suggest that you adopt some sort of hedging strategy to protect yourself from the meanderings of the dollar.
Tim.