Hello forum - first time poster here. Looks like a lot of great information on this site.
I have a question related to trading stocks on margin at Interactive Brokers. After reading through all the information and examples on the website I came away somewhat confused so I am hoping a more experienced trader can help me out. While I have been trading stocks and options for years, I have never used any margin in the past so this is a new frontier I am looking at.
I understand the initial margin requirement and maintenance margin requirement is 25%*value of the stock. However, where I am getting a bit confused is the "end of day" margin requirement (which is 50%*value of the stock).
Let's say I have $10,000 and I want to maximize leverage for a stock that I plan to hold for a few months. What is the maximum value of the stock that I could purchase with margin? Based on the initial and maintenance margin I would assume it is $40,000 worth of stock, however, if I wanted to hold the position overnight the maximum would be $20,000. Is this the correct way of thinking about it? Of course, maxing this out also assumes that the stock won't fall and trigger a margin call.
I don't ever plan on maxing out margin, especially since I am inexperienced using it, but finding what the upper bounds are would be helpful.
I don't recall IB having any special margin policies that differs from the norms (at least for a 10k account) but I could be wrong...
Either way, you usually get 2x margin, and intraday it goes up to 4x - but that requires of course that you close your position before the bell. This also means that you need a minimum of 25,000$ in your account to avoid the pattern day trader rule if you regularly do that type of trades.
It is thus, in your case, safer to always assume you are getting 2x margin, and forget about the 4x until you build up your account, and get yourself ready to day trade actively.
Note that margin comes at a fee, they will charge you some interest on the money you borrow.
I personally only use the margin for my intraday plays (buy/sell same stock during the same trading session) and use in that case the 4x leverage advantage. But for my swing trades that span over several days, I don't rely at all on the margin, and only use the cash that I have...
Successful people will do what unsuccessful people won't or can't do!
Basically your thoughts are right: leverage needs margin - but the devil sits in the details...
First it depends on which stocks you want to invest.
Taking as example US stocks - there is a big difference if you invest in longs or shorts.
Please check these IB pages to find more valuable information
I do have some follow-up questions regarding the mechanics of being charged interest when using margin. Can anyone give me a quick run-down or link to a site that describes the process?
Let's say I max out all my cash position and buy $1,000 worth of stock on margin. How is the interest charged back to me? Is a type of IOU generated where the interest will be accrued - to be paid once the position is closed? Does the accruing interest count against the total amount of leverage available? For example, if someone was to max out their leverage and the position remained flat - could the accrual of interest trigger a margin call?
I had looked through those pages in the past and didn't find anything that outlined how the mechanics of being charged interest works. In fact - the only place where it discusses interest is in the context of selling a stock short.
Again - this page shows how the amount of interest charged is determined (by multiplying a balance times an interest rate which was already obvious) but it doesn't detail how the accrued interest is assessed. Specifically, my original question of whether the interest accrues until the positions is closed and whether or not accrued interest can trigger margin calls.
Have been a customer of IB 2 times in the past but my memory is the one of a goldfish.
Can someone confirm at which time practically their system transfers you from intraday to overnight margins on :
- YM (up to 3:10 PM central time manageable like AMP or earlier ?)
- FESX (think it was 6:15 PM GMT+1 if not mistaken)
- FSMI (SWI30)
- FCE (CAC40)
- MIX (IBEX35)
- FTI (AEX25)
- FTMIB (MIB40)
Last edited by SARdynamite; February 16th, 2014 at 03:52 AM.