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IB: anyone knows how 'equity with loan' change is calculated for stocks?
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IB: anyone knows how 'equity with loan' change is calculated for stocks?

  #1 (permalink)
Trading Apprentice
London + UK
 
Futures Experience: None
Platform: Interactive Brokers
Favorite Futures: Emini ES
 
Posts: 9 since Feb 2016
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IB: anyone knows how 'equity with loan' change is calculated for stocks?

Hi guys,

I just opened a demo margin account with IB and I was looking into their TWS software. One basic question to help me understand it better please...

I was having a look at stocks and for example by going ~$43K long in DY the value that appears under 'equity with loan' change is -$3,525 whereas the same amount of stock ($43K) for KO has a value of just -$12 ?

Anyone knows how this value can be calculated?

I've never used a margin account before but if I am understanding it correctly, in the example of DY, does it mean that $3,525 are going to be taken from the account if the trade is taken (like a commission)?

I saw as well that if you buy it and immediately sell it, the change value in the 'equity with loan' column is another -$614. Any idea where this commision is coming from as well?

And on a side note, if the above values are commissions for using the margin facility, is it possible somehow to avoid the margin and enter the trade with the full amount of cash, $43K in this case, so that you don't waste $3525+$614 just for buying and selling?
I'm trying to find a way to enter the whole trade with cash but I cannot find any option.

Many thanks...

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  #2 (permalink)
Elite Member
San Diego, California
 
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Equity With Loan Value is the amount of funds you have available for trading. Its calculation is your settled cash, plus the market value of your positions, minus margin requirements.

They aren't taking that money from you. The true value of your account is listed under Net Liquidation Value, which is calculated as your cash plus the market value of your positions. Equity With Loan Value is just how they calculate risk to see if you can place trades. The subtracted Equity With Loan Value should be returned once your position is closed and the trade is settled.

Assuming DY is Dry Whey futures, and KO is Coca-Cola stock, their Equity With Loan Value costs are different because of their being different asset classes with different margin requirements. You can find all the specific margins on Interactive Brokers' website.

Generally, if you're trading sensibly, you shouldn't need to worry about your Equity With Loan Value in a margin account. In a cash account, though, you'll need to wait three days for your trades to settle before your withheld Equity With Loan Value is returned. That's called T+3 settlement. It's a regulatory thing. Part of the reason to trade on margin is to get around T+3.

Also, as a note, I think futures trading requires a margin account. I don't think you can trade derivatives inside of cash or retirement accounts.

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  #3 (permalink)
Market Wizard
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Esp at the start of an IB margin account, https://www.interactivebrokers.com/en/index.php?f=marginnew&p=overview is the main guide.
There are many rules, and yes, sometimes they are also a little complicated - e.g.: with a non-margin account you would never have to
care whether your trades are overnight or not; nor about the statistical volatility of the market which determines the margining.
That's why TWS also shows the margin impact of each intended trade if you do not disable this option.

IB gives a lot of different margin calculation examples, e.g. https://www.interactivebrokers.com/en/index.php?f=marginnew&p=overview3

If you want to day trade e.g. stocks or ETFs, see the "Day Trading" tab because you will also have to comply with Pattern Day Trading (PDT)
rules then.

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  #4 (permalink)
Trading Apprentice
London + UK
 
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Hey chik, thanks for the reply, really helpful.

In this particular case the other asset was Dycom stock (DY). I've been having another look this weekend and I think the difference is due to a massive spread in the DY stock when the market is closed. I don't have a live data feed yet, so not sure if the spread they present in the demo account is correct or just an approximate number to familiarize with the platform.

Regarding:

chik View Post
In a cash account, though, you'll need to wait three days for your trades to settle before your withheld Equity With Loan Value is returned. That's called T+3 settlement. It's a regulatory thing. Part of the reason to trade on margin is to get around T+3.

Out of curiosity, if I had a cash account and I sell let's say $5000 of one stock to invest in another, would I need to wait T+3 before I am able to do so? or would I be able to re-use that $5000 amount as soon as I click on the sell button?

I've never paid attention to how SaxoBank works around this settlement time. I had not run out of cash at the time, so not sure if when I sold and purchased something else they counted the money of the 'just sold' securities or that was not taken into account until T+3 as well. I'll pay attention next time...

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  #5 (permalink)
Elite Member
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The free delayed feed is a bit buggy, yeah. I'm not sure why the ELV was so much higher with DY stock than KO. Maybe IB doesn't have any shares of DY sitting around in house, so they'd have to hit an exchange to complete you order? I'm not sure.

In a cash account, your ELV would be -$5,000 for three days, until the sale settles. You'll need to wait for settlement before you can then spend that $5,000 you realized on another stock. Buying or selling with unsettled funds can cause a free-riding violation that may result in your account being temporarily frozen.

With a margin account, Interactive Brokers lends you that $5,000 they know you realized until your funds settle, allowing you to continue trading.

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  #6 (permalink)
Trading Apprentice
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chik View Post
In a cash account, your ELV would be -$5,000 for three days, until the sale settles. You'll need to wait for settlement before you can then spend that $5,000 you realized on another stock. Buying or selling with unsettled funds can cause a free-riding violation that may result in your account being temporarily frozen.

Thanks, I'll pay attention next time I sell in the other cash account I've got with another broker. Maybe their system doesn't even allow you to buy anything if the previous sell is not fully settle and you don't have any more cash in the account, but good to know that we shouldn't even try just in case...

Cheers m8!

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