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Is Interactive Brokers bad?
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Is Interactive Brokers bad?

  #11 (permalink)
Elite Member
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Fadi's Avatar
 
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I have been with IB for a long time too, and I am not planning to leave them at all.
As said previously, they are a BROKER, and as such they perform extremely well in my opinion.

It is worth noting that they are very strict and severe on margin calls, they don't grant you any grace period to refund your account or liquidate your positions yourself to meet the call. This is something to take very good note of if you use margin a lot.

On the other hand, and to answer your direct question, they manage their brokerage and market making businesses in separate companies, which are both registered with local securities and/or commodities regulators.

Of course that won't prevent them from cheating, but let me nonetheless quote from their website the following:


Quoting 
Customer money is segregated in special bank or custody accounts, which are designated for the exclusive benefit of customers of IB. This protection (the SEC term is "reserve" and the CFTC term is "segregation") is a core principle of securities and commodities brokerage. By properly segregating the customerís assets, if no money or stock is borrowed and no futures positions are held by the customer, then the customerís assets are available to be returned to the customer in the event of a default by or bankruptcy of the broker.

A portion of customer funds are typically invested in U.S. Treasury securities and FDIC-backed bonds. Although permitted by regulations, given the credit concerns over foreign sovereign debt IB does not currently invest any customer money in money market funds.

As a practice, IB holds an excess amount of its own money in these reserve and segregated accounts to ensure that there is more than enough cash to protect all customers.

Securities accounts with no borrowing of cash or securities
Securities customer money is protected as follows:

A portion is deposited at 13 large U.S. banks in special reserve accounts for the exclusive benefit of IBís customers. These deposits are distributed across a number of banks with investment-grade ratings so that we can avoid a concentration risk with any single institution. No single bank holds more than 5% of total customer funds held by IB. As of February 29, 2012, the following banks held deposits from IB (this list is subject to change over time at IBís discretion). Certain banks, which are affiliates or branches of foreign financial institutions, are subject to regulatory oversight by the Federal Reserve and the Office of the Comptroller of the Currency.

-Branch Banking and Trust Company
-Bank of America, N.A.
-Bank of the West
-Citibank, N.A.
-Deutsche Bank AG
-Fifth Third Bank
-HSBC Bank USA, N.A.
-JPMorgan Chase Bank, N.A.
-KeyBank National Association
-Royal Bank of Canada
-SunTrust Bank
-The Bank of Nova Scotia
-Wells Fargo Bank, N.A.

A portion is invested in U.S. Treasury securities, including direct investments in short-term Treasury bills and reverse repurchase agreements, where the collateral received is in the form of U.S. Treasury securities. These transactions are conducted with third parties and guaranteed through a central counterparty clearing house (Fixed Income Clearing Corp., or "FICC"). The collateral remains in the possession of IB and held at a custody bank in a segregated Reserve Safekeeping Account for the exclusive benefit of customers. U.S. Treasury securities may also be pledged to a clearing house to support customer margin requirements on securities options positions.
A small portion is invested in FDIC-backed corporate bonds, which are held in IBís customer depository account at the Depository Trust and Clearing Corp. (DTCC).

Customer cash is maintained on a net basis in the reserve accounts, which reflects the long balances of some customers and loans to others. To the extent any one customer maintains a margin loan with IB, that loan will be fully secured by stock valued at up to 140% of the loan. The security of the loan is enhanced by IBís conservative margin policies, which do not allow the borrower to correct a margin deficiency within days, as permitted by regulation. Instead, IB monitors and acts on a real-time basis to automatically liquidate positions and repay the loan. This brings the borrower back into margin compliance without putting IB and other customers at risk.
Current SEC regulations require broker-dealers to perform a detailed reconciliation of customer money and securities (known as the ďreserve computationĒ) at least weekly to ensure that customer monies are properly segregated from the broker-dealerís own funds.

In order to further enhance our protection of our customersí assets, Interactive Brokers recently sought and received approval from FINRA (the Financial Industry Regulatory Authority), to perform and report the reserve computation on a daily basis, instead of once per week. IB initiated daily computations in December 2011, along with daily adjustments of the money set aside in safekeeping for our customers. Reconciling our accounts and customer reserves daily instead of weekly is just another way that Interactive Brokers seeks to provide state-of-the-art protection for our customers.
Customer-owned, fully-paid securities are protected in accounts at depositories and custodians that are specifically identified for the exclusive benefit of customers. IB reconciles positions in securities owned by customers daily to ensure that these securities have been received at the depositories and custodians.

Commodities accounts
Commodities customer money is protected as follows:

A portion is invested in short-term U.S. Treasury securities and pledged to futures clearing houses to support customer margin requirements on futures and options on futures positions or held in custody accounts identified as segregated for the benefit of IBís customers.
A portion is held at commodities clearing banks/brokers in accounts identified as segregated for the benefit of IBís customers to support customer margin requirements.
As prescribed by commodities regulations, customer funds are subject to real-time protection. IB performs a detailed reconciliation of customer equity on a daily basis to ensure that customer monies are properly segregated. This computation is submitted to the regulators daily.

Securities accounts with margin loans
For customers who borrow money from IB to purchase securities, IB is permitted by securities regulations to utilize for financing purposes up to 140% of the loan value of the stock these customers hold with IB. In simple terms, IB borrows money from a third party (such as a bank or broker-dealer), using the customerís margin stock as collateral, and it lends those funds to the customer to finance the customerís margin purchases. Typically, IB lends out a small portion of the total stock it is permitted to lend out.

As an example, at June 30, 2011, IB lent $0.8 billion of customersí stock out of the $13.0 billion made available to it by margin customers.
When IB lends customersí stock, it must put additional money into the special reserve accounts set aside for the benefit of customers. In the example above, the full value of $0.8 billion of customer stock that was lent was segregated in the special reserve accounts.

The Importance of Choosing a Safe Broker
In light of the recent bankruptcy of MF Global, customers should understand how it is possible to lose money in the event of their brokerís bankruptcy. Despite all of the protections described above, there are still two ways a customer can lose money without losing it to the market:

If, in violation of the reserve and segregation rules, the broker does not keep some customer monies segregated, either by not putting newly deposited monies in the segregated account or if money is transferred out of segregated accounts for some other purpose, then there can be a shortfall. This may have happened at MF Global.
Customers can lose more money in the market than they hold with the broker. When this happens the broker is obligated to make up the deficit from its own funds. If the broker fails to do so, (i.e., has not sufficient capital of its own to make up for the losses) and SIPC (and, if offered, excess-SIPC) coverage is insufficient or unavailable, then the other customers bear the cost of that shortfall. This, too, may have happened at MF Global.

This is the reason why it is vitally important to choose a broker that has a massive amount of capital and very good, automated credit controls.


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  #12 (permalink)
Market Wizard
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muscleman View Post
...
There are only a few of them, and IB is the one that can also trade stocks, which is kind of nice...

In search of a trustful broker/bank there is only ONE question of importance:

stock listed @ a stock exchange?

If yes - the company needs to report frequently and is observed from different authorities / stock holders etc.
If not - do NOT burn your fingers...

Just a little observation.
IB is a listed company under NASDAQ: IBKR
and the latest reports are to find here: http://investors.interactivebrokers.com/ir/main.php

GFIs1

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  #13 (permalink)
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Another vote for IB.

Their executions are excellent. Their data is good if you don't require tick data - it all depends what you need and how you trade.

The upside of ib is that they focus on low cost and excellent execution with a data feed suited for some but not all; hence they have a huge customer base amongst experienced traders and even seem to be the biggest fx business (a chart I saw put them ahead of Oanda, Fxcm etc). The downside is that they are not in the customer service for newbies business - if you are new to the game and might want some hand holding you should probably go somewhere else. Also, if you want tick data or sub minute data is important to you (they send a data packet 10 times a second only) then you'll also want a different data feed.

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  #14 (permalink)
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cusp View Post
Another vote for IB.

Their executions are excellent. Their data is good if you don't require tick data - it all depends what you need and how you trade.

The upside of ib is that they focus on low cost and excellent execution with a data feed suited for some but not all; hence they have a huge customer base amongst experienced traders and even seem to be the biggest fx business (a chart I saw put them ahead of Oanda, Fxcm etc). The downside is that they are not in the customer service for newbies business - if you are new to the game and might want some hand holding you should probably go somewhere else. Also, if you want tick data or sub minute data is important to you (they send a data packet 10 times a second only) then you'll also want a different data feed.

AFAIK, it's 4 times/second, one snapshot every 250 ms.

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  #15 (permalink)
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cusp View Post
Another vote for IB.

Their executions are excellent. Their data is good if you don't require tick data - it all depends what you need and how you trade.

The upside of ib is that they focus on low cost and excellent execution with a data feed suited for some but not all; hence they have a huge customer base amongst experienced traders and even seem to be the biggest fx business (a chart I saw put them ahead of Oanda, Fxcm etc). The downside is that they are not in the customer service for newbies business - if you are new to the game and might want some hand holding you should probably go somewhere else. Also, if you want tick data or sub minute data is important to you (they send a data packet 10 times a second only) then you'll also want a different data feed.

Thank you! I am investing stocks only in a cash account, and trade futures. I think IB's advantage is obvious for my strategy.
If I have all my cash in the underlying commodity account, and one day I decide to buy some stocks, can I immediately buy, or I need to transfer money to the securities account first, wait for a few days to clear, and then trade?
I am not going to do intraday trading so tick data is not that important to me.
The futures data is all from CME and other future centralized exchanges, right? That should be good to prevent stop loss gunning. I heard a lot of Forex brokers do not actually put your orders into the open market, but instead just gamble against you, and shot your stop loss orders. Every forex broker's data feed shows a slightly different quote.

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  #16 (permalink)
Fiddler
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No need to wait. You can trade with your money however you want regardless of the account it is in, as long as it is not tied up in margin on another trade.

Also a happy IB customer that swing trades futures and tinkers with options when I have gambling fever. From what you described, it sounds as if IB would be fine for your purposes.

My only experience with customer service was on a trade related matter several years back, and it was handled quickly and correctly. I believe it was closing a position when I had a major computer failure. But I would agree that IB expects you to know what you are doing. Customer service won't hold your hand, but they do have good documentation and a bunch of webinars and educational stuff like that...however I don't know the quality of said educational material.

Anyways, I have not come across any reason that swing traders should not choose IB during my 6 years with them. You can even yield enhance and let the stock you buy get borrowed.

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  #17 (permalink)
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Once upon a time the maximum packet frequency for IB was 4 per second (actually it might have been 5).

Then, when they were upgrading their servers they increased it to 10 per second (100ms).

Of course if nothing happens no packet is received.



It's worth noting that some of the broker vendors that people believe send every tick don't always do that. From time to time some of them ease their load - I say this only because I've seen surprised complaints on the Sierra Chart board.

Edit: Answering BM's question.

True data is called 5 second data by IB. In answer to the problem that their live data doesn't necessarily catch all prices (its one price per 100ms) they created a new data feed that supplies the true OHLCV for the 5 second period at the end of each 5 second period.

With Sierra Chart the TD feed can be used to correct any errors in the live feed. That way you get prices instantaneously (well, within 100ms) but they are corrected for any missing ticks as each 5 second true data packet arrives. IB seem to do the same with their charting.


Last edited by cusp; June 6th, 2012 at 10:04 PM.
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  #18 (permalink)
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I have seen mention of a product suffix "-TD" aka "True Data". Can anyone clarify what this is? I was hopeful it meant they sent unfiltered data, but am quite certain that is not what it means

Mike

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  #19 (permalink)
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+1 for IB

I have used IB for the last year and a half. I have watched prices side by side with bloomberg prices, and have not seen any naked eye discrepancies. I have also been happy with the execution, barring the liquidity-fee collecting snipers on the other side.

My wife worked in the accounting office for IB. She was very impressed with Thomas Peterffy and how he handled the issues that arose in the normal course of business.

I have been underwhelmed with the help desk, but have always found an answer to what I was looking into.

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GFIs1 View Post
In search of a trustful broker/bank there is only ONE question of importance:

stock listed @ a stock exchange?

If yes - the company needs to report frequently and is observed from different authorities / stock holders etc.
If not - do NOT burn your fingers...

Just a little observation.
IB is a listed company under NASDAQ: IBKR
and the latest reports are to find here: http://investors.interactivebrokers.com/ir/main.php

GFIs1

Yeah, good thing MF Global was listed on a stock exchange , I feel so safe .

NYSE:MF

MF GLobal IPO in 2007


All kidding aside, if a company wants to do what they did, being listed or not will not stop them. MF Global reported regularly.

Now look at them
MF Global Holdings Ltd

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