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Wow that is a very bad sign........
Futures account does not have SPIC insurance and it is entirely relied on aggregation to protect customers. If IB fails to do so for the past four years, but in their website kept saying how safe they are, it is a big red flag.
Anyway, I have decided to choose a broker that specialize in futures. Thanks for your guys's information!
Can you help answer these questions from other members on NexusFi?
My understanding from the article is that they didn't report large trader positions correctly, which is used by the CFTC in their commitment of traders report. Meaning their report is not as accurate as it should be.
The whole MF Global and PFG saga's was due to the brokers not segregating their clients accounts. Which is like a bank stealing all the money out of your account.
So the article is not implying your money is not safe at IB. All I think you should take from this is that there seems to be irregularities at the brokers you might least expect it to be and only to keep enough money in your account to cover your margin.
I tried their demo account before and decided that it is over complicated to understand what is going on.
Also I don't want to take the risk of my all funds being frozen for a few months if it goes to bankruptcy.
So I decided to have futures account in a seperate broker than the stock account. The only cost is the wire transfer fee between the two accounts, but I don't need to do it more than 1-2 times a year, but this gives me the flexibility to choose the best stock broker and best futures broker.
Used IB for years, haven't screwed me yet, plenty of complaints (including TWS, their tax reporting--but no real issue untill Revenue Canada has an issue, charts, their data and the NT interface as others have said, and their support--stopped using it a long time ago) but until I solve the issues I have trading short time frame spot currency it's the least of my worries. That and the fact I have only a small fraction of my cash with them.
ETA: BTW & FWIW managed to get NT to accept the latest upgrade of the IB API by changing the IP of the host in the NT account definition from the default (127.0.0.1) to the actual LAN IP (192.168.0.100 in my case), no clue why.
If you trade many options (and also my experience day trading stocks) this platform may lull youinto a false sense of sabvings it has a lot of slippage and passes all fees to the customer including cancellation fees, market subscription fees-- you can not see indexes unless you subscribe to the service and a sttandard data fee if trades fall lower than 30 per month.
I entered several option combo trades simultaneously along side Ameritrade and once Fidelity. IB will consistently fill much slower and will almost always display a disadvantageous spread vs the natural. They will often fail to fill positions. I have contacted them several times and they swear that they simply pass the orders through Smart routing which hunts for the best price at that moment for all exchanges. Once at the exchange however the combo remains at that exchange until filled. If you cancel you may be charged between .10 and .75 per contract. They appear to scalp pennies from unsuspecting subscribers over many trades. They motivate people to trade often because of the deep discount but clearly this is made up by the very sloppy spreads and egregious slippage.
The platform is cryptic also using a poorly written java platform that freezes occasionally. I find myslef jumping back and forth between screens to see postions and , P&L. You must build postions then drag them to each screen.
The one area where they are very professional is that they will bust trades if it falls too far below market. I have done this several times. Good luck with Schwab. etrade, scottrade and fidelity busting a trade. Ameritrade will not bust trades but they will comp free trades in exchange.
Single option orders are not as bad on fills. But I am strongly considering migrating my account to Ameritrade with its Think or Swim platform and wealth of data available no charge. TOS fills are better as they claim to be the largest broker of option trades and get advantages at exchanges due to their shear order flow volume. I am not paid to endorse Ameritrade but they charge the same price for one contract as a combo. They encourage you to negotiate their pricing structure and do not penalize you with hidden costs. I am wondering if the slippage alone will make up the small short fall in commissions. I invite all objective challenges to my claims.
If you trade options, TOS is by the far the best platform in my opinion. It was built for options plain and simple. The functionality is excellent as well as the feel of the platform. IB is a relic by comparison.
Move away from IB as quick as you can for option plays.
I've read through this thread and as a long time user of IB there I am well versed with the software and the firm. There are many misperceptions here that I'll try to discuss.
First, data: the naked eye can't click a mouse in < 200 or so milliseconds. The data complains I'm reading about are thus bogus. On their server side, the data is streaming so stops and algos run fine. On the TWS, the snap shot 100ms data keeps things running smoothly with no data lag in fast markets. That works perfect for me (although I do have a back up source of data and would recommend all to do the same).
Executions: options, stocks and FX - haven't found anything better. The smart routing often gets me price improvement and for the currency trading, there is nothing better than splitting a 1/2 pip market and getting a fill that often has price improvement. Love it.
Safety: Futures brokers capital is not guaranteed. IB combats this with a sweep of excess cash to the securities account but if you're solely a futures trader, that might not be acceptable if SIPC is needed. Nevertheless, look at their capital. They make money and have a deep layer of safety with the billions of excess capital in the group. There margin policy protects all and if you follow them, you'll know that they run a conservative ship.
They constantly innovate and while the front end might not be the prettiest in the world, once you learn the hotkeys and other bells and whistles, you'll find it quite powerful and fast.
IB should not be used for anything other than minute or daily data. Tick, range, renko, volume, or other tick-based chart types should not be used with IB data as it is heavily filtered. IB data is worthless for my purposes.
2. Risks
IB offers the trader exactly the same risks as MF Global. The real risk is hypothecation. Read here.
After the PFG collapse I've been evaluating my futures brokers to determine whether my capital is adequately protected. I'm certainly not panicking but it is clear regulation is poor and the required legislation to protect my capital is some time …
The distinction on data is charting vs trading. IB data is great for trading. I'm not a tick by tick charting type of guy so I can't comment on that. But if you read the thread, most are not distinguishing a difference between trading or charting.
hypothecation: you need to read up on it more. A broker can't do stock loan business without putting stock or cash up as collateral - ie. hypothecation. However, I recall after MF this was big news on other forums and IB clarified how they do it. I don't have time to search for the dialog now but I did find the link below the IB site, after searching hypothecation, which states that they stick to the more restrictive rules of the SEC. All brokers have the ability to re-hypothecate - including all in that list from your link.
Here's the link: ibkb.interactivebrokers.com/node/1851 (you'll have t cut/paste as I've been a lurker and I don't have enough posts to link yet and sorry I had to remove your link as well)
one additional comment on risk after reading your link: dig into IB's financials and group structure. you'll see that the prop trading arm, Timber Hill, is a separate company. If it goes bust IB's brokerage assets and clients would not have any liability and are fenced off.
For me, I prefer stick to a larger well capitalized firm that doesn't sell order flow as execution and safety of funds are my greatest concerns. Of the firms that offer what I need, I believe only IB fits the bill.
@Third Base, if you believe IB is the safest bet for you then that's all that counts. Same as you, my personal preference is the larger the better hence I am moderately invested with IB although "big" isn't always better, look at MF Global.
At least with IB, I can look and analyze IB's audited financial statements and at least get a feel of what is going on. Secondly, if my equities and futures accounts are with one firm it's easier to move funds back and forth. Thirdly, the other options are even more risky. The only idea of financial condition from another broker I use is $800k in net assets on a disclosure statement. $800k doesn't provide much comfort plus we know from PFG broker disclosure statements are pretty much worthless.
Having said the above, the glaring risks and lack of transparency with IB cannot be ignored. As a result, I've steadily reduced my exposure to IB and spread around the risk. Anybody who has all of their capital with one broker is acting foolishly in my opinion. Refco, MF Global, PFG who is next?
The reality is IB can take exactly the same sovereign debt bet that sunk MF Global and use customer funds in their UK subsidiary to collateralize the bet. I've seen no evidence to suggest otherwise. Brokers without UK subs are less risky in my view as that is where the loophole exists.
Just because IB states they do not collateralize does not negate the fact that tomorrow they can change the policy and do something completely different. I do no trust anything brokers tell me orally or in writing. If they go bust and then you remind them "But your website said that......" won't help you recover your funds.
Furthermore you or I do not know how IB is structured "behind the scenes". Just because IB states the trading business and prop businesses are ringfenced doesn't mean there aren't inter-company agreements between IB and the trading arm allowing collateralization.
The other point is only 11.5% of IB is publicly listed. As a result the founder could be influencing significant control over the business. This, in my view makes IB a more dangerous animal than MF Global in some ways. I've seen first hand where oversight boards are pretty much worthless where there is a controlling shareholder or an influential founder with a significant stake.
I'm also fairly sure IB is taking a fair amount of risk just by looking at their huge profit per employee.
On data feeds, if IB's data feed is sufficient for your purposes then good for you. The point is their datafeed is deemed worthless by a large group of traders which is why traders subscribe to 3rd party data feeds. Order flow traders in particular require clean and unfiltered bid/ask data. IB does not provide this.
