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questions about IB margin IRAs
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questions about IB margin IRAs

  #1 (permalink)
Trading Apprentice
Boston, MA
 
Futures Experience: Beginner
Platform: nothing yet
Favorite Futures: Stocks
 
Posts: 2 since Feb 2013
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questions about IB margin IRAs

Hi. Newbie here with some very basic questions about IB's margin IRA accounts. Sorry if these questions are very basic -- this is how empty my noob-brain is. Thanks in advance for any help you can give!

Questions
  1. Is IB the right place for me to get what I want? The primary reason that I'm interested in this type of account is that they say it allows you to trade more often instead of being restricted to waiting for the T+3 settlement date. Basically I want something [1] tax-sheltered that is [2] as limited as a cash account but [3] without the T+3 restriction.
  2. Since the account does not allow for leverage (and I don't want it anyway) does that mean I won't be paying any kind of interest? Or do they consider buying and selling with unsettled funds a kind of borrowing -- and if so, how is the interest calculated? I think I'd need an example in order to understand the interest ... (Like I won't know what "1.5%" means, but "1.5% for the whole year on the 'principal' even if I trade like crazy every day multiple times a day" would make sense to me)
  3. Can I do unlimited number of round trips with unsettled funds? Or do they only support a single round trip with unsettled funds? If unlimited or multiple round trips, does that affect the answer to the previous question about interest?
  4. I think there's a minimum of $25K equity that I have to maintain. Does that mean $25K including the unsettled funds? Or is that $25K in purely settled assets? Should those assets be cash or cash equivalent? Or can they be anything?
  5. I've read something about how they used to close all your positions at 3:45pm every day ... or they have very strict (and perhaps even changing) requirements such that they might hit you with a margin call unexpectedly. Basically what I'll be doing is trading in a single security, selling all my shares and trying to buy them (and a few extra shares) back at a lower price, repeatedly. Are margin calls going to be an issue for me and if so, what should I do to limit my exposure? Again I think I'd need an example in order to understand.
  6. Is there a list of well known, naive, and known-to-fail trading strategies that I can learn and avoid? Does the strategy described in the previous question count as one of those naive known-to-fail ones?

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  #2 (permalink)
 Vendor: www.auctionprofile.com 
Norfolk, VA, USA
 
Futures Experience: Intermediate
Platform: ensign, sterling
Favorite Futures: ES
 
Posts: 30 since Aug 2010
Thanks: 4 given, 42 received


lockdown View Post
Hi. Newbie here with some very basic questions about IB's margin IRA accounts. Sorry if these questions are very basic -- this is how empty my noob-brain is. Thanks in advance for any help you can give!

Questions
  1. Is IB the right place for me to get what I want? The primary reason that I'm interested in this type of account is that they say it allows you to trade more often instead of being restricted to waiting for the T+3 settlement date. Basically I want something [1] tax-sheltered that is [2] as limited as a cash account but [3] without the T+3 restriction.
  2. Since the account does not allow for leverage (and I don't want it anyway) does that mean I won't be paying any kind of interest? Or do they consider buying and selling with unsettled funds a kind of borrowing -- and if so, how is the interest calculated? I think I'd need an example in order to understand the interest ... (Like I won't know what "1.5%" means, but "1.5% for the whole year on the 'principal' even if I trade like crazy every day multiple times a day" would make sense to me)
  3. Can I do unlimited number of round trips with unsettled funds? Or do they only support a single round trip with unsettled funds? If unlimited or multiple round trips, does that affect the answer to the previous question about interest?
  4. I think there's a minimum of $25K equity that I have to maintain. Does that mean $25K including the unsettled funds? Or is that $25K in purely settled assets? Should those assets be cash or cash equivalent? Or can they be anything?
  5. I've read something about how they used to close all your positions at 3:45pm every day ... or they have very strict (and perhaps even changing) requirements such that they might hit you with a margin call unexpectedly. Basically what I'll be doing is trading in a single security, selling all my shares and trying to buy them (and a few extra shares) back at a lower price, repeatedly. Are margin calls going to be an issue for me and if so, what should I do to limit my exposure? Again I think I'd need an example in order to understand.
  6. Is there a list of well known, naive, and known-to-fail trading strategies that I can learn and avoid? Does the strategy described in the previous question count as one of those naive known-to-fail ones?

With an IRA, you are not allowed to borrow money, so you cannot trade currenciers, for example as this requires margin. You can trade futures if you have the equity for initial and maintenance margins You can trade stocks BUT not on margin. A margin account for an IRA does allow instant use of funds when you close a position - i.e. no waiting for T+3. THe 25k account equity is for trading stocks so that you are not subject to the pattern day trading rule.

As you are trading in an IRA you cannot borrow money and will not be subject to a margin call. Also, you mentioned you are trading only one instrument, so you can do as many round trips as you like - funds instantly available as soon as you close an open position. If you decide to trade a second instrument, you must have the cash available to open a second position.

Hope this helps. And yes, IB is a good choice.


Last edited by erniebilko; February 20th, 2013 at 11:59 AM. Reason: additional info
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