Does IBKR provide for a dormant or inactive account status?
While there is no provision for dormant or inactive account status, there is no monthly minimum activity requirement or inactivity fee in your IBKR account.
While we have no minimum account balance, should the account balance fall below USD 2,000 IBKR is precluded, by regulation, from affording margin treatment to securities positions. In addition, account holders will also be billed for any market data subscriptions maintained and, as a matter of policy, will have subscriptions terminated automatically when the account balance falls below USD 500.
Individuals seeking to close an account are encouraged to refer to our User's Guide to familiarize themselves with the steps and prerequisites for taking this action.
Will IBKR delay liquidation while I deposit funds in my account?
Overview:
IBKR's margin compliance policy does not allow for transfers or other deposits if there is a margin violation/deficit in the account. In the case of a margin violation/deficit, the account in deficit is immediately subject to liquidation. Automated liquidations are accomplished with market orders, and any/all positions in the account can be liquidated. There are cases where, due to specific market conditions, a deficit is better addressed via a manual liquidation.
Funds deposited or wired into the account are not taken into consideration from a risk standpoint until those funds have cleared all the appropriate funds and banking channels and are officially in the account. The liquidation system is automated and programmed to act immediately if there is a margin violation/deficit.
Note for Prime Clients: Executing away is not a means to resolve real time deficits as away trades will not be taken into consideration for beneficial margin purposes until 9 pm ET on Trade Date or when the trades have been reported and matched with external confirms, whichever is later. Trading away for expiring options, on expiration day, is also discouraged due to the potential for late or inaccurate reporting which can lead to erroneous margin calculations or incorrect exercise and assignment activity. Clients who wish to trade expiring options on expiration day and away from IB, must load their FTP file no later than 2:50 pm ET, and do so at their own risk.
What is Interactive Broker's margin rules for stocks below $5?
Overview:
Interactive Brokers does not have a special rule regarding stocks that trade below $5. Although other brokerage firms may have a house rule regarding stocks trading below $5, IBKR does not employ such a rule.
Background:
There are other IBKR-specific rules to consider in this scenario. In general, IBKR would not have a special rule for long positions in stock trading below $5, as long as they are exchange-listed. Once a stock is delisted from one of the exchanges and moved to the OTC market, it would be subject to a 100% margin requirement, since the stock would no longer be considered marginable.
Also, for long positions, the maintenance margin requirement is 30% of the stock value or $2,000, whichever is greater.
For short positions, the maintenance requirement on stock greater than $5, is $5 per share or 30% of the stock value, whichever is greater. For short positions in stock where the last sale price/share is less than $5, then the maintenance margin requirement is $2.50 per share or 100% of the stock value, whichever is greater.
How do I upgrade my cash account to a margin account?
Overview:
Requests to have an account upgraded from a 'Cash' type to 'Margin' type can be initiated by logging in to Client Portal and selecting the Settings and Account Settings sections and clicking the gear icon next to the words "Account Type" in the Configuration section. IBKR offers two margin types: the standard Reg T Margin and Portfolio Margin. Note that as Portfolio Margining generally provides for greater leverage, accounts must report minimum net liquidating equity of at least USD 110,000 to qualify for this margin treatment and USD 100,000 in order to enter margin increasing transactions.
Also note that requests for margin upgrades are subject to a Compliance review to ensure that the account holder maintains the appropriate qualifications. This review typically takes between 1 -3 business days to complete.
What formulas do you use to calculate the margin on options?
Overview:
There are many different formulas used to calculate the margin requirement on options. Which formula is used will depend on the option type or strategy determined by the system. There are a significant number of detailed formulas that are applied to various strategies. To find this information go to the IBKR home page at www.interactivebrokers.com. Go to the Trading menu and click on Margin. From the Margin Requirements page, click on the Options tab. There is a table on this page which will list all possible strategies, and the various formulas used to calculate margin on each.
Background:
The information above applies to equity options and index options. Options on futures employ an entirely different method known as SPAN margining. For information on SPAN margining, conduct a search on this page for “SPAN” or “Futures options margin”.
How do you calculate margin requirements on futures and futures options?
Overview:
Futures options, as well as futures margins, are governed by the exchange through a calculation algorithm known as SPAN margining. For information on SPAN and how it works, please research the exchange web site for the CME Group, www.cmegroup.com. From their web site you can run a search for SPAN, which will take you to a wealth of information on the subject and how it works. The Standard Portfolio Analysis of Risk system is a highly sophisticated methodology that calculates performance bond requirements by analyzing the “what-ifs” of virtually any market scenario.
Background:
In general, this is how SPAN works:
SPAN evaluates overall portfolio risk by calculating the worst possible loss that a portfolio of derivative and physical instruments might reasonably incur over a specified time period (typically one trading day.) This is done by computing the gains and losses that the portfolio would incur under different market conditions. At the core of the methodology is the SPAN risk array, a set of numeric values that indicate how a particular contract will gain or lose value under various conditions. Each condition is called a risk scenario. The numeric value for each risk scenario represents the gain or loss that that particular contract will experience for a particular combination of price (or underlying price) change, volatility change, and decrease in time to expiration.
The SPAN margin files are sent to IBKR at specific intervals throughout the day by the exchange and are plugged into a SPAN margin calculator. All futures options will continue to be calculated as having risk until they are expired out of the account or are closed. The fact that they might be out-of-the-money does not matter. All scenarios must take into account what could happen in extreme market volatility, and as such the margin impact of these futures options will be considered until the option position ceases to exist. The SPAN margin requirements are compared against IBKR's pre-defined extreme market move scenarios and the greater of the two are utilized as margin requirement.
When I sell stock, how much does it increase SMA?
Overview:
When an account holder sells a marginable security, it will typically increase their SMA by 50% of the value of the security sold.
Is there a way in TWS that I can prevent myself from making trades that cause my cash balance to go negative?
Overview:
There isn’t a function in TWS that prevents account holders with margin accounts from making trades that cause their cash balance to become negative, which would then incur interest charges for a margin loan. Traders would want to ensure that their cash balance always remained positive or open a cash account. Negative cash balances are disallowed in cash accounts and orders that would cause the cash balance to go negative should be rejected by the system.
Why did I receive a notice that the financial capacity in my account is less than 10% above the current margin requirement when my stock positions are fully-paid?
Overview:
IBKR will issue a warning message to any margin account approaching a maintenance margin deficiency (and therefore potential forced liquidation of positions). This message is generated when the Equity with Loan Value (ELV for a stock account = Cash + Stock + Bond + Mutual Fund + Non-US Options) is less than or equal to the Maintenance Margin Requirement * 110%. The warning message reads as follows:
ALERT: The financial capacity in this account is less than 10% above the current margin requirement. To avoid a possible liquidation, please monitor the account to ensure that there is positive excess liquidity.
An account which hold stock positions that are full-paid (i.e. no cash debit) remains susceptible to liquidation if the account falls into deficit and the loan value of the stock is insufficient to cover the debit. This is often the case, for example, when a margin account holds positions subject to 100% margin and a cash balance of $0. In the event the account is assessed a fee, such as commission, monthly minimum activity or market data subscription, a negative cash balance would result and IBKR would not be able to extend loan value against these securities to support the debit balance. The account would therefore be subject to a liquidation in an amount sufficient to cover any cash deficit.
Accordingly, the recipient of this warning message may wish to maintain a cash balance in an amount sufficient to cover any potential charges to the account and to avoid a forced liquidation.
Options Assignment Prior to Expiration
An American-Style option seller (writer) may be assigned an exercise at any time until the option expires. This means that the option writer is subject to being assigned at any time after he or she has written the option until the option expires or until the option contract writer closes out his or her position by buying it back to close. Early exercise happens when the owner of a call or put invokes his or her rights before expiration. As the option seller, you have no control over assignment, and it is impossible to know exactly when this could happen. Generally, assignment risk becomes greater closer to expiration, however even with that being said, assignment can still happen at any time when trading American-Style Options.
Short Put
When selling a put, the seller has the obligation to buy the underlying stock or asset at a given price (Strike Price) within a specified window of time (Expiration date). If the strike price of the option is below the current market price of the stock, the option holder does not gain value putting the stock to the seller because the market value is greater than the strike price. Conversely, If the strike price of the option is above the current market price of the stock, the option seller will be at assignment risk.
Short Call
Selling a call gives the right to the call owner to buy or “call” stock away from the seller within a given time frame. If the market price of the stock is below the strike price of the option, the call holder has no advantage to call stock away at higher than market value. If the market value of the stock is greater than the strike price, the option holder can call away the stock at a lower than market value price. Short calls are at assignment risk when they are in the money or if there is a dividend coming up and the extrinsic value of the short call is less than the dividend.
What happens to these options?
If a short call is assigned, the short call holder will be assigned short shares of stock. For example, if the stock of ABC company is trading at $55 and a short call at the $50 strike is assigned, the short call would be converted to short shares of stock at $50. The account holder could then decide to close the short position by purchasing the stock back at the market price of $55. The net loss would be $500 for the 100 shares, less credit received from selling the call initially.
If a short put is assigned, the short put holder would now be long shares of stock at the put strike price. For example, with the stock of XYZ trading at $90, the short put seller is assigned shares of stock at the strike of $96. The put seller is responsible for buying shares of stock above the market price at their strike of $96. Assuming, the account holder closes the long stock position at $90, the net loss would be $600 for 100 shares, less credit received from selling the put originally.
Margin Deficit from the option assignment
If the assignment takes place prior to expiration and the stock position results in a margin deficit, then consistent with our margin policy accounts are subject to automated liquidation in order to bring the account into margin compliance. Liquidations are not confined to only shares that resulted from the option position.
Additionally, for accounts that are assigned on the short leg of an option spread, IBKR will NOT act to exercise a long option held in the account. IBKR cannot presume the intentions of the long option holder, and the exercise of the long option prior to expiration will forfeit the time value of the option, which could be realized via the sale of the option.
Post Expiration Exposure, Corporate Action and Ex-Dividend Events
Interactive Brokers has proactive steps to mitigate risk, based upon certain expiration or corporate action related events. For more information about our expiration policy, please review the Knowledge Base Article "Expiration & Corporate Action Related Liquidations".
Account holders should refer to the Characteristics and Risks of Standardized Options disclosure document which is provided by IBKR to every option eligible client at the point of application and which clearly spells out the risks of assignment. This document is also available online at the OCC's web site.
