Investing

Interactive Brokers margin investing

  • Last Updated:
  • Feb 13th, 2018 11:11 pm
[OP]
Deal Addict
Dec 23, 2010
1176 posts
552 upvotes
Moon
nikels21 wrote:
Feb 13th, 2018 5:22 pm
It wont need to drop 40% if they change your margin requirements. Which they can do at anytime and often do during a downturn. Otherwise...like you said you are pretty safe
If they do this I would be forced to move my investments from the TFSA into my margin account to maintain the margin requirements.

Or does IB automatically count TFSA contributions as part of your portfolio for maintaining margin requirements?
Deal Addict
May 18, 2015
1240 posts
321 upvotes
Ottawa,Ont
Applesmack wrote:
Feb 13th, 2018 5:24 pm
If they do this I would be forced to move my investments from the TFSA into my margin account to maintain the margin requirements.

Or does IB automatically count TFSA contributions as part of your portfolio for maintaining margin requirements?
Only questrade counts your TFSA. IB will not give you a warning first so you will not be able to transfer your TFSA. They will just liquidate your positions
[OP]
Deal Addict
Dec 23, 2010
1176 posts
552 upvotes
Moon
nikels21 wrote:
Feb 13th, 2018 5:28 pm
Only questrade counts your TFSA. IB will not give you a warning first so you will not be able to transfer your TFSA. They will just liquidate your positions
This is true but would only be the case if their change in margin requirements automatically triggered a margin call. Regardless if this happens I will only have my most recent investments (and lowest loss) investments liquidated. How big of a hike to margin requirements for index funds have they done historically? Where can I find this information? Is it legal for them to hike the maintenance margin without warning and have they done so historically without warning?
[OP]
Deal Addict
Dec 23, 2010
1176 posts
552 upvotes
Moon
zakarydoks wrote:
Feb 13th, 2018 4:01 pm
I know what you mean because I try to maintain a 10-50% cushion. You want to liquidate positions with low potential first, not to minimize loss. Buying put options like any hedging is expensive if you do it long term. I would rather sell insurance than buy insurance. What you are doing here is increasing your volatility to increase returns so you want do it as cheaply as possible. Like you said, as the market goes up you will have a bigger cushion OR you can use the additional margin. What is your plan for that?

Think of overall portfolio volatility and exposures and what strategies you can employ to achieve that desired level. Leverage increases volatility (magnifies gains AND loss) and it cost interest. When you buy put options which is basically a negative correlated asset which lowers volatility but is very costly. Alternatively you can simply lower leverage and buy call options. You can also consider selling put options instead. I encourage you to do it because your plan is well thought it out and you got your bases covered.

A good read. Buffett's Alpha
I would only buy put options if I am close to the margin requirements and I feel that the market can continue to go down. It is worth the cost of the put options as an insurance against liquidation. It isn't that costly since it isn't expected to be something that happens often. The alternative would be to transfer my TFSA assets into the margin account. Would have to weigh the pros/cons.
Deal Addict
May 18, 2015
1240 posts
321 upvotes
Ottawa,Ont
Applesmack wrote:
Feb 13th, 2018 5:30 pm
This is true but would only be the case if their change in margin requirements automatically triggered a margin call. Regardless if this happens I will only have my most recent investments (and lowest loss) investments liquidated. How big of a hike to margin requirements for index funds have they done historically? Where can I find this information? Is it legal for them to hike the maintenance margin without warning and have they done so historically without warning?
Wouldnt you rather your highest loss positions be better to be liquidated so you could at least get the tax benefits?
Deal Addict
Jan 14, 2009
1603 posts
628 upvotes
Vancouver, BC
Applesmack wrote:
Feb 13th, 2018 5:42 pm
I would only buy put options if I am close to the margin requirements and I feel that the market can continue to go down. It is worth the cost of the put options as an insurance against liquidation. It isn't that costly since it isn't expected to be something that happens often. The alternative would be to transfer my TFSA assets into the margin account. Would have to weigh the pros/cons.
Long put options generally have a negative expected return so it becomes a exercise of market timing. I would do some research on going long put options as a strategy during market downturns. I don't think you will ever see a margin call if you are disciplined (it's very difficult not to buy during a pullback) and maintained that leverage ratio but crap happens. Make sure to benchmark and keep records for the CRA.
Sr. Member
Apr 9, 2012
559 posts
142 upvotes
Markham
Applesmack wrote:
Feb 13th, 2018 2:18 pm
What you are suggesting is the definition of timing the market though. DCA allows me to weather market downturns since even as the market is falling I continue buying. Even if the market falls now nobody knows how long this correction may be nor how steep this correction may be. The market may also continue the bull run for another decade. The more the price falls the more DCA benefits me.
Its not market timing. I am not suggesting you to time the entry point. This is more about risk management, theres no downside risk if and when the market falls using leverage.

Top