Why is my Interactive Brokers maintenance margin much higher than the ETF requirements?
Why is my Interactive Brokers maintenance margin much higher than the ETF requirements?
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Manó · External communityPost link
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Author: Manó
Original post: https://money.stackexchange.com/questions/166655
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I have a margin account at Interactive Brokers where I invest in just two ETFs. According to IB, each of these ETFs has a 25% maintenance margin requirement.
Currently, I have borrowed €28,960. However, when I look at my account, the reported maintenance margin requirement is €21,211. That corresponds to a maintenance margin of
21,211/(21,211 + 28,960) * 100 = 42.2%.
I understand that IB can apply a “house margin”, making the effective requirement higher than the stated 25%. But 42.2% seems unusually high, especially considering that I’m invested in relatively broad ETFs (S&P 600 and a global ETF).
So my questions are:
Am I misunderstanding how IB calculates maintenance margin?
Is there anything I can do to lower the effective maintenance margin closer to 25%?
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0xFEE1DEAD · External communityPost link
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Author: 0xFEE1DEAD
Original post: https://money.stackexchange.com/a/166660
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Have you checked the
Margin Requirements
on the website?
For Europe
Initial Margin
Margin requirements are determined by risk-based portfolio analysis models specified by each exchange. For details, visit the specific exchange site in question.
Maintenance Margin
25% * Stock Value
Reg T End of Day Margin
50% * Stock Value
Cash or IRA Cash
100% * Stock Value
A risk based margin system evaluates your portfolio to set your margin requirements. The risk valuations of your positions are created using simulated market movements that anticipate possible outcomes. As a result, a more accurate margin model is created, allowing the investor to increase their leverage.
The posted margin requirements are the minimum. It could be higher based on the volatility and correlation between the two ETFs.
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Bob Baerker · External communityPost link
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Author: Bob Baerker
Original post: https://money.stackexchange.com/a/166676
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I'm going to backfit and assume that your position is worth $59,824. Margin percent is Equity Divided by Market Value which is currently 51.6% ($30,865/59,824).
If the Minimum Margin Requirement level is 25% then your MMR will occur when your equity drops to 25% of the Market Value. That would occur at a position value of $38,613 (9,653/38,613). The shortcut formula for a 25% MMR is 4/3 times the margin loan which is (4/3*28,960 = 38,613). For a 30% MMR, the formula would be 10/7 times the loan.
Your current position can drop $21,211. Any further drop will result in a margin call.
This is my understanding of margin for the USA, where I am. I am not familiar with margin requirements in Europe but I assume, perhaps incorrectly, that they would be handled similarly.
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Quoted from Forex.com.bd-Editorial External answer — Personal Finance Stack Exchange Author: 0xFEE1DEAD Source score (net votes, not local likes): 0 Original post: https://money.stackexchange.com/a/166660 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Have you checked the Margin Requirements on the website? For Europe Initial Margin Margin requirements are determined by risk-based portfolio analysis models specified by each exchange. For details, visit the specific exchange site in question. Maintenance Margin 25% * Stock Value Reg T End of Day Margin 50% * Stock Value Cash or IRA Cash 100% * Stock Value A risk based margin system evaluates your portfolio to set your margin requirements. The risk valuations of your positions are created using simulated market movements that anticipate possible outcomes. As a result, a more accurate margin model is created, allowing the investor to increase their leverage. The posted margin requirements are the minimum. It could be higher based on the volatility and correlation between the two ETFs.
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