Beating the UK brokerage via true arbitrage - £8k -> £98k ($128k) since 21st April
Alright you American autists, here's a gains post from the UK across the pond - listen up because it's pretty incredible, managed to screw over our broker to turn ~£8k into £98k / $128k USD by reading the small print, true u/fuzzyblankeet style. https://preview.redd.it/9mlup18v0q951.png?width=343&format=png&auto=webp&s=aea1393d304d16063d62d54d30cc5be9b23d937a Unfortunately, we don't have options trading, commission free robinhood which crashes, or any other US based degeneracy, but instead we British chaps can trade "CFDs" ie. 'contracts-for-difference', which are essentially naked long / short positions with a 10-20% margin (5-10x leveraged), a 'holding cost' and you could theoretically lose more than your initial margin - sounds like true wallstreetbets autism, right? Well grab a lite beer (or whatever you lite alcoholic chaps drink over there) and strap in for this stuff: So, CMC Markets, a UK based CFD brokerage, wanted to create a West Texas Intermediate Crude Oil 'Spot' product, despite WTI contracts trading in specific monthly expirations which can thus have severe contango effects (as all of you $USO call holders who got screwed know) - this was just a product called "Crude Oil West Texas - Cash", and was pegged to the nearest front-month, but had no expiry date, only a specific holding cost -> already a degenerate idea from their part. So in early April, just before when the WTI May-20 expiry contract 'rolled' at **negative** $-37, the "WTI Cash" was trading at $15 at the time, but the *next* month June-20 expiry was still $30+ we (I am co-running an account with an ex-Goldman colleague of mine) simultaneously entered into a long position on the "WTI - Cash" product, and went short on the "WTI Jun-20 expiry", a pure convergence play. Sure enough, the June-20 tanked the following week, and we made over £35k, realised profits. But meanwhile the May-20 also tanked, and we were down £28k. But rather than realise this loss, we figured we could just hold it until Oil prices recover, and profit on both legs of the trade. However, CMC Markets suddenly realised they are going to lose a lot of money with negative oil prices (Interactive Brokers lost $104m, also retards), so they screwed everyone holding the "WTI - Cash" product trading at $8 at the time, and pegged it to the December 2020 expiry trading at $30, with a 'discount factor' to catch up between the two. https://preview.redd.it/zjjzyahx0q951.png?width=517&format=png&auto=webp&s=9523bab878f06702133631f12c1109081f299f65 Now fellow autists, read the above email and try to figure out what the pure arbitrage is. CMC markets will charge us a 0.61% **per day** holding cost (calculated as the 10x levered value of whatever original margin you put up, so in our case £8k*10x=£80k*0.61% = £500 per day, £1.5k on weekends for extra fun) on our open positions, but also "increase" the position value by 0.61% per day vs. the **previous day's** WTI - Cash value. Got it yet? No? Still retarded? Here's where maths really helps you make tendies:-> If your 'cost' is fixed at 0.61% of your original levered position, but your 'gains' are 0.61% of the previous day's position, then your gains will be ever increasing, whereas your costs are fixed. So we added some extra £££ (as much as we could justifiably put into a degenerate 10x levered CFD account) and tried to see if it works. Long story short, it does. At this point in July we were making **over £1k per day on a £8k initial position*\* regardless where the WTI Dec-20 fwd moved. Unfortunately, eventually CMC markets realised what utter retards they were, and closed down the arbitrage loophole, applying the holding costs to the previous day's value. But not before we turned £8k into £98k, less holding costs. https://preview.redd.it/uh0f8knz0q951.png?width=553&format=png&auto=webp&s=c7e629f72de5aeb4e837ccef44ecae708f058bee Long story short, puts on $CMCX they're total retards, and given what a startup robinhood / other brokerages are, never assume that only they are the ones taking your tendies away, sometimes you can turn the tables on them!
Post 1: Basics: CALL, PUT, exercise, ITM, ATM, OTM Post 2: Basics: Buying and Selling, the Greeks Post 3a: Simple Strategies Post 3b: Advanced Strategies Post 4a: Example of trades (short puts, covered calls, and verticals) Post 4b: Example of trades (calendars and hedges) --- This is a follow up of the first post. The basics: Volatility and Time Now that you understand the basics of intrinsic and extrinsic values and how together gives a price to the premium, it is important to understand how the extrinsic value is actually calculated. The intrinsic value is easy: The intrinsic value of a call = share price - strike (if positive, $0 otherwise) The intrinsic value of a put = strike - share price (if positive, $0 otherwise) The extrinsic value is mostly based on two variables: volatility of the share price and time. Given the historic volatility, and the predicted volatility, how far can the share price go by the expiration date? The longer the date, and the higher the share volatility, the higher the chance of the share to change significantly. A share that jumped from $25 to $50 in the past few weeks (hello NKLA!) will have much higher volatility than a share that stayed at $50 for several months in a row. Similarly, an option expiring in two months will have a higher extrinsic value than an option expiring in one month, just because the share has more chances to move more in two months than a single month. The extrinsic value is calculated as a combination of both the expiration date (how many days to expiration, hours even when you are close to expiration), and the implied volatility of the share. Each strike, call or put, will have their own implied volatility. It is quite noticeable when you look at all the strikes for the same expiration. Sometimes, you can even arbitrage this between strikes and expiration dates. The basics: Buying and Selling contracts Until now, we have only talked about buying call and put contracts. You pay a premium to get a contract that allows you to buy (call) or sell (put) shares of a specific instrument. As your risk is the cost of your premium, you can notice that buying options is a risky proposition. To make a profit on the buying side:
You have to be directionally correct. The price must go up for calls, down for puts.
AND the share price move must be bigger than the premium you paid.
AND the share price move must happen before the option expiration.
You will notice that it is pretty unforgiving. Sure, when you are right, you can make a 100% to 1000% profit in a few months, weeks, or even days. But there is a big chance that you will suffer death by thousands of cuts with your long call or put contracts losing value every day and become worthless. We were discussing earlier how volatile stocks can have a high extrinsic value. What happens to your option price if the share is changing a lot and suddenly calms down? The extrinsic portion of the option price will crater quickly because volatility dropped, and time is still passing every day. The same way you can buy options, you can also sell call and put options. Instead of buying the right to exercise your ITM calls and puts, you sell that right to a 3rd party (usually market makers). To make a profit on the selling side:
You have to be directionally correct.
OR the share price does not move as much as the premium.
OR the share price does not move before the option expiration.
Buying calls and puts mean that you need to have strong convictions on the share’s direction. I know that I am not good at predicting the future. However, I do believe in reversion to the mean (especially in this market :)), and I like to be paid as time is passing. In case you didn't guess yet, yes, I mostly sell options, I don’t buy them. This is a different risk, instead of death by a thousand cuts, a single trade can have a big loss, so proper contract sizing is really important. It is worth noting that because you sold the right of exercise to a 3rd party, they can exercise at any time the option is ITM. When one party exercises, the broker randomly picks one of the option sellers and exercises the contract there. When you are on the receiving end of the exercise, it is called an assignment. As indicated earlier, for most parts, you will not be getting assigned on your short options as long as there is some extrinsic value left (because it is more profitable to sell the option than exercising it). Deep ITM options are more at risk, due to the sometimes inexistent extrinsic value. Also, the options just before the ex-dividend date when the dividend is as bigger than the extrinsic value are at risk, as it is a good way to get the dividend for a smaller cash outlay with little risk. In summary:
Buying a call, you hope the price to go up significantly.
Max loss is the premium. You lose money with time.
Max profit is infinity, minus the premium.
Buying a put, you hope the price to go down significantly.
Max loss is the premium. You lose money with time.
Max profit is the strike price, minus the premium.
Selling a call, you hope the price to not change much, or to go down.
Max loss is infinity (just don’t sell straight calls, at most do verticals - see next post).
Max profit is the premium. You profit from time.
Selling a put, you hope the price to not change much, or to go up.
Max loss is the strike price.
Max profit is the premium. You profit from time.
The Greeks Each option contract has a complex formula to calculate its premium (Black-Scholes is usually a good initial option pricing model to calculate the premiums). Things that will determine the option premium are:
Current share price
Call or Put
American or European style options
Cost of money (or risk-free rate)
And the time to expiration
There are four key values calculated from the current option price: delta, gamma, theta, and vega. In the options world, we call them ‘the Greeks’. Delta is how correlated your option price is compared to the underlying share price. By definition 100 shares have a delta of 100. If an option has a delta of 50, it means that if the share price increases by $1, the new price of your option means that you earned $50. Conversely, a drop of $1 means you will lose $50. Each call contract bought will have a delta from 0 to 100. A deep ITM call will have a delta close to 100. An ATM call will have a delta around 50. Note that on expiration day, as the intrinsic value disappears, an ATM call behaves like the share price, with a delta close to 100. Buying a put will have a negative delta. A deep ITM put will have a delta close to -100. Selling a call will have a negative delta, selling a put will have a positive delta. Gamma is the rate of change of delta as the underlying share price changes. Unless you are a market maker or doing gamma scalping (profiting from small changes in the share price), you should not worry too much about gamma. Theta is how much money you lose or profit per day (week-end included!) on your option contracts. If you bought a call/put, your theta will be negative (you lose money every day due to the time passing closer to the contract expiration, and your option price slowly eroding). If you sold a call/put, your theta will be positive (you earn money every day from the premium). It is important to note that the theta accelerates as you get closer to the expiration. For the same strike and volatility, a theta for an option that has one month left will be smaller than the theta for an option that has one week left, and bigger than an option that has 6 months left. In the third post, I will explain how you can take advantage of this. FWIW, with the current volatility, I get 0.1% to 0.2% of Return On Risk per day, so roughly 35% to 70% of return annualized. I don’t expect these numbers to keep like this for a long time, but I will profit as long as we are in this sideways market. I also have an overall positive delta, so I will benefit as the market goes up, and theta gain will soften the blow when the market goes down. Vega is how much your option price will increase or decrease when the implied volatility of the share price increase by 1%. If you bought some puts or calls, your vega will be positive, as your extrinsic value will increase when volatility increases. Conversely, if you sold some puts or calls, your vega will be negative. On the sell side, you want the actual volatility to be lower than the implied volatility to make money. This is why we often say that you sell options to sell the volatility. When volatility is high, sell options. When volatility is low, buy options. Not the opposite. This also explains why some people lose money when playing stock earnings despite being directionally correct. Before earnings, the option price takes into account the expected stock price change, so the volatility is significantly higher than usual. They bought an expensive call or put, numbers are out, share price moves in the correct direction, but because suddenly the volatility dropped (no uncertainty about the earnings anymore), the extrinsic value of the option got crushed, and offset the increase in intrinsic value. The result is not as much profit as expected or even a loss. Bid/Ask spread Options are less liquid than the corresponding shares, especially given the sheer quantity of strikes and expiration dates. The gap between the bid and the ask can be pretty big. If you are not careful about how you enter and exit the trade, you will transform a profitable trade into a losing one. Due to the small contract costs, the bid/ask spread adds up quickly, and with the trading fees, they can represent 10% or more of your profit. Beware! Never ever buy or sell an option at the market price. Always use a limit order, start with the mid-price, or be even more aggressive. See if someone bites, it happens. If not, give up $0.05 or less, wait a bit longer, and do it again. Be patient. If you are at mid-price between the bid and the ask, and you think this is a fair price, and the market or time is on your side, again just be patient. It is better to not enter a trade that is not in your own terms than overpaying/underselling and reducing your profit/risk ratio too much. LEAPs Leap options have a very long expiration date. Usually one year or more. ETF indexes, like SPY, can have leaps of 1, 2, or 3 years away. They offer some advantages as they have a low theta. A deep ITM Leap can behave like the stock with 30% of the cost. Just remember that if the share drops by 30% long term, you will lose everything. Watch out! This is a personal experience of mine in 2008, where I diversified away from a few companies to many more companies by buying multiple leaps. It was akin to changing 100 shares into options with a delta of 250. However, when the market tanked, all these deep ITM leaps lost significantly (more than if I only had 100 shares). Good lesson learned. You win some, you lose some. Number of shares The vast majority of options trades at 100 shares per contract. But during share splits, or reverse splits, company reorganizations, or special dividend distributions, the numbers of shares can change. The options are automatically updated. The 1:N splits are easily converted as you just get more contracts, and your strike is getting adjusted. For example, let’s say you own 1 contract of ABC with a strike of $200 controlling 100 shares (so exposure to $20k). Then the company splits 1:4, you are going to get 4 contracts with a strike of $50, with each contract controlling 100 shares (so still the same exposure of $20k). The N:1 reverse splits are a tad more complex. Say you have 1 contract of ABC with a strike of $1, controlling 100 shares (so exposure to $100). Then the company reverse splits 5:1, you are going to still get 1 contract, but with a strike of $5, with each contract controlling 20 shares (so still the same exposure of $100). You will still be able to trade these 20 shares contracts but they will slowly trade less and less and disappear over time, as new 100 shares contracts will be created alongside. Brokers and fees In my experience, ThinkOrSwim (TOS owned by TD Ameritrade, being bought by Schwab) is one of the very best brokers to trade options. The software on PC, Mac, iPad, or iPhone is top-notch. Very easy to use, very intuitive, very responsive. Pricing on contracts dropped recently, it’s now $0.65 per contract, with $0 for exercise or assignment. You may actually be able to negotiate an even better price. I also have Interactive Brokers (IB), and that’s the other side of the spectrum. The software is very buggy, unstable, unintuitive, and slow to update. I tried few options trades and got too frustrated to continue. Too bad, it has very good margin rates (although if you are an option seller it is not really needed, as you receive cash when you open your trades). However, it’s perfectly acceptable to trade plain ETFs and shares. Market Markers Most of the options you buy or sell from will be provided by the Markets Makers. Do not expect that you will get good deals from them. You will see in the third post how you selling a put and buying a call is equivalent to buy a share. When you buy/sell a call / put from the market makers, you are guaranteed that they will hedge their corresponding positions by buying/selling a share and the opposite options (put/call). The next post will introduce you to simple option strategies. --- Post 1: Basics: CALL, PUT, exercise, ITM, ATM, OTM Post 2: Basics: Buying and Selling, the Greeks Post 3a: Simple Strategies Post 3b: Advanced Strategies Post 4a: Example of trades (short puts, covered calls, and verticals) Post 4b: Example of trades (calendars and hedges)
Lemme start by saying I've used several different trading platforms (Robinhood, Merrill Edge, Tastywords, Schwab, TD, Fidelity), and by far IBKR Lite takes the cake in terms of my overall satisfaction. Here's why i think using IBKR Lite is #1 & hope it helps someone out there: Pros:
2.5% annual margin rate; by far the cheapest
You can have multiple accounts; e.g. I have 1 account for stocks, 1x options, 1x futures, 1x ETFs, etc.
Awesome mobile app, your settings follow you around like its in the "cloud", and their Stock Yield Enhancement Program is pretty decent if you like speculative stocks.
You can buy pretty much any security or derivative you can think of, on almost any exchange, purchased in almost any foreign currency.
$0 commissions of course for IBKR Lite users.
The platform is powerful; charting, financials, analyst ratings, forecasts, news, statistics, etc.
They have all the order types + some I just learned after using IB.
TWS Workstation > ThinkorSwim
You can learn alot with Interactive Brokers; Traders Insight, Quant Insights, IBKR Forum, and all the stats/figures they give you can be googled on Investopedia.
TWS Workstation makes me feel like I'm Bradley Cooper's character in the movie Limitless.
At first glance it can be quite alot to take in if you're not a student of finance; e.g. Robinhood-users would HATE this platform cause it actually gives you the tools to succeed.
Complex Data subscriptions can cost money, but tbh i just use Yahoo Finance for live prices.
You have to enable alot of settings before getting started.
You don't get access to the Python API with IBKR Lite, Pro-version only.
Taking advantage of TFSA margin power to sell option spreads in margin account
Lately I've been thinking a bit about ways I could take advantage of Questrade's Margin Power feature (QT is the only broker I'm aware of that does this). For those not familiar, it allows you to use assets in your TFSA as collateral for a margin account. Simply buying equity on margin isn't a great option, because of QT's terrible margin interest rates. But I figured that selling option (spreads) would allow you to leverage your assets, while avoiding paying any interest. Some assumptions I've made: 1. Most of your assets are in registered accounts, and you'd prefer to keep it that way. Normally Interactive Brokers would seem like a much better option for margin and/or option trading, but you can't leverage your TFSA investments with them (that I'm aware of anyway). 2. You're selling put options/spreads on broad indexes/ETFs (e.g. SPX), such that the chance of them going to zero/losing significant value forever are very low. This way, any time your options would end up ITM you could just roll it out and it will eventually end up OTM. 3. You're only using a fraction of your total available margin, such that even if the market goes down and both your TFSA investments and your options lose money, you aren't at risk of margin call. The risks I've identified are: 1. You could potentially have to roll out your options for months or years if you want to avoid taking a loss. Continuously rolling out would start racking up commissions, and you may end up taking a small loss every time depending on liquidity and what the bid/ask spread is looking like. Not ideal, but no risk of catastrophe. During this time you may also have to have a bunch of money essentially 'locked up', for margin maintenance (unless you're willing to close your options for a loss). 2. Black swan event, such that even though you had a had reasonable maintenance excess your whole portfolio tanks to the point you get margin called. With a diversified TFSA and a cautious use of your margin, it seems like you could make this possibility very unlikely. 3. Not a risk, but you'd be paying some capital gains tax (and adding a bit of complexity to your tax return), compared to purely investing in your TFSA. What are people's thoughts on this? Are their risks that I've missed? Additional optimizations that could be made? I'm not trying to act like this as a 'free money' approach, but it does seem like a reasonable way to leverage your TFSA a bit while avoiding paying interest, and avoiding buying leveraged ETFs with their associated downsides.
Rant: Of late, there’s been too much low-quality, bullshit DD on here. I’ve come to rescue you from your own retardation—a formidable task, I might add. Fortunately, I’m not going to do it alone. I’ll be doing it with the help of Thomas Peterffy, a Hungarian refugee who revolutionized the brokerage industry, and in so doing went from penury to multi-billionaire-hood. Peterffy is the founder of $IBKR, or Interactive Brokers Group, Inc. Here’s a description I definitely did not rip directly from CapitalIQ: “Interactive Brokers operates as an automated electronic broker worldwide. It specializes in executing and clearing trades in securities, futures, foreign exchange instruments, bonds, and mutual funds. The company custodies and services accounts for hedge and mutual funds, registered investment advisors, proprietary trading groups, introducing brokers, and individual investors. In addition, it offers custody, prime brokerage, securities, and margin lending services. Further, the company provides electronic execution and clearing services. It serves institutional and individual customers through approximately 120 electronic exchanges and market centers. The company was founded in 1977 and is headquartered in Greenwich, Connecticut.” Essentially, IBKR is inverse Robinhood. It has a shockingly bad user interface, is not designed to gamify investing, and does not have a retarded userbase. However, it does have better fills, better tech, a wider variety of options (both literal and figurative), more client AUM, etc. This is why you might not have heard of it. But rest assured, it’s a massive company; it is, essentially, the engine mobilizing much of the market machine. I’m bullish for two main reasons:
Upcoming earnings (July 22nd) and July EOM numbers report
Comparable companies have shown huge growth (e.g. $VIRT in Q1, which reported three weeks after IBKR and caught more Covid-trading)
IBKR releases monthly KPIs, the last batch of which came out recently, validated the theories described herein, and sent us on an upwards trajectory
Momentum: this stock is an inverse POS, which recently tends to go up with SPY but not down
TL;DR: IBKR 8/21 $55 C, $60 C for higher risk Business Pros:
High moat business with tons of IP
IBKR releases monthly metrics; these have been very strong as mentioned above:
1,862 thousand Daily Average Revenue Trades (DARTs), 131% higher than prior year and 13% higher than prior month.
Ending client equity of $203.2 billion, 33% higher than prior year and 7% higher than prior month.
Ending client margin loan balances of $24.9 billion, 3% lower than prior year and 7% higher than prior month.
Ending client credit balances of $71.0 billion, including $3.1 billion in insured bank deposit sweeps, 30% higher than prior year and 1% higher than prior month.
876,000 client accounts, 36% higher than prior year and 4% higher than prior month.
487 annualized average cleared DARTs per client account.
IBKR makes most of its money from loans by acting as a quasi-bank
More total client AUM is very good for revenue (see third and second bullet from bottom above)
We’ve just seen banks with a focus on trading outperform, again emphasizing what a large role trading activity is playing in this market
IBKR also be seen tech company—but it’s not above its pre-Covid high unlike most
Serves as a volatility hedge, because volatility is profitable for the company (cheap IV)
This can be seen in part by it’s relatively low market correlation (B = .63)
Volatility will almost certainly increase as we enter earnings season
Great international focus
Recently opened an office in Singapore
69% of their clients are outside the U.S. (international account growth rate at 23% vs 15% in US) which gives broader revenue base
Relatedly, the biggest opportunity driving Net Interest Margin (NIM) income is from key customer segments. There’s only around <0.5% of target asset market (TAM) penetrated in fields of global retail clients through intro brokers, financial advisors and hedge funds.
Peterffy has spoken to the idea that IBKR could capture more TAM and become a high multibagger long term by capturing more TAM.
Major holder of $TIGR, which has done extremely well
$IBKR netted over $1 billion so far off the $TIGR IPO, and the stock has been strong recently
8% short float w/ high days to cover
Not really short-squeeze material, but somewhat squeeze-like conditions existent
Earnings could squeeze this, especially because management owns so much of the stock
Comparables like $VIRT have done super well; IBKR might not be as explosive but certainly should do better than it has been
“The CEO I admire most is Thomas Peterffy of Interactive Brokers. He came to the U.S. penniless and built a massive fortune and, more importantly, a great company. His is a story of innovation; he was one of the first to use computers for market making. Peterffy was smart enough to see the applications of technology to online brokerage, and brave enough to pursue what could effectively kill the market-making business— and he is a great executor. The business has profitably and steadily grown the account base, growing brokerage accounts by 15%+ per year like clockwork. Peterffy still personally owns over 70% of the company, and all but ten of the company’s approximately 1,400 employees own shares. He has built a company with the lowest costs and highest margins, a very long runway for growth, a history of execution, and a highly aligned team.”
CEO explicitly called it a “stay-at-home stock”
Trading volume was 3X normal and account openings were 4x normal back in April—more people have gotten into the game since then!
“Despite markets down about 9% year-on-year, our total client equity rose 9% to $161 billion, the second highest quarterly total in our history.”
The above is only from Q1
Momentum, momentum, momentum. Some of you need to learn that.
They have fuckups, and recently got a ton of bad PR due to the oil contango fiasco!
Not the greatest customer service, certainly (does anyone really give a shit, though?)
Diverse customer base leaves it susceptible to geopolitical and geoeconomic risk
Stock was in a downtrend since 2018 before recent turnaround—who knows where momentum is now
The high (85%) percentage of shares owned by management means that shareholders are effectively a minority interest
To me, this is good, as it indicates a longer term focus, but it might not be good for short term results
Highly valued (possibly fundamentally overvalued) at a PE of 24.9x
Lower interest rates—which will remain for the foreseeable future—are a headwind
That being said, IBKR is less susceptible to them than other brokers
Interest rate risk is lessened as they adopt a relatively fixed net interest margin (NIM) spread.
Client balances receive 50bps below the Fed Funds rate, and excess cash is invested in repos & treasuries, while margin rates are typically 25bps – 150 bps above the Fed Funds, with rates depending on the size of margin.
Most major risks on the downside (refinance, credit risk, interest rate risks etc.) are limited. The main risk is that if they’ve already largely penetrated their TAM and are unable to drive success by broadening appeal to their other market segments valuation is overly rich at these levels.
This market is volatile, and IBKR is in no way immune to volatility in SPY. So you might want to hedge this play.
Summary: Interactive Brokers (IBKR) is a tech-focused, low cost brokerage firm. It is also a quasi-bank, making money through interest on client assets. It benefits when:
Interest rates increase
When account signups increase (they have a paid Pro version); this is minor
When total user AUM increases
When DARTs volume increases
While interest rates have declined, IBKR is comparatively less susceptible than are its competitors. And for various reasons outlined above, we can rest assured items 2 through 4 will continue to rise dramatically. This should result in significant appreciation. Is there room to run? Certainly. The ATH is $79.70, which also arrived after a period of volatility (remember, volatility is good for IBKR!). Of course, there’s a time-lag element to the results of volatility, which I map out below. We’re just getting into the good part now: nut For all of these reasons, I believe that Earnings + EOM KPI updates will pour gasoline on the recent fire. Or, as George Soros crustily uttered between denture fittings: “You want to be long the things that are going up, and short the ones that are going down.” TL;DR: IBKR 8/21 $55 C, $60 C for more risk/reward Positions (wanted to let it run a bit before helping out you tardigrades): https://preview.redd.it/32ru2d00i8b51.png?width=1416&format=png&auto=webp&s=0b592f1b956daa8f1dff04544f4bdb6a27e55d24 Disclaimer: not investment advice! do your own DD. I have a position, obviously. Do not yolo. Hedge your bets.
Occasionally people ask how these loans work. With that in mind: from the Canadian prairie on a beautiful day in July, to you: First, if you're from the U.S.: I'm doing this from a Canadian perspective which means I'm ignoring the Regulation T, special memorandum account, overnight maintenance requirement, and initial margin, because all of those are concepts that have no equivalent or application in Canada. But the basics are the same. You can ignore all of those concepts because they have no bearing on how margin actually works. Those concepts are simply restrictions in how you can use margin and as a practical matter they're not onorous restrictions. I'm also ignoring U.S. risk-based "portfolio margin" because that's a specialized, alternative margin system some brokers offer in the U.S., that we don't have in Canada. We have traditional, rules-based margin that hasn't changed in Canada in 100+ years. Note: If you are a Canadian resident buying U.S. stock in Canada you still fall under the Canadian rules for margin. Margin in Canada hasn't really changed since the 1900's, except you have to put up at least 30% nowadays instead of 10% as it was back before the crash of 1929. Basically that's the only thing that's changed. In Canada you can borrow up to 70% of a position at once for most stocks. This means that if you want to buy $10,000 worth of RBC or Apple, you only have to put up $3,000 and your broker lends you the rest. Margin was first developed in the Netherlands which basically invented the modern financial system we have today in the West, back in the 1600s. The Dutch East India corporation (ticker VOC) was at one point 20% of the world's total commerce. That would be like a company in 2020 grossing about 16 trillion US a year. By comparison Apple brings in about one half of one percent of that. The Amsterdam stock market developed just to trade VOC and other shares and related securities. Seein the success of their Continental rivals, the British copied the Dutch and for a long time, until after the Battle of Waterloo, the western world had two rival financial capitals, London, and Amsterdam. For various historical reasons, Amsterdam got pushed out of the picture and for about 100 years the City of London (which is what the financial district in London is called) was the financial capital of the west. They of course now share that crown with New York City. But it's really the Dutch who started it all, around the time of Vermeer. *** The concept is that the bank (or broker) will lend against some of your stock, but not all of it. They want a "haircut." The haircut is the amount they won't lend against. In Canada the haircut is usually 30% but can be 50% and there are some stocks the banks won't lend against at all, like most of the stuff on the TSX-V or on the U.S. pink sheets. Every bank is different, so BMO InvestorLine might want 50% on one company and Interactive Brokers Canada might want 30% or vice versa for another. But most things are 30%, some are 50% and some are 100% (meaning no loan). The maximum available leverage is 1/haircut. If the haircut is 30% as is typical in Canada, the bank will let you buy up to 1/0.3 = 3 1/3 as much as your cash, meaning, you can borrow up to 2 1/3 dollars for every dollar you put up. That's the limit. But: So say you have $3,000 and you want to buy on margin. As the bank haircut (margin rate) is 30%, you can buy $3,000/0.3 = $10,000 worth of stock. Obviously you then have a loan of $7,000. You now have $10,000 worth of stock, but remember, the bank won't let you borrow against 30%*$10,000 = $3,000. So your collateral is only $7,000. So you now have a $7,000 loan collateralized by $7,000 worth of stock. In the above example, you put up 30% margin, the same as the haircut. It's easy to see that if your total position slides so much as a dollar, you will have less collateral than $7,000 and therefore get what's called a "margin call" where they will tell you that you have to put up more money in a few hours or sell stock (which automatically pays down the loan to the extent of the sale) so that you have enough collateral to cover your loan, otherwise they will automatically sell a stock of their choosing at an amount of their choosing. They are also allowed to sell whichever stock they choose automatically without calling you first, in the event of a margin call. That is explicitly set out in your margin agreement. There have been at least two challenges to that in the Ontario courts in the last 20 years or so, where the former client argued that the bank sold their shares out without first advising them, or, in one of the court cases, after promising to hold off so that the client could put up money, and then reneging on that and selling the client's stock anyway. The court in both cases sided with the bank. The margin is for real, not negotiable, it is there to protect the bank and the other client's capital, and the words "the bank can sell at any time and without prior notice" mean what they say they mean. If you get sold out at a loss, don't expect the courts to give you redress. So obviously you need some "buffer" because of volatility, but how much do you borrow? Now you have to understand some more math. target margin = 1-(1-x)*(1-haircut) x is the price drawdown target margin is how much margin you have to put up. Say Apple is marginable at 30% (the haircut) by your bank. You decide you want to borrow on margin. But you decide, "I will allow Apple to slide 40% from what I buy it at before I get a margin call." So how much margin should you put up? target margin = 1-(1-0.4)*(1-0.3) = 1-0.6*0.7 = 1-0.42 = 0.58. So you have to put up 58% margin. That means if you have $3,000 to invest, you would buy $3,000/0.58 = $5,172 worth of Apple. If Apple is trading at $350 that means it can slide to $210 before you get a margin call. At which point you will have lost 0.4/0.58 = 68.9% of your money. (Remember, leverage is simply 1/margin.) You can convince yourself by working through it as a check. In the example, as you had $3,000 and you margined that at 58%, you bought $3,000/0.58 = $,5172 worth of stock. Obviously your equity at the time of purchase was be $3,000 because you owned $5,172 worth of stock and owed the bank $2,172. Because of the haircut, 0.3*$5,172 = $1,551 could not be used as collateral. Then the stock slid 40%, from $350 to $210, so your total stock position was then (1-0.4)*$5,172 = $3,103. Of course, you still owed the bank $2,172. But remember, not all of the $3,103 was available be used as collateral, only 70% (meaning, 1-haircut) of that. So at $210 your collateral was (1-0.3)*$3,103 = $2,172, exactly the same as the loan amount. $210 was, therefore, the lowest price at which you still have sufficient collateral. Anything less and you would have received a margin call or the bank would simply have automatically sold stock, depending on how they saw the risk. Key takeaway here is that the haircut is 30%, meaning that 30% of your stock cannot be used as collateral, which mathematically also means that your account equity/total amount of stock = (total amount of stock-loan)/(total amount of stock) has to stay at or above 30%. You're putting up 58%, meaning you're borrowing 1/0.58 - 1 = 72 cents from the bank for every dollar of your own money that you put up. The formula above is simply a rearrangement using basic algebra, of the basic margin equation which is: price at margin call = initial price of stock*(1-target margin)/(1-haircut) Whatever you do, make sure you are maxing out your TFSA or possibly RRSP or possibly both before you use margin, or only contribute a small amount of capital to a margin account and make sure your TFSA or RRSP is your main stock investment vehicle. Do not put up your TFSA as collateral on a margin account. You could end up getting a margin call, then the broker transfers the TFSA over to the margin account, but then the stock market slides again and now your TFSA is wiped out along with your margin account. Questrade offers this and I think it's an absolutely terrible idea. Frankly I think the CRA should disallow it. Notice how none of the banks offer this. Also have a plan for a margin call. You will get a margin call at some point. One good plan is simply to sell enough stock to pay off the margin loan and then re-enter margin when conditions warrant. It makes absolutely no sense to have cash lying around to meet a margin call. Why not just invest the cash and not use margin. The old adage is, "Never meet a margin call" and I think that's good advice. If the bank gives you to choice of either putting in more money in or selling, then sell. To me there are only 3 reasons you would use a margin account:
You have a large account in a diversified stock portfolio and you want to borrow against say 5% of that to go and buy a car, renovate your house, pursue an investment other than securities;
You are consistently good at beating the stock market by a significant amount, and you have maxed out or at least significantly contributed to a TFSA or RRSP or have other wealth-generating property, you have a well-thought out plan that you commit to, that governs your trading decisions, how much you will borrow, and what you will do in the event of a margin call;
You are executing certain trades that require a margin account; for example, options spreads, short selling stocks or commodity futures trades.
To me the following are bad reasons to trade on margin:
It looks like a way to make even more money in stocks, even though you don't know how to make money in stocks;
You are a diversified "Canadian Couch Potato" -style investor getting more or less average returns and you realize that you can buy stock get a 5% dividend yield and pay 4% pre-tax on margin money, so you decide to be a margined "couch potato."
Margined investing = active investing = checking your positions at least daily and following a trading plan. Finally, the average investor working with average capital should always, always, make the TFSA their #1 priority. The TFSA is truly a gem. When I was in my 20's back in the 90's, the only tax shelters for the average Canadian were the sale of their primary residence and the RRSP, the latter which is a deferral and a deduction but not an outright break the way the TFSA is. The TFSA offers leverage effectively equal to the capital gains inclusion rate * your average taxation rate, and yet without a margin call and at zero percent and it doesn't even magnify your losses. No margin account can match that. Some investors don't believe in margin at all. Like Warren Buffett, who said in a 2018 CNBC interview, "It's crazy to borrow against securities." (Note he said borrowing against stocks, not borrowing to buy stocks.) But he is right in saying that the bad thing about margin is that it gives you limited additional potential upside but at the cost of great potential downside. Understand the risks. Read your margin agreement. Consider even meeting with a securities lawyer who can explain the agreement to you. Consider this statement from an article posted on a popular stock investing website (Fair dealing exception), posted March 15th, 2020: " https://www.fool.com/investing/2020/03/15/5-ugly-lessons-from-a-nasty-margin-call.aspx From its close on Feb. 19 to its close on March 12, theS&P 500fell more than 26%, a huge decline in less than a month. Like many investors who had been using options in a margin account, I faced a margin call during that precipitous decline and was forced to liquidate positions to satisfy that call. Note that despite facing that margin call, I never actually borrowed money from my broker. I just had margin available and usable from a purchasing power perspective in the event some of my options got exercised against me. It didn't matter to my broker, though, who only saw the margin math, rather than the cash and investment-grade bonds that were also in that account and hadn't seen their values evaporate. Unfortunately, my experience during that margin call revealed some very ugly realities about how Wall Street really works, particularly when it comes to retail investors. " He goes on set out "lessons learned." None of those lessons learned is "read your margin agreement before you trade." So he didn't really learn his lesson. Anyway, it's up to each person to do what is right for them, bearing in mind the risks. But know the risks. Trading with margin doesn't mean you'll be wiped out, but if you trade anything you need to know what you're doing and that is even more important if you've agreed to borrow money. The post here was to explain how to do the calculations for this popular and important financial tool as there is a lot of misinformation out there on the subject, make some suggestions on how you can use it as a part of your overall portfolio, and give my opinions on how one might do that. Whichever road or roads you take, good investing. For more details on the TFSA and its contribution rules, see https://www.reddit.com/CanadianInvestocomments/hcy9r9/how_the_tfsa_works/
IB margin account for trading + buy and hold portfolio?
Hi there, I need some advice. I have an Interactive Brokers margin account which I use for some trading, do you think its a good idea to also use this account for buy and hold longterm portfolio? This way keep all my positions on the same platform. Or is it better to hold the long term portfolio on a separate cash account? Thanks for the advice!
The PDT rule comes up a lot in the context of Canada. There is no such thing as pattern day trading in Canada, hence there is no PDT rule. This is so regardless of country of citizenship. If you are a United States citizen and you reside in Canada, PDT does not apply to you. We have no equivalent of the SEC as the federal constitution here says securities regulation is a provincial matter, and each province therefore has its own securities regulator; furthermore, margin loans and trading are regulated by the private sector, not by the government. In Canada the brokers are regulated under both the provincial securities commissions AND the private industry self-regulator, the Investment Industry Regulatory Organization of Canada, (IIROC). IIROC deals with margin and day trading. IIROC is the Canadian version of FINRA and IIROC's rules apply, not FINRA's. Your province's securities commission's rules, and IIROC's rules jointly apply if you trade in Canada, regardless of whether you trade Canadian or U.S. stocks, NOT FINRA's or the SEC's. And IIROC has no PDT rule. Furthermore, none of the provincial securities regulators have an equivalent of Regulation T. So whether you are with a Canadian bank broker like RBC, TD, or BMO, or you're with the Canadian office of a U.S. broker like Interactive Brokers Canada:
PDT does not apply to you because FINRA does not exist here, and IIROC does not care about day trading one way or the other
Reg T does not apply to you because the SEC does not exist here and no provincial securities regulator enforces initial margins or SMA and to my knowledge never has, as margin has never been regulated by the government. It's up to the broker, following IIROC's rules, what they lend.
Note: I use bank here instead of broker because most Canadian brokers are owned by the banks. Now: margin is incredibly simple in Canada. All you have to remember is that you can generally borrow up to 50% against your stock unless the stock is trading under $2, also, if IIROC says it's eligible for reduced margin, you can borrow up to 70% against your stock. For your stock to be eligible for reduced margin it has to be on IIROC's reduced margin list for Canadian stocks, which is a very long list consisting of almost anything you'd want to trade, or in the case of a U.S. stock, a stock that has options that trade on the CBOE/BOX/PHLX or other major options exchange, which again is almost anything you'd want to trade or own. If it's an overseas stock IIROC lets you borrow up to 50% as long as it's on a major index like the UK FTSE 100 or the French CAC 40 otherwise you have to put up 100%. So if you want to buy $10,000 worth of Apple (because it's an optionable U.S. stock) or Shopify (because it's on IIROC's reduced margin list) you have to put up $3,000. Of course, you have to also maintain 30% or 50% margin as applicable, otherwise it's a margin call or autoliquidation at your bank's sole discretion. The bank's right to sell your shares out without notice has been challenged twice in the Ontario courts and both times, the plaintiff client lost. Margin rules are meant to protect the bank/broker's capital and those of other clients and they get enforced, no exceptions. Also the broker can make you put up more than 30% or 50%, if they think conditions warrant, and change that without notice. Et voila. That is all there is to margin in Canada.
Hey guys, as i mentioned in the title. I am an international investor from the middle east and the only platform that i can trade on at the moment is Interactive Brokers. As i am only allowed a cash account and no type of margin accounts my question is. Is it still possible to trade options on a cash account?. I have never tried to do any options trading previously and i would like to enter the ranks of the bankrupt. Please help, thanks
This is guide to US options trading from the UK, because I've seen countless requests of people browsing in /ukinvesting, /options, /wallstreetbets etc. about this. First thing's first - no part of this post is to be taken as financial advice. It is a guide on how to start options trading from the UK. Options/CFD trading is a high-risk activity and most retail traders lose money.
1. CFDs vs. Options
So getting started, options and contracts for difference (CFDs) are both financial derivatives - they derive their values from an underlying security e.g. stock, indices, currency, commodities. Long story short, CFDs do not have an expiration and options do; and at the option expiration date, options give the opportunity to buy/sell the underlying (e.g. stock) at the agreed strike price. CFDs are highly directional (delta) trades where positions require ongoing financing fees by a broker, whereas options strategies allow the trader to trade time decay (theta) as well as market volatility (vega). Options provide greater flexibility in trading strategies (time/volatility trading as well as direction); however, due to this, the more complex strategies can be difficult to understand. Spread betting allows a literal directional bet of an underlying by a certain date. It is most similar naked options - i.e. if your position moves against you enough, your broker may forcibly close your position unfavourably and/or margin call you for extra cash ("you can lose more than your initial deposit"). With options/CFDs, you can define risk by specifying a profitability range (spreads) instead to avoid this scenario. Due to spread betting being so close to gambling, it is treated as such in the UK in terms of taxation - gains are tax free. I will also add here that CFDs/options can also be used in this manner (gambling, with subsequent margin calls etc.), and that CFD brokers tend to understate the risks of these strategies, whilst almost all options brokers require elevated permissions to seek out this level of risk - this is because blowing through margin presents a risk to the broker and they would rather have commissions without the risks of the brokerage going bust. The lowest level of permissions still allows you to buy extremely highly leveraged OTM options without margin, as your max loss is limited to the amount you paid for those options.
Given that options effectively open up two additional aspects of trading (time/volatility) and require additional regulatory oversight compared to CFDs/spreadbetting, there is basically no options market in the UK - the only brokers at this time are IG/Saxo, and they only do vanilla options on Forex/Indices/Commodities. Everyone else only does CFDs and/or stock (T212, Freetrade, IG, Plus500 etc.). To engage in true stock options trading, the only choice is to open an international/US brokerage account. The two that are accessible to UK investors are Interactive Brokers (IB) and TastyWorks. Both are reputable brokers and have strong insurances for cash & securities held with them.
IB is quite expensive (£20+ pcm minimum), but is the full bells and whistles international trading platform - you may access European options as well as worldwide markets on stocks/currency/anything you want really. Recommended for high value traders/investors.
TastyWorks is the opposite - free accounts, low fees (zero inactivity, free stock trades, low option trading fees), though they charge $45 for cash withdrawals. TastyWorks primarily offer trading on US options (inc. futures) and stocks, so anything listed on the American stock exchanges are game, including international companies listed via ADRs (e.g. global UK companies, especially on FTSE100).
3. Opening an account
I will walk through some of the aspects of funding and operating a TastyWorks account from the UK, as this is my recommendation if you're here looking for a cheap way to get started. Opening a free account on TastyWorks is easy as they are used to foreign traders (form filling within 20-60 mins - you will need a photo of proof of ID and address). It typically takes 1 day for cash accounts and 2-3 days for margin accounts to be ready for funding. My referral link if you feel this guide deserves the effort is: https://start.tastyworks.com/#/login?referralCode=GD9EGGNZYZ. (mods, happy to remove this is this guide is deemed low effort) The account types are:
Cash. Recommended to start because you can always open a margin account easily later. Able to buy long calls/puts and sell covered options. No short stock allowed.
Basic (margin). Able to sell naked puts, and trade defined-risk strategies i.e. anything with a known maximum loss before entering the trade. E.g. credit/debit spreads. Note that naked puts carry significant risk - this is equivalent to CFD trading on margin, and you can have your position forcibly closed at unfavourable market rates if you overleverage. You minimum $2k to access this account.
The Works (margin): everything above, and able to sell naked calls - also easily upgraded to trade futures. Note that naked calls carry HUGE risk - this is equivalent to CFD trading on margin, and you can have your position forcibly closed at unfavourable market rates if you overleverage. The difference in naked calls and naked puts: stock can only go to zero, limiting the (huge) loss on a naked put, whereas a naked call has theoretically unlimited loss since stocks can (theoretically) go to infinity. I won't go into futures - be warned that they carry additional risks to stock options. You need a minimum of $2k, self-declare extensive knowledge on financial products and self-declare min. income of $100k + $50k net liquidity to access this account.
4. Funding the Account
Since trading US options is done in USD, the account must be funded in USD. As international traders, deposits must be "By Wire", assuming you do not have a US bank account - full instructions for the "By Wire" method will show up when you are approved to fund your account. With TastyWorks, UK traders have 3 options at time of writing, going from highest to lowest fee: 1) Starling Bank: ~1% commission (+flat fee TBC?) 2) CurrencyFair: typical ~0.75% commission +$20 flat fee 3) TransferWise/Revolut + UK USD Account: ~0.5% commission +$20 flat fee TastyWorks does not accept third party transfers (accounts not in your name), so services such as Revolut and TransferWise (inc. borderless) do not work directly 4.1 Starling Bank With Starling Bank, you can do an international wire from a GBP account directly. Easy online bank setup and probably fastest way to get started, especially if you already bank with them. Note: Starling Bank is rejecting transfers to TastyWorks 'as it sits out of our international payment provider's risk appetite' (as of 11th May) - waiting for updates Note that other routes include a $20 flat fee charged by intermediate banks before the transfer reaches TastyWorks. Haven't got confirmation that this route is charged or if Starling includes it within their higher fee. 4.2 CurrencyFair TastyWorks have approved transfers via CurrencyFair with a guide at: https://support.tastyworks.com/support/solutions/articles/43000435321-can-i-use-currencyfair-to-fund-my-account- Easy to get started, but a couple hoops to jump through to confirm your transaction to TastyWorks via email. Note that the $20 flat fee is for an intermediary bank to take their cut between CF and TastyWorks, but that is not mentioned on the CurrencyFair website. 4.3 USD account + TransferWise/Revolut The cheapest option is to set up a USD currency account and transfer through that. The account of choice is the Barclays USD Foreign Currency account - you need a current account with them to be able to open the USD account. HSBC also have an offering, but not had this route confirmed. Once the USD account is open, you can transfer into it using Revolut/TransferWise (cheap) and then international (wire) transfer from Barclays account to TastyWorks (free!). Note that the Barclays USD account is still a UK bank account, so you'll need to use a SWIFT transfer from Revolut/TransferWise to turn your GBP into USD. Note that the $20 flat fee is for an intermediary bank to take their cut between Barclays and TastyWorks, but that is not mentioned on the Barclays website. 4.4 Withdrawals To withdraw funds, do the opposite for a deposit, noting that $45 will be charged by TastyWorks per withdrawal.
5. Getting Started
I highly, highly recommend TastyWork's education centre and their TastyTrade videos, especially if you are new to this. Otherwise, once funded, it's as simple as downloading the app on mobile, using the browser trading screen, or downloading their full desktop platform. That's it for the guide - happy trading, and if there are any questions, feel free to get in touch and I'll edit the answers in here. I want this to be a resource because I've helped many people get started, and it would be good to have it all in one place!
Best broker to invest in SWRD/IWDA/EIMI? I did the math
Edit:Post has been updated with all feedback from comments I've been trying to find out the best broker to invest in SWRD and even though InvestingForTwo and FinancialHorse have great articles they don't focus on these ETFs specifically and I wasn't sure if the fees comaprisons were still the same. So to help other new 3-Fund Investors I've compiled what I found , if there are any mistakes please let me know. Principles this assessment is based on All money here is in USD
After $100K, Interactive Brokers (IB) is the best option *see below
The investor aims to invest approx. $10K per year
The investor attempts to keep fees to absolute minimum
Transfer fee to IB (after 100K) is not calculated
pandarable has pointed out Standard Charted Priority Banking is the best option once you hit 200KSGD (140KUSD) in *total assets* (savings + investments) 100K USD = ~140K SGD, so if one has 60K SGD of savings or SG investments it is best to switch to SCB as Priority Banking lets one trade overseas at 0.2% fees and in SG stocks at 0.18% fees and a host of other benefits
Interactive Brokers To purchase SWRD, by default there is a minimum fee of $5 (Look for "LSE International Order Book and USD-denominated stocks") However, as per u/bestblink, you can change it from "Fixed" to "Tiered" fee structure, reducing the fee to $1.90 For those 26 and above - $10 per month Which translates to $120 per year on $10K of investments (1.2% fees) For those 25 and below - $3 per month (Look for "Client is age 25 or under") So even if you DCA every month or Lump Sum it, you will pay $36 in fees annually So this is the bar to beat
Saxo Saxo has two platforms SavoInvestor and SaxoTradeGo but they both have the same fee structure of 0.1% with a minimum of 8 GBP and a 0.12% annual custody fee Look at "London Stock Exchange" ignore "London Stock Exchange (IOB)" They convert the "min.GBP 8" fee to USD which at this point of writing is $9.92 To minimize fees one would have to invest at least $9920 So this would be ideal for the Lump Sum Approach
Invest $10K at one shot, for a $10 transaction fee and $12 custody fee So a total annual fee of $22 if you Lump Sum annually
But I know that in uncertain markets, people tend to want to DCA.
It's not practical to list out all combinations so heres the formula for you to DYI [(Min fee 8 GBP) X (no. of investments per year)] * (GBP to USD Xchange rate) E.G To DCA quarterly (not including custody fee of $12) (8 GBP X 4) * (1.24) = $39.70 To DCA monthly (not including custody fee of $12) (8 GBp X 12) * (1.24) = $119.10
One detail to keep in mind, the custody fee is tied to the value of your portfolio, so it will go from $12 to $24 to $36 as your portfolio increases in 10K of value yearly
Standard Charted Full disclosure, this is the one I am most uncertain about as I could not find a demo trading platform for SC, if there are any corrections please let me know Standard Charted lists a fee structure of a minimun of $10 with a 0.25% brokerage fee You may see something regarding a 1% stamp duty ("Stamp Duty of 1.00% (Buy trades; IE ISIN shares only)") But that does not apply as per u/rahssell and u/rainbow1112 So to minimize fees (100/0.25 X $10) one need to invest at least $4000
So we can break our $10K into 2X$5K sums or one lump sum of $10K, either way the fees are same
.25/100 X $10000 = $25
However, SC charges 7% GST, which makes it $26.75 So $26.75 if Lump Sum Annually If they were to DCA quarterly $10.70 X 4 = $43.80 [Minimum fee of $10 with 7% GST] To DCA monthly $10.70 X 12= $128.40 [Minimum fee of $10 with 7% GST]
So annual fees for the brokers IB - $36-$120 (LS/DCA) Saxo - $22 (LS) -$119.10 (DCA) SC - $26.75 (LS)/ $128.50 (DCA)
But the math doesnt end here, as Saxo has a custody fee that isn't fixed, it's percentage based To do this properly, from we need to calculate the fees from $0 to $100K over 10 years
IB If you start at 26 or above $120 X 10 = $1200 total fees to reach $100K But this fee decreases if you're under 26 Let every year under 26 you are be "Z" $1200 - ("Z" x $84)
The $84 is the difference in normal fees ($120) and the reduced fees for hose under 26 ($36)
E.g Best case scenaro you are 18 $1200 - (8 X 84) = $528
Saxo With its 0.1% fee structure the brokerage fee is straightforward 0.1/100 X $100000 = $100 (Brokerage fees) The custody fees will be $540 Based on .12% on 10K on the first year with amount increasing by 10K each year So $640 total if Lump Sum annually
Using previous calculations to account for DCA If DCA quarterly ($39.70 X 10) + $540 = $937 If DCA monthly ($119.1 X 10) + $540 = $1731
Standard Charted SC is straightforward if you Lump Sum annually or DCA Biannually $26.75 X 10 = $267.5 If you DCA quarterly $42.80 X 10 = $428 If you DCA monthly $128.40 X 10 = $1284
So fees to reach $100K with each broker (not including exchange rate)
So your exchange fees for a year can be as low as $2 if you exchange $10k in a Lump Sum or up to $24 if you decide to exchage monthly as you DCA
So over 10 years on our way ot reach $100K, this would cost between $20 to $240
Saxo Saxo charges a fixed .75% (Under currency conversion fee) as pointed out by u/InvestingForTwo which is quite a lot So on $100K, this adds up to $750
SC So far I calculated SC exchange fee using their LiveFX service by my own estimates it is around 0.4% which is corroborated by u/kalangkabok calculating a 0.43% exchange rate
So 0.4% of $100K would be $400
TL;DR Total fees to reach 100K with each broker
548 - 1280
548 - 1440
The exchange fee for IB is dependent if you exchange annually, quarterly or monthly Formula for IB Let every year under 26 you are be "Z" $1200 - ("Z" x $84) = Base fee Add the amount corresponding amount based on how you plan on exchanging 10K yearly
Edit: u/marcuskh shared a spreadsheet by cfleee from the ShinyThings threadon HWZ to estimate costs as well. Good for people to play with
A few days ago I applied for options trading on a Schwab brokerage account. The e-mail I got today says "We made your requested changes", but the 'Account Verification' document it links to still says "Options Strategy Approved: None", so I guess I was denied. Today I set up an InteractiveBrokers account and inflated my numbers a bit. I can see Options contracts, but when I click to 'Preview' an order it says "You currently do not have trading permission for this instrument type". If I go to "Request Trading Permissions for Options" it just takes me to the trading experience page (2 years 100> trades per year Good knowledge). Bottom line is I want some way to take short bearish positions. I could be wrong but I thought that trading options with a cash account would be the safest way to short profit from downward movements without having to apply for margin/lending. Is there an easier brokerage to apply for options trading, or should I try re-applying to Schwab or IBKR with different parameters? I don't use a smart phone so it has to be desktop or web interface. Edit: Ok so I just went to Robinhood and it was quick and painless, only had to answer a 'risk profile' question which basically boils down to "if you lose money are you going to panic sell or not?" =)
Demographic:International Grades:GPA 4.0(expected since I am taking A levels and exams scores are predicted) Subjects 1.Economics 2.Mathematics
4.language SAT:1570 Not giving SAT 2 due to corona-virus Attended Military School Brief EC list 1.Ted x Chapter Curator and Speaker(Founder Chapter)-Invited and Attended Tedx Conferences Internationally representing my country 2.Founded two very successful cryptocurrency companies(Not mentioning name to protect privacy)
Trading in Financial markets(more than 40k dollar account value)
-mainly trade Forex on margin through interactive brokers -Trade on Trader workstation software by Interactive brokers (also used by hedge funds) -Also trade stocks(Highest gain was investing in Carnival Corp when it was brink of bankruptcy and Saudi Fund invested) Average Returns of 14 percent on Stocks -Chess National Champion U18-Natioanlly ranked 23 overall as of 2020 -Captain Basketball Team(Regional Champions Junior Level) -Chess Club-Collaborated with national chess federation to organize events in regional events at School -National Astronomy magazine writer ---- Awards; 3 national level awards for Astronomy Represented Country Internationally at Spacecraft design Competition Won multiple Investing Competitions ------------------
Hi, recently I have been learning quite a lot about options and specifically how people sell contracts using risk defined strategies to (potentially) generate a profit over the long run. After doing more research on this topic I have found that there is a lot of tedious calculations, screening and technical analysis that go into deciding what stock to sell contracts on. I'm a developer so I wanted to find a way to automate, the selection of the stock in which to sell a contract on, the selection of the highest probability contract (taking into account slippage, expiry date, intrinsic value, greeks, IV etc) and any necessary adjustments that need to made during the life span of the contract. After starting to plan out how I would do this, I ran into a few issues:
Lack of a reliable cheap source of real time financial data - it seems like in the past there has been some great API's such as Yahoo finance and Google finance that gave free access to this data. I understand that the exchanges charge a lot of money for this data but I can't find anywhere that would give me access through an API without heavily affecting my potential profit margin.
Contradicting info on what technical analysis to use and how to use it - from my research there are a boat load of different calculations and indicators that can be used to select a stock and contract. The issue I am having is I don't know what weighting each calculation/indicator has on the probability for profit. I have tried to research this but there looks to be a lot of contradicting info and paywalls.
Expensive brokerage API's and fees - I have been looking for brokers with well documented API's and so far the most reasonable I have found is "Interactive Brokers" but it's still quite heavily cutting into profit margins (which are already pretty low).
Finding a good way to test an options bot - So it seems normally when people want to test a bot they would use a back testing tool, but I have seen some posts about how this is not so great for options and it doesn't make sense in my head how it would work as there would be nobody to buy the contract my bot sells. The other obvious way is paper trading but that seems slow and not a great way to test over a long period of time.
I understand that I won't be the first person to attempt this so any help will be much appreciated. If anyone has experience doing something like this could you also please tell me if there is any money to be made doing this or do all the fees eat away at the profits too much?
I have been working on a trading bot recently and I would like to start testing it with a paper account and potentially real money at some point. I have been looking for brokers with APIs but I could not find any that match my criteria yet.
Ideally, I would like the broker to have low to zero fees
has Official API
has Demo account
Can be used in Europe
I found Alpaca but this is U.S Based and they only offer margin accounts that are subject to the PDT rule. Interactive brokers do not offer free trades outside US I also came across trading 212 which has an unofficial python API that's using selenium. not ideal... as a last resort I will apply my bot on binance on cryptos but ideally I would like to see it in the stock market. Any recommendations?
So I just opened a cash account on Interactive Brokers. I will be playing with 1k for a start and I was wondering if I'll be having trouble trading with unsettled cash. Can someone explain to me what unsettled cash is for a start? Let's say for example I buy stocks worth 1k, I sell them and make 500$, are all 1.500 $ considered unsettled or only the 500? Is there anyway to avoid this? Do I have to create a margin account ? Ty in advance!
So I've been using eTrade for several years now along with Fidelity for my trading. Mostly eTrade for my daytrading activity. Playing with around $30k in capital and using margin. I'm not really committed to either. I'll keep my long-term 401k/HSA/IRA investments sitting at Fidelity (but that is not actively traded) but want to consolidate by active trading and daytrading so now is a good time for me to find a new broker. I was tempted to just go with TDA and the ThinkOrSwim platform. But then someone suggested I look at Interactive Brokers and their TWS platform and another review suggested TradeStation. My question is if you were starting from scratch - meaning you didn't already know a platform deep - which would you want to start with today? My hesitation with TDA/ThinkOrSwim is that I've seen multiple folks, including on this subreddit, complaining about execution time. Since I do daytrading that does matter - although it'll probably still be better than eTrade.
Currency Futures (Canadian dollar D6) - How do I go about hedging by Exposure to USD
Hi there, My base currency is Canadian and I hold some USD exposure right now due to investments. I am new to using Interactive Brokers and futures trading. To my understanding it is possible to mantain a hedge using the cash-settled large and mini Currency Futures Contract and occasionally adjust depending on your USD exposure. https://www.cmegroup.com/trading/fx/g10/canadian-dollar.html Per https://www.retailinvestor.org/hedge.html#risk "It is too expensive to hedge." The cost to buy a $100,000 futures contract good for a year, is about $5. Pittance. Yes you must provide collateral but that is not a cost. You will also find that buried somewhere in whatever method you chose, is a cost/benefit equal to the difference in interest rates between the countries. Since Canada and US rates are so close you can cancel out any cost by using limit orders that let normal market volatility make up the difference. The fund managers who say hedging is expensive are referring to using options. This method IS expensive. Options are a one-sided bet on the direction of FX, expiring within a specific time span. They are not hedges. The cash funding of open futures contracts come from the daily settlements. If your position gains $1,000 in value one day, there will be $1,000 put into your account. More importantly, if your position loses $1,000, it will be taken from your account. If there is not sufficient cash your broker will consider it borrowed and charge you interest. You must realize that because this is a hedge, you are not 'losing' that cash. For every dollar you might lose in the futures account, the offsetting investment in the foreign security will have gained the same amount. Agreed, you cannot liquidate that cash daily, but the value is there." 1) Anybody have any experience in this in how to consider which month of futures contract to purchase, (near month or 1 year from now if I want one year of) I believe futures contract automatically roll-forward to the next month. The Price Curve seems to curve down, and is in some sort of backwardation? So farther away in time cost more due to priced in uncertainty - and also more thinly traded? 2) Collateral is required so I assume is some sort of Margin that is required to maintain the contract, 3) What are the calculations to determine how much to hedge out. Say I have $100k USD? Is it just Looking at say $100k USD x the Future Price Rate (of CAD/USD) or the current Spot Forex Exchange Rate? I.e. $100k USD / 0.74500s (Aug '20) = $134k CAD ~ So 1 $100k CAD Contract and 3-4 $10k CAD mini contracts? 4) Any resources to learn about this? Thanks in advance
I’m sorry if I’m breaking rules with this post. I need alternatives to TD Ameritrade. I’ve never been more disgusted in my life with them after the events of today. After shit fills post lower commissions I should have seen the writing on the wall. I’ve been with them for 5+ years and trading through Brexit and Fed meetings was more seamless. I trade for a living and today they probably cumulatively cost me at least $4000. Once this morning and then in the afternoon again when I figured gets have their shit together. I’m hearing good things about E Trade, but they’re being acquired by Morgan Stanley I believe. Interactive Brokers input would be greatly appreciated. I’ve spent roughly $15-20k a year on commissions and have no problem paying for a good product. Thank you all and fuck TD Ameritrade. I’m glad they’ve let their product rot in the name of gross margins.
Been trading options for a while now, and I want to look into some longer term strategies (buying stocks). Does anyone have experience with interactive brokers margin accounts, particularly leveraging 3:1 on buying a stock? What sort of things do I need to look out for? Their website says interactive brokers doesn’t make margin calls, but will liquidate you position under some circumstances. Is it worth the leverage/ exposure?
On Monday none of my orders were able to go through due to my account being put into a "closing only" state. This meant that I could only close orders, but not open new orders. I contacted customer support and they couldn't give me an explanation other than my account had been flagged for review and they would look into it internally. On Tuesday, same issue. Same customer service response. Fast forward to Friday, and all trading access has been restored. Why? I have no idea, and I don't expect to ever get a reason as to why trading access was suspended. The moral of the story is that you should always have a backup plan. It was very frustrating to not be able to make orders and not have any idea when or if trading ability would be restored. For context: The broker was Interactive Brokers and I typically spend a couple hundred dollars in commissions per month. This wasn't a margin issue since I was compliant. I suspect this was a tax related issue and they wanted to make sure the documents they had on file were valid. I have no idea why they needed to suspend trading activity while they did this review, especially since nothing has changed with the account for a long time. You'd think they would at least give some warning that something was wrong instead of me having to randomly figure out why I couldn't send orders. Despite this I still don't think negatively of IB and they're still a great brokerage. This is just a reminder that it doesn't matter how good things are, having backup options as insurance is a good idea. Brokerages stop working, bank accounts stop working, machines stop working, market sentiment can change; stuff happens. Update: I finally got a response back regarding why my trading was suspended:
There was a technical issue regarding one of the compliance checks
IB vs Questrade vs TOS vs WST for day, swing, longterm, and algo trading
I'm currently using Questrade but as someone who's daytrading, their transaction and conversion fees are killing me. I've done some research into each of the main brokers and I'd appreciate any advice the pros on here could give regarding which broker is the best for me My needs: I'm looking to day trade and swing trade right now. But I'm getting interested in algo as I have a quantitative background and want to use all this pointless math knowledge I have in my head. I mostly trade penny stocks and invest in some stable dividend and growth ETFs, but I might want to open a margin account in the future do do more daytrading. Interactive Brokers (IB) Pros: -Cheap commissions -Can do algo -Has extended trading hours (4:00-20:00 EST) -Seriously considering IB due to to low fees Cons: -Expensive data packages -trades can be delayed -bad UI platform -I've heard IB isn’t good for day trading but is good for just swing trading stocks and options. Questrade Pros: -free ETFs -both Canadian and US securities -You can use your TFSA as leverage to increase margin power, you can’t do this with IB. -I've read that if your TFSA is maxed out IB would be better. Cons: -have $4.95 commission per trade -Can’t do algo with Questrade's IQ Edge -data plan is $89.95 but rebatable (spending $48.95 in commission fees (10 trades) gives you a 19.95 rebate; spending $399.95 in commission fees (81 trades) gives you a full rebate of $89.95). Still, these are huge fees... Also don't know that all that data is worth it if you can't do algo with it. Think or Swim (TOS) Pros: -The best platform and UI. -Free data package if you keep 5000USD in account. -Can do algo really well Cons: -$6.95USD commission per trade but active traders can get that fee down to $5.95 or $4.95 if you call customer service. -Can only trade US securities Wealth Simple Trade (WST) Pros: -$0 commissions Cons: -Poor charting, can’t add volume or indicators -Foreign exchange fee of 1.5% when converting CAD to USD but can’t hold USD in account so every US security is essentially a 1.5% fee Data quotes are delayed
Learn about the benefits of margin trading at IB, educational content, and the margin requirements for the breadth of product we offer. If you are an institution, click below to learn more about our offerings for Proprietary Trading Groups and other Global Market Accounts. Interactive Brokers calculates and charges a daily "Exposure Fee" to customer accounts that are deemed to have significant risk exposure. The charge for such accounts is based on the results of stress tests performed to determine exposure to a series of prices changes and to identify accounts that, while margin compliant, have potential exposure that exceeds the account's equity were these Interactive Brokers LLC. Is a member NYSE - FINRA - SIPC and regulated by the US Securities and Exchange Commission and the Commodity Futures Trading Commission. Headquarters: One Pickwick Plaza, Greenwich, CT 06830 USA Website: www.interactivebrokers.com Interactive Brokers Canada Inc. Is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and Member - Canadian Futures margin trading in an Individual Retirement Account (IRA) is subject to substantially higher margin requirements than in a non-IRA margin account. Margin rates in an IRA margin account may meet or exceed twice the overnight futures margin requirement imposed in a non-IRA margin account. Margin requirements for futures are set by each Margin rates: Margin traders will also benefit from the low rates at Interactive Brokers. For IBKR Pro customers, the maximum margin rate is the benchmark rate plus 1.5% — and NerdWallet users
224 videos Play all Must See: IBKR Short Videos Interactive Brokers Short Video - Margin in Practice using TWS - Duration: 9:17. Interactive Brokers 13,651 views Mix Play all Mix - Interactive Brokers YouTube 224 videos Play all Must See: IBKR Short Videos Interactive Brokers Day Trading Strategies for Beginners: Class 1 of 12 - Duration: 55:18. Interactive Brokers LLC is a member of NYSE, FINRA, SIPC. Interactive Brokers provides electronic access to over 100 market destinations worldwide for a wide... Interactive Brokers allows its clients to trade in overseas equities markets, buying or selling shares in foreign companies and offers two ways to deal with currency exposure. This short video ... This a Video on How to set up a theoretical Interactive brokers trader platform, Charts, Stop Loss Profit Takers, Indicators and More! Two Trading Monitors L...