Account Type: Margin at Interactive Brokers

[Bojack]

I have a cash account at IB. Recently I send CHF to IB, exchanged to USD and then exchanged to EUR. Then I wanted to send that EUR back to my bank account, but as it appears, the amount available is 0.00 EUR. I guess that’s because the fx trade is not yet settled, right?

So I decided to switch to margin account. I checked the page with interest rates and it says 2.92% for USD and 1.50% for EUR.

For those of you having the margin account at IB:

• have you ever been charged any interest?
• how is it calculated, on daily basis? Is it also charged on daily basis? I would not like to find a huge bill end of month because I made a mistake
• what is the basis of the loan? the settled currency on the account?
• if I want to withdraw unsettled EUR, will they charge me interest in EUR? I want to avoid a situation where I would have a -0.10 EUR balance on my account and then would have trouble to bring it back to zero
• what should I be careful about when having a margin account, are there any risks or downsides?
• any other case where margin account would be useful, other than described here?

I do not indend to trade on margin, just want to be able to transfer money faster. By the way, for the part of converted USDs I bought some ETFs, and it worked instantly, with a cash account. I really don’t understand how it works. Why does IB allow me to buy using unsettled currency but does not allow to withdraw it?

[hedgehog]

I have a cash account at IB. Recently I send CHF to IB, exchanged to USD and then exchanged to EUR. Then I wanted to send that EUR back to my bank account, but as it appears, the amount available is 0.00 EUR. I guess that’s because the fx trade is not yet settled, right?

More likely you hit this restriction:

“In addition, there is a withdrawal hold period of three business days placed on deposits made by either wire transfer or bank check.”

have you ever been charged any interest?
how is it calculated, on daily basis? Is it also charged on daily basis?

Interest is accrued daily, debited monthly

I would not like to find a huge bill end of month because I made a mistake

I’ve always been charged peanuts when using it… highest i remember being charged was about $5 when i forgot to transfer some 4-5 figure sum for a month or so, otherwise it’s usually on the order of pennies to tens of pennies.

what is the basis of the loan? the settled currency on the account?
if I want to withdraw unsettled EUR, will they charge me interest in EUR?

You get charged separately per each currency in which you’re short and in that currency itself

I want to avoid a situation where I would have a -0.10 EUR balance on my account and then would have trouble to bring it back to zero

SEPA transfers are free of charge, at least with PF, no matter how small amount so for EUR it’s not a problem. And what’s the problem with leaving a small amount in?

what should I be careful about when having a margin account, are there any risks or downsides?

Rehypothecation when you’re on margin, loss of SIPC protection

[Bojack]

More likely you hit this restriction:

“In addition, there is a withdrawal hold period of three business days placed on deposits made by either wire transfer or bank check.”

Oh there really is a restriction like this? Thanks for clearing this out! Can you tell me, so if I sell an ETF and exchange USD to CHF, I may withdraw it immediately? The limitation is only for deposited funds?

Rehypothecation when you’re on margin, loss of SIPC protection

Well I certainly would not like to lose the SIPC. Maybe I’ll just revert my request then and keep cash account. I really had no problem to exchange currencies and buy ETFs at once with the cash account. So why would I like to have a margin account? I am not planning to trade with what I don’t have.

[hedgehog]

Oh there really is a restriction like this? Thanks for clearing this out! Can you tell me, so if I sell an ETF and exchange USD to CHF, I may withdraw it immediately?

Without margin, only after trade settles and broker gets paid by your counterparty’s broker which is normally in 2-3 business days as well

Well I certainly would not like to lose the SIPC. Maybe I’ll just revert my request then and keep cash account. I really had no problem to exchange currencies and buy ETFs at once with the cash account. So why would I like to have a margin account? I

Well it doesn’t hurt when you’re not using the margin, and for a short term use I think you’re overrating the protecting.

[Bojack]

So to sum up:

After depositing funds, you may withdraw them after 3 business days (regardless if you have a cash or margin account)

Source:
https://www.interactivebrokers.com/en/index.php?f=1544

Limitations
The Withdrawal Hold Period is three business days (you may withdraw funds after three business days). A wire cannot be internally transferred during the three-day hold period.

After a sell trade, if you have the cash account, you will need to wait for the trade to settle (2-3 business days) to withdraw. With margin account, you should be able to withdraw immediately.

Is this accurate? If so, then I guess it’s worth to have the margin account. Because normally when you do a sell trade, you would like to withdraw immediately, and not wait a few days. And the loss of SIPC protection only affects the amount bought on margin? It’s not like the total loss of protection because you have a margin account?

[hedgehog]

And the loss of SIPC protection only affects the amount bought on margin? It’s not like the total loss of protection because you have a margin account?

Under US rules, SEC Rule 15c3-3, broker is allowed to rehypothecate up to 140% of your debt’s value. For the securities it’d rehypothecate (loan out) you’d lose SIPC protection as it doesn’t cover counterparty risks

While googling about it now, I’ve noticed that it looks like in UK (and you’re dealing with IB UK) there’s no similar regulation and so maybe as a IB UK customer you have higher risk with regards to it… i don’t know much about it, i’ll need to read up

[Bojack]

I don’t know how you’re able to figure out anything from the rules and regulations. It’s impressive.