IBKR always says I don't have enough cash settled to make a trade. WHY?

Investing / Brokers
66

Yes, that’s basically what it says here and on other websites. Just don’t get it, because I have done the same thing several times before, just a couple days ago when I sold AVUV and AVDV ETFs and bought immediately VT.
Ok, it is a little bit different in this case, because the stocks I sold were in Yen, maybe this is the reason.

Edit: Pretty sure it has to do with the Yen to USD conversion. I also sold some stocks today traded in EUR and converted it as well to USD. When I decrease the number of shares, to what I have converted from EUR, I would be able to buy, so the EUR to USD conversion is settled.

67

Sometimes this happens to me when I try to use market order. Typically limit orders work out fine. It seems system use some other value for market order to calculate how much cash is needed to initiate

68

Yeah, the settlement period is definitely a thing, applies to professional traders as well as retail.

The clearing house (DTCC is probably the largest one) takes possession of the shares you sold and the cash the buyer paid, “sits” on this for two days* and then the cash proceeds arrive in your account (and the shares in the buyer’s account). As an aside, everyone took a little cut along the way, via spreads, transaction fees, you name it. Gotta love these market makers …
So, at any rate, two days later is when you really have the cash and the buyer really has the shares.**

Depending on the risk management of your broker and how much they trade on their own book (shares/cash exchanged between you and positions they, your bank/broker, holds on accounts they possess, you might get access to your cash/shares sooner than T+2.
But if the buyer of your shares is in Tokyo with his Japanese broker, and you sold them from Switzerland with IBKR UK, then things will definitely be settled via a 3rd party, and the value date of your transaction will be two days after your trade date.

The settlement period of T+2 of course also applies to FX transactions. A so-called spot transaction (sell Yen buy USD at the current / spot exchange rate) also settles only two days later.
You get the impression that currencies can be exchanged immediately by taking cash in Yen to the bank and exchanging it for USD cash, and indeed you get your USD cash immediately, but the spread is much wider for cash exchange than for electronic transactions (well, unless you’re at probably any old Swiss bank, where the spreads are probably about the same for cash and electronic currency exchanges, if you squint a bit … Anyhow, I’m getting a little off track).
When you do the currency trade at a bank/broker at the spot rate, T+2 applies as well. I.e., if your balance in USD is zero and you sell Yen for USD today, the USD won’t be avaiable to you until two business days later.

In your case I would guess that previous trades in USD only might have been on the book of IBKR with no currency exchange risk involved, while your recent trade with selling stock in Yen and spot buying USD includes FX trading that IBKR might not do on their own book, and you’ll have to wait for the T+2 settlement.

* Soon one day in some markets: Modernizing Trading Workflow: Getting Ready for T+1 | DTCC
** Though I believe if the buyer of the shares buys on the ex dividend date, they will also get the dividend, even if the shares are “in possession” of the settlement company for when the shares go ex dividend.

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69

They prepare for settlement but they usually get the cash only value settlement date. Also, thanks to net settlement, surprisingly little cash actually changes hands.

So limitations are likely more due to brokers - they tend to be worried that you spend the cash needed for settlement on something else if they don’t closely watch.

But hey, soon the industry changes to T+1 settlement and we will all ride into the sunset :slightly_smiling_face:

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70

Check if you have enough settled cash. Also check the free-riding rules: https://www.schwab.com/learn/story/stock-settlement-why-you-need-to-understand-t2-timeline

71

You can free ride, as described in @PhilMongoose article with IBKR cash account in one day. At the end of the day, there is an evaluation and if IBKR finds that you were freeriding, freeriding will be blocked for 6 months, if I remember right. That’s why it works sometimes.

72

Look in Accounts Balances in the IBKR app. At the bottom is a line for ‘settled cash’.

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73

I wouldn’t call the US the industry :wink: hopefully EU, JP and CH will follow soon, but I expect at least another 2-3 years until that happens. In the meantime just open a margin account :grin:

74

Thanks!
Now, 24 hours later, the money is settled. Would be really good if they would send an email if the money is not settled, and one when it is available. You don’t see it anywhere, you can just find out by try and error.
When I exchanged the YEN for USD, the Tokyo market was already closed since some minutes. Maybe that has an impact since now it is available. Who knows, but thanks for your explanation, next time I won’t be confused.

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