I might soon take out a sizable junk of money as a margin loan, since it’s the first time I’m doing this my question would be, how does one control or pay-back the margin loan? I haven’t found any obvious controls in the WebUI to use cash for paying back a margin loan, is there some secret menu or trick required?
If you just transfer back the cash ?
When balance > 0 you are ok I guess…
And does one see the interest rate, the point when they would margin call etc.?
Interest rate: I don’t remember the frequency of invoicing. I think you have to run the report to see it. I only went on margin with minor amounts (10-15 k) so I did not bother to check.
Also for the margin I think you have to keep it under control in the dashboard.
Your loan is basically your negative balance + the interest accrual for the month. You send money, or you sell assets or you get dividends to pay it.
They bill the interest for the month on the ~4th of the next month. You can see how much it is when looking at the interest acrual in the report.
You can see the margin requirement on the top of the page on the web version. It is the total requirement. If you already have a margin account, you can already see it. If you want to see the requirement per asset, you can run the margin report (in other reports), but that would be for the day before. You get notification when they increase margin requirement. Usually if you can borrow 75% (in the maintenance margin requirement), they will tell you that in 1 opened day it will be 50%, in 3 openend days it will be 25% and in 5 openend days it will be 0%.
Huh? Does that mean there’s some short term payback expectation? My Margin Req. Right now says 32k which is roughly 15% of the portfolio value. The withdrawal area says I could take out ~192k on margin with a portfolio value of ~250k. I plan to take out ~60k which will be repayed within 12 months or less. Any caveats I’m missing?
The debt is callable. If they suddenly don’t like your assets anymore, they politely ask for their money back. They are so kind that they give you a few days. If you have ETF’s or blue chips, the probability is low. The risk of such events is more probable with “small” caps.
The portfolio is 75% in VT so I guess that risk is also low…
I think if you remain within 1/3 of your assets you should be quite safe (if VT as a collateral drops so much within the next 12 months we’all be in big troubles…)
What kind of margin model do you use? Reg T or portfolio margin? What percentage of your portfolio value is your purchasing power?
If you start working with margin, you might be considered a professional trader by the tax office. Trading with margin is one point on their checklist. Worst case: you might get taxed on capital gains.
Is there any benefit to separate the margin loan into an other account?
- I thought about moving my blue chip ETFs to a sub-account , and do use them as collateral for the the margin loan.
- If I near the margin call, I’ll move my other stock there
I just switched from a Cash account to a Margin Account.
Currently the sitution is as follows:
- RegT Margin: 50% of current Portfolio Value
- Current Initial Margin & Current Maintenance: around 30% of current Portfolio Value
Do I understand correctly that both these Margins need to be fulfilled all the time (Totalling 80%)? Meaning I can borrow a maximum of 20% of the current Portfolio value, but as soon as the Market drops more than 20% IBKR automatically starts liquidating the positions?
What I would like to do - in case of a significant marked downturn - is to leverage the portfolio to buy more VT shares than usual. Idially I can take out the margin loan in CHF, then exchange to USD and buy VT. Is there a step by step guide somewhere?
Thank you in advance
This is overnight. And the one that matters.
This is intraday. You can open positions worth more than half of your equity, but should close them at the end of the day.
Don’t borrow more than 25% of your stocks value, and as long as your stocks don’t halve, you are fine.
Each exchange costs 2 USD. Borrow USD or borrow CHF, but exchange largish amounts at once.
And I would rather borrow USD, because US ETFs distribute dividends in USD and this will automatically decrease your loan.
For the tax declaration it is easier to borrow CHF (i.e. exchange CHF that you don’t have for USD) because you can directly deduct the interest paid in CHF, otherwise you are supposed to take into account the various exchange rates.
Also this way your loan is not impacted by big variations in exchange rates, which might be better since the currency of your usual income is probably CHF.
Thank you both. Is there a step by step guide on how to actually do this in IBKR? I was not able to find any guidance.
Afaik you just exchange non-existing CHF to USD or whatever currency you need and you will end up with a negative cash position.
I recommend that you test things in the paper trading mode first. You will not explicitly request a loan, the system simply allows you to buy what you want even if you don’t have the cash for it. Up to the margin limits.
As example, before trading your portfolio consists of:
- 220 VT
- 1’500 USD
VT now drops to 90 USD and you decide to buy 100 VT. Your portfolio will now look like this:
- 320 VT
- -7’500 USD
Your total portfolio value at this time is 21’300 USD, your margin is at 74%. Suppose VT now drops to 85 USD and you want to take this ‘once in a lifetime opportunity’ and buy another 100 VT. The portfolio is now:
- 420 VT
- -16’000 USD
The total portfolio value is now at 19’700 USD, your margin is at 55%. If VT drops further and crosses 76 USD (overnight and not a intraday spike) IB will start selling of your stocks.
I didn’t double check the math on this one, so until you’re comfortable in knowing what you are doing test it with IBs paper trading mode. Also this obviously ignores fees and the margin loan interest payments (currently at 1.5% pa), and your ability to inject new cash. But realize that the loan is fixed and your collateral variable in value, which is not a great thing in a volatile period.
Not wrong, but keep in mind that you now move the currency risk between loan & collateral. You can now not only violate the margin requirements because VT is dropping, but also due to currency fluctuations. Even if historically the CHF / USD pair seemed to be a one-way road and usually is in our favour in volatile times, short term fluctuations may still catch you out.
In my opinion this risk is lower because the currency of VT doesn’t really matter. If the USD were to drop, the price of VT should rise accordingly. But yes if the CHF appreciates too much globally you could be in trouble.