No, you can’t. And that’s the point. You can buy stocks and whatever you want with borrowed funds, but they have to stay in your account. Otherwise your margin requirements are not satisfied.
And that what I meant talking about the difference between margin loan and margin trading.
Thanks, that makes sense. If you withdrew 900k from IBKR, your equity would go to -600k, which is of course forbidden.
So if you had 300k stock in your porfolio, the following requirement would have to be met:
(stock_value - withdrawn_amount) / stock value >= 25%
So the maximum withdrawn amount is:
withdrawn_amount <= stock value * 75%
So it goes like this:
Are you absolutely 100% sure about this? From what I see is that IBKR offers two types of margin accounts:
Are you sure you can’t get down to 25% initial margin with a portfolio margin account?
Ah maybe with portfolio margin, depending on your collateral. I was talking about reg T margin.
But keep in mind that the maintenance margin requirement can change any time for a single stock.
It happened during the “corona crash” and probably any time there is some kind of crash.
So you might think you are on the safe side above, say, 25% and then IBKR tells you that next week it becomes 50%.
Right, I am only using max values to understand how it works. I want to know the limits, not to use it in practice. I suppose if I had 1m at IBKR and wanted to finance a real estate purchase, I would maybe withdraw 250k for a longer period of time. In such a scenario I would not get in trouble until my stock value fell 50% to just 500k.
But for sure this margin is very practical if you want to quickly buy a dip in some stock, and you don’t want to wait for the bank transfer to come through. Or worse, wait for your next salary.
What I’ve dealt with in the past, is that I wanted to buy an even number of TSLA shares, like 100. But I always had to transfer too much cash to take price swings into account. With margin it’s so simple. You just buy the stock, you automatically get a negative cash balance, and a few weeks later you transfer the exact amount that you’re short.
By the way, you didn’t take into account that mortgage comes with cash downpayment of 20% (35% eventually), and this cash can’t work for you for the entire duration of the mortgage. Whereas the pledged stock still yields returns.
Actually I see another case for margin.
Let’s say your FIRE value is 1 MCHF, you need 40 kCHF/y (simple 4% rule to make it easy - just a concept study)
With margin you could do :
-Deposit 604 kCHF in IBKR in VT
-Take another 400 kCHF in margin
-With the actual 1% margin rate on that amount (4000 kCHF/y) you got your 40 kCHF income, and you pay less wealth tax (since you are actually only having 600 kCHF wealth) , plus you can deduct the 4 kCHF interest from your income
Would I do it ? Probably not, I am way to risk averse for that (100% stocks portfolio fine, but going margin… Nah).
I was considering this. The problem that I see is that unlike for example for a mortgage, there is no guarantee that the margin loan will be available in the future and conditions can change any time.
I think you understand this already, but I think it’s worth it to put some emphasis on Gesk’s point: what we can calculate are the current limits. IBKR can change them at any time and for any reason. This can particularly happen in bear markets. For example, in a few days, the collateral value of VWRL shares in CHF will apparently be 0. Not a big deal since VWRD seems to be keeping it’s collateral value, but an indication of how quickly things can change.
Ok that’s a bummer. Then idk how MMM went through with buying real estate like this. Btw I wonder how rich people do this. They have this line of credit thing, I guess banks are a bit more solid when it comes to the rules that you agree on.
Yes I saw that VWRL’s collateral value will become 0. Do you know why is that?
The IB TWS has a feature that estimates the portfolio margin you would receive. Since it is risk based it depends on the stocks you have. I just ran it on a paper trading account and got for VT an extremely low 10% and for TSLA I got 40% (TSLA is 40% on Reg T account as well, but at least the portfolio account removes the overnight 50% rule).
As pointed out by others, it would be pretty crazy to go that low and put the money into an illiquid asset. But on the other hand one should know the limits, if only to know how much safety buffer there is in case of a (inevitable) crash. Converting to a portfolio margin account would increase that safety buffer, but expect that IB will increase their margin requirements exactly when you would need that buffer: in a crash.
If you can stay clear of the 50% mark even during a decent crash maybe you have a case. Somewhere north of 80% in good times should survive the bad times as well. That still gives you $1 million out of your “insane $5 million portfolio”. If that is not enough maybe you can still find a way to pledge the house itself as collateral? It should still be possible to get a mortgage approved when you sit on such a portfolio.
No idea. Nobody shared that experience yet. But surely, any Swiss bank would need to have custody of this portfolio in order to give a mortgage?
I just wonder if you can get a mortgage without income, so that you can buy real estate without having to sell any of your stocks.
I think @Cortana mentioned once that they would transform wealth in income through a % -not 4% but 2% or similar.
I might be wrong though and it might change over time
Usually banks use a formula like: total liquid net worth / (85 or 80 - age) = yearly income from assets.
Wow, OK, this is very interesting! First time I hear this. So this formula assumes that these liquid assets are fixed in value over time, and that you will use them each year, until your death, to finance your expenses. That makes sense.
So let’s see. Let’s take CHF 4 million of portfolio value, then apply:
total liquid net worth / (80 - age) = CHF 4 million / (80 - 40) = CHF 100'000
This should be enough to support a mortgage loan of around CHF 500’000, right?
Another example. Let’s say I would like to buy a house worth CHF 2 million, with a downpayment of 34% to avoid any amortization payments. The calculator tells me I would need an annual income of CHF 265’000 to afford it. So I could then cover part of it through work income, and part with my stock portfolio.
@Cortana does this math check out for you? Would I need to transfer my stock from IBKR to the bank, if it were to count my liquid assets as income?
All correct. No need to transfer the assets to the mortgage bank, at least in my company.
I was thinking of using a margin loan soon for the first time and I have to say I still don’t understand the fine details.
Today I got a message from IB saying that for one of my (EU based) funds, marging requirements will change as of TOMORROW from an initial requirement of 50% to 100%, while the maintenance margin will increase to 100% much more slowly, in a week… This was a bit shocking and makes me rethink my plan. What if had borrowed against that fund and had only one week to pay back ALL of the loan?
One think I don’t understand is: if I have a bunch of ETFs on my portfolio, each with its own (up to to today rather similar) margin requirements, which ones will I be borrowing against if I take a “small” loan (up to 20% of the total portfolio)? I don’t see the possibility to choose, I can just withdraw something like 50% of the portfolio value…
Too many different related threads, sorry.
This is rather a technical issue. IB decided that the fund you own is not traded enough and is not liquid enough under the ticket (exchange/currency) you have bought it. You can of course sell your position, convert the currency and buy it as the most traded ticker version. I don’t know if it is possible to ask IB to convert your position from one ticker to another, as it is a technical issue after all.
Against all of them. As long as your net equity (stocks value minus debt) is higher than the margin requirements (typically 50% for regT margin), you are fine.
On the other hand, if your margin requirements are not fulfilled, IB seems to sell positions rather randomly.
And 20% is not small, I would limit to 10% if you don’t have experience and not sure how it works.
I think the lesson is that if you want to use margin, you should hold very liquid securities: stocks with high market cap or ETFs with high AUM. Some niche European version of an ETF will have a high risk of having its margin requirement jump to 100% at any point, due to low liquidity. Because I guess with low liquidity, they can’t tell the “fair” price that easily, or liquidate your position soon enough if you go under the required threshold.
@Dr.PI I don’t think you’ve really answered the question. What does it mean against all of them? If I’m holding VWRL with 100% overnight margin requirement, TSLA with 55% and VT with 50%, what is my available margin? RegT is the minimum required by law, the broker can set a higher requirement per each stock.
I think probably the best is to play with the paper account, make a few trades, and see how the available margin changes.
Because there are some followup questions that come to my mind. E.g. if you have 3 positions, and use margin, is margin assigned to one position in particular, or to the entire portfolio? If the latter, which positions are going to get “trimmed” if you can’t meet your margin requirement? All of them, proportionally?
First, we seem to have a problem with definitions. The margin is not how much you can borrow, but how much net equity you should keep in your account to keep your stocks etc. positions open. Available funds are net equity minus margin. Your available funds in this case are 45% TSLA value + 50% VT value minus debt.
That seems to be unpredictable, however in Trader Workstation you can put a flag “Liquidate last” on a position, whatever it is worth.
