Hi guys
Also thinking about a margin loan on IB.
Lets say I have 100k USD or CHF in cash on IB. Can I also take the margin loan for cash? Or does it need to be stocks (VT)?
How is the tax situation in Switzerland on this? (CH citizen).
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Ok, I am aware of the margin. Would also not go above 25%, rather less.
Lets say you have 100k in VT and borrow 25k.
You take the margin loan in CHF (1.5% interest rate atm, correct)?
VT div yield in 2021 was 2.13%. So as long as this one is higher there is no additional tax?
My idea would be to eventually take a loan in CHF, convert to USD and buy additional VT with it. That should be possible no?
Can one also borrow against cash (I regularly buy and sell stocks, so could not borrow against an individual stock or ETF), as long as the value of the portfolio / cash is more or less the same (e.g 100k)?
With Reg T margin it doesnât matter what is exactly in your portfolio as long as the total value is at a suitable level.
Yes. I usually do it the other way round. Buy VT on margin and then convert CHF to USD to bring the USD balance to zero or slightly positive. The advantage is that you know exactly how many USD you need as youâve already traded.
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Hi Jay
Ok can you elaborate? How do you buy VT on margin? First, you need to have some USD to buy it no?
And as far as I saw, the interest rate on CHF is lower than the USD one.
I would basically take the loan (25%,assumed total portfolio value 100k), convert the loaned 25k CHF into USD, then buy 250 VT with it.
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You implicitly have a margin loan when a cash balance is negative. I.e., no, you donât need any USD to buy VT. As long as you fulfill the margin requirements, you can simply buy VT, resulting in a negative USD cash balance.
And then you convert from CHF to USD to get the USD cash balance back to zero or positive. If the CHF balance is negative after that, you have a CHF margin loan. And if you do this conversion on the same day, you donât pay any interest on the USD margin loan, so the USD interest rate doesnât matter.
Ok.
Assumed I have 0 CHF and buy 25k VT, so I will have -25000 USD showing up in my account.
Then I can âexchangeâ these -25k USD to CHF, so that I will have a negative like -20k CHF, correct?
Yes. Or to be precise, youâre exchanging CHF (on margin) to USD. Youâre taking a CHF loan to pay back the USD loan.
With rising interest rates I donât think that this is going to be the case no? What happens if your margin loan interest is higher than received interest/dividend do you get classified as professional trader?
Iâm thinking because this would make a downpayment for a house for example rather unattractive or you can only borrow like 15% to stay under the limit no?
Yes true, donât know what I was thinking writing this comment 
.
Keep in mind that stock markets have declined 50% in the past which could leave you with loan 50% of portfolio - which is margin call territory for IBKR
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50% though is over multiple months - if things starts to go down, you go in supersaving mode and start transferring lots of cash on interactive broker. Heck you could start take out money from an ATM from a credit card, pay the fees and put it unto interactive brokers to avoid total losses.
Whatâs the fastest 50% drop in the history of the stock market? and I mean a world index? Not sure how to check without doing some calculation with spreadsheetsâŠmaybe somebody has already done it? I mean I think faster than 3 months would be difficult - thatâs a lot of money flowing out
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For S&P 500 this is easy. There were 2 50+% drawdowns: in 1929-1932 and 2008. In both cases it took over 1 year to get to 50% drawdown and 17 months (2008) and 2 years (1929) to the bottom.
MSCI ACWI factsheet says MAXIMUM DRAWDOWN 58.06% 2007-10-31â2009-03-09, which corresponds well to what S&P 500 shows. Unfortunately VT didnât exist at the beginning of this period, so one needs another index or fund to track the global market in this period.
17 months. So if you have 1 million with 250â000 on margin, adding 50k-100k over 17 months will cover you from basically any doom scenario. For 100k, thatâs 5880 chf / months without dividends. Over a crisis like this, you are still getting dividends (letâs say only 0.5% pa instead of 1.8-2.5% pa). over 17 months, 5 quarterly dividend, ~6000 chf, getting down to 5500 chf / months for the +100k compensation scenario. Difficult, but not impossible. You are probably going to get away with less. BUt of course a crisis can always come where 50% is reached in 8 month. Then you are kind of screwed.
I think is better to setup the margin as âTotal money I can repay in 12 months super savingsâ, also a fix number, instead of a percentage of your wealth. like if you are comfortable paying 4000 per month to repay a margin call over 12 month, the maximum margin you should take is 48â000 chf, and not a percentage.
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But what that means is that you are piling cash (reducing your margin) when stocks get really down. You have bought high (when you got into margin) and are now not buying low when stocks are really cheap.
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I assume that you have a Reg T margin account, which has a 50% âend of dayâ margin requirement. Double-check if you are unsure.
If you have a Portfolio Margin account you may be allowed to go below, as it uses a more dynamic risk model. But keep in mind that if we do go into a -50% market crash scenario IB may well change those rules on relatively short notice, i.e. increase their âhouseâ margin requirements. This is not like a bank loan with upfront agreed conditions, if things go crazy they will protect their shareholders before you.
Iâm not sure how they reacted in 2008, would be interesting to know if / how they change interest rates and maybe margin requirements back then.
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Iâm not saying that this is necessarily a good idea, but since the margin results from the ratio of assets over loan you could also buy stocks when they are low. This improves the ratio as well, although not as effectively if deleveraging is your primary goal.
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Maintenance margin applies when trading during the day. At the end of the day it is usually RegT margin that applies
I just withdrew quite a big chunk of CHF yesterday and Iâve seen that I was allowed to withdraw ca. 50% of my portfolioâs value
â At the end of the trading day, IB applies the Regulation T initial margin requirement.â
Above applies if you have a reg t margin account
(I agree it is not very easy to follow from IBKR webpage)