Margin Calculations for Reg T Margin Accounts

Margin Calculations

1. Time of Trade Margin Calculations

When you open a new position, we apply the following:

Initial Minimum Equity Requirement

You are required to have a minimum of $2,000 or USD equivalent of securities equity with loan value or commodities net liquidation value to open a new position. If you do not meet this initial requirement, you will be unable to open a new position in your Reg T Margin account.

Time of Trade Initial Margin Calculation

Upon submission of an order, a check is made against real-time available funds. If available funds, after the order request, would be greater than or equal to zero, the order is accepted; if available funds would be negative, the order is rejected.

Time of Trade Initial Margin calculations are pictured below. The initial margin used in these calculations is IB's initial margin, which is listed on the product-specific Margin pages.

Securities Time of Trade Initial Margin Calculation

Commodities Time of Trade Initial Margin Calculation

Time of Trade Position Leverage Check

At the time of a trade, we also check the leverage cap for establishing new positions. The leverage limitation is a house margin requirement that limits the risk associated with the close-out of large positions held on margin. We perform the following calculation to ensure that the Gross Position Value is not more than 30 times the Net Liquidation Value minus the futures options value:

If the result of this calculation is true, then you have not exceeded the leverage cap for establishing new positions. If the trade would put your account over the leverage cap (that is, the calculation is not true), then the order will not be accepted.

Throughout the trading day, we apply the following calculations to your account in real-time:

Real-Time Maintenance Margin Calculation

IB's Real-Time Maintenance Margin calculations is pictured below. The maintenance margin used in these calculations is IB's maintenance margin requirement, which is listed on the product-specific Margin pages. In the calculations below, "Excess Liquidity" refers to excess maintenance margin equity.

Securities Real-Time Maintenance Margin Calculation

Commodities Real-Time Maintenance Margin Calculation

In addition, any account that has a negative cash balance on a trade date or settlement date basis will be liquidated. It should be noted whereas futures settle each night, futures options are generally treated on a premium style basis, which means that they will not settle until the options are sold or expire. Therefore, for certain combination futures and futures options positions, there may be a mismatch in cash flows which could cause cash to go negative even though Net Liquidation Value is positive. In addition, there are a handful of options where local custom is to cash settle the option each night at the clearing house (e.g. HKFE HSI Options), but we may choose to margin these options on a premium style basis.

Real-Time Gross Position Leverage Check

There is a real-time check on overall position leverage to ensure that the Gross Position Value is not more than 50 times the Net Liquidation Value minus the futures options value. The leverage limitation is a house margin requirement that limits the risk associated with the close-out of large positions held on margin. The calculation can be expressed as:

If the result of this calculation is not true, positions may be liquidated to reduce the Gross Position Leverage.

Real-Time Cash Leverage Check

An additional leverage check on cash is made to ensure that the total FX settlement value is no more than 250 times the Net Liquidation Value as follows:

If the result of this calculation is not true, account liquidation may occur.

Decreased Marginability Calculations

IB reduces the marginability of stocks for accounts holding concentrated positions relative to the shares outstanding (SHO) of a company. For Reg T accounts, this algorithm increases the margin requirement for stock positions exceeding 1% of the published SHO from its default to 100% (in other words, decreases the amount of money that can be borrowed against a stock position toward zero). At 5% concentration, positions have a 100% margin requirement.

Large bond positions relative to the issue size may trigger an increase in the margin requirement. The review of bond marginability is done periodically to consider redemptions and calls, as well as other factors, which may affect the remaining liquidity of the particular bond instrument. Less liquid bonds are given less favorable margin treatment.

Soft Edge Margining

IB will automatically liquidate when an account falls below the minimum margin requirement. However, to allow a customer the ability to manage risk prior to an IB-initated liquidation, we calculate Soft Edge Margin (SEM) during the trading day. From the start of the trading day until 15 minutes before the close of the trading day, Soft Edge Margin allows for an account's margin deficit to be within a specified percentage of the account's Net Liquidation Value, currently 10%. When SEM ends, the full maintenance requirement must be met. When SEM is not applicable, the account must meet 100% of maintenance margin.

Soft Edge Margin start time of a contract is the latest of:

• the market open, the latest open time if listed on multiple exchanges;
• or the start of liquidation hours

Soft Edge Margin end time of a contract is the earliest of:

• 15 minutes before market close, the earliest close time if listed on multiple exchanges;
• or 15 minutes before the end of liquidation hours;
• or the start of Reg T enforcement time.

If an account falls below the miniumum maintenance margin, it will not be automatically liquidated until the it falls below the Soft Edge Margin. This allows a customer's account to be in margin violation for a short period of time. Soft Edge Margin is not displayed in Trader Workstation. Once the account falls below SEM however, it is then required to meet full maintenance margin.

Please note that IB reserves the right to restrict soft edge access on any given day, and may eliminate SEM completely in times of heightened volatility.

Real-Time SMA

On a real-time basis, we check the balance of a special account associated with your Reg T Margin account called the Special Memorandum Account (SMA). We calculate a running balance of your SMA throughout the trading day, then enforce Regulation T initial margin requirements at the end of the trading day. No cash withdrawal will be allowed that causes SMA to go negative on a real-time basis.

End of Day SMA

As described above, we calculate SMA in real time throughout the trading day, but we enforce Regulation T initial margin requirements (typically 50% for stocks or 100% for nonmarginable securities) at the end of the trading day. Whenever you have a position change on a trading day, we check the balance of your SMA at the end of the US trading day (15:50-16:00 ET), to ensure that it is greater than or equal to zero.

We use the following calculation to check your SMA balance in real time and apply Regulation T initial margin requirements to securities that can be purchased on margin. Note that this is the same SMA calculation that is used throughout the trading day. In the first calculation, "today's trades initial margin requirements" are added for SELL orders and subtracted for BUY orders, and are based on US Regulation T Initial Margin requirements.

If the SMA balance at the end of the trading day is negative, your account is subject to liquidation.

SMA Rules

SMA is calculated based on the following rules:

Stocks and futures have additional margin requirements when held overnight. For overnight margin requirements for stocks, click the Stocks tab above. Futures margin requirements are determined by each exchange and can change frequently. IB applies overnight initial and maintenance requirements to futures as required by each exchange. For more information, click the Futures tab above.

Use the following series of calculations to determine the last stock price of a position before we begin to liquidate that position:

To see an example click the Examples link at top of page.

Note that this calculation applies only to single stock positions.

As shown on the Margin Calculations page, we calculate the amount of Excess Liquidity (margin excess) in your Reg T Margin account in real time. If your Excess Liquidity balance is less than zero, we will liquidate positions in your account to bring the Excess Liquidity balance up to at least zero.

You can use the following calculation to determine how much stock equity we will liquidate in your Reg T Margin account to bring your Excess Liquidity balance back to zero. Note that this calculation applies only to stocks.

To see an example click the Examples link at top of page.

http://www.interactivebrokers.com/en/p.php?f=margin&p=overview1

Example: Securities Margin Example

The following table shows an example of a typical sequence of trading events involving securities and how they affect a Regulation T (Reg T) Margin Account.^[1]

Example: Commodities Margin Example

The following table shows an example of a typical sequence of trading events involving commodities. Although our Universal Account automatically transfers funds between the securities and commodities segments of the account, to simplify the following example, we will assume that the cash in the account remains in the Commodities segment of the account.

Example: How to Determine the Last Stock Price Before We Begin to Liquidate the Position

For example, suppose a customer buys 2,000 shares of ABC stock at $10.00/share on margin. The loan amount in this case is $10,000.00, so the calculations would be: ^[1]

Example: How Much Stock Do We Liquidate?

In the following example, a customer buys stock, but then the price of the stock drops enough to bring the Excess Liquidity balance below zero, prompting liquidation.

http://www.interactivebrokers.com/en/p.php?f=margin&p=overview3

Real-time Monitoring

Unlike other brokers who calculate margin only at the end of the trading day, IB provides real-time data that gives you the edge you need to react quickly to the markets. The Margin Requirements section of the Account window allows you to understand your trading risk at any moment of the day by calculating requirements for initial margin (at the time of the trade) and maintenance margin (when holding positions) on a real time basis.

For more information regarding any of the real-time monitoring features mentioned here, see the TWS Users' Guide.

The TWS Account Window

The Account window in Trader Workstation lets you monitor every aspect of your account activity, including the values used in IB's margin calculations. We present key account values as the default when you first open the Account window, and you can expand each section of the Account window to display all values.

The Account window displays real-time values, including those listed below.

Balances

For more information on any of the real-time monitoring features mentioned here, as well as a table containing definitions of all values, see the TWS Users' Guide.

Margin Requirements

For more information on any of the real-time monitoring features mentioned here, as well as a table containing definitions of all values, see the TWS Users' Guide.

Available for Trading

For more information on any of the real-time monitoring features mentioned here, as well as a table containing definitions of all values, see the TWS Users' Guide.

Margin What-Ifs

Margin scenarios provide the margin implications of any transaction before transmitting an order. From the trading window, right click any order row and select Preview Order/Check Margin. Commission for the trade is also displayed.

Margin Warnings

IB will automatically liquidate when the account falls below the minimum maintenance margin requirement. To help avoid this scenario, TWS provides pop-up warning messages and color-coded account information as a notification that you are approaching a margin deficiency. This allows you to take action such as entering margin-reducing trades instead of risking liquidations.

To help customers monitor margin deficiencies, TWS displays color-coded messages on the Account Screen and pop-up warning messages to notify customers that they are approaching their margin limits. This feature allows you to take action, such as entering margin-reducing trades, to avoid having IB liquidate your positions. The colors on the Account screen convey the following information at a glance:

Margin Reports

Margin reports show margin requirements for single and combination positions, and display both available and excess liquidity. Each day at 16:15 ET we record your margin and equity information across all asset classes and exchanges.

You can access your margin reports under the Margin Report menu item (Report Management) within Account Management. Here is an example of a portion of a margin report.

http://www.interactivebrokers.com/en/p.php?f=margin&p=overview2