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Kim

Interactive Brokers Margin

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I tried to to buy 1 Apr SPX 1300 put and getting an error message that I have insufficient margin. The message indicates that the margin will increase by 53,985 (see attached image).

IB margin.PNG 

I opened a ticket with IB. Their response was:

upload_2018-2-14_11-13-39.png 

upload_2018-2-14_11-14-8.png 

upload_2018-2-14_11-14-37.png 

I couldn't believe this, but the fact remains.

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    • By Kim
      I want to talk today about commissions.

      Lets assume that you buy a straddle for $2 ($1 each option). I have an account with IB (Interactive Brokers) and pay 0.70 per contract. So for me to do a round trip trade is 2.80. This is 1.4% of the cost of the trade. So if my gain is 10%, then I keep 8.6% after commissions.

      If you pay $1.5 per contract, then your total cost is $6. That's 3%. You need 3% gain just to break even.

      Some brokers charge you per ticket fee plus per contract fee. This might be a good deal if you do a lot of contracts. For example, if you do 20 contracts and pay $5 per ticket plus 0.30 per contract, then you pay 0.55 per contract. But if you do just 2 contracts, then it's 2.80 per contract.

      Also some brokers charge a fee per ticket per leg, others per ticket for the whole spread. For RIC which is 4 leg trade, it's a huge difference. Since you make it as one trade, you might pay one per ticket fee with some brokers or four fees with others.

      Commissions is one of the reasons why I don't like cheap stocks. A straddle on a $100 stock might cost around $5.00-6.00. Paying $2.80 commissions is only 0.5% of the trade. But straddle on $15 stock can be only $0.70, so $2.80 is 4% of the trade. A huge difference.

      When choosing a broker for those strategies, remember that commissions can make a huge difference. Check the fine print and do the math which broker is better for you based on the number of contracts you are going to trade.
       
      Update: For those who don't want to read the whole thread, it seems like most members really like IB. Barrons's agrees:
       
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      The impact of commissions on your results can be astonishing.
       
      This excellent article by Business Insider is asking the right questions (and also answering some of them):
       
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      Their conclusions:
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      SteadyOptions $10k model portfolio traded 228 contracts in January. If you paid $0.75/contract with no ticket fee, you spent $171 on commissions, which is 1.7% of your portfolio value. While not cheap, but considering the fact that we produced 20.7% ROI in January (12.4% return on the whole account assuming 10% allocation), it is completely reasonable.
       
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      Of course commissions is only part of the whole package. Other factors include tools, platform, customer service etc. Barron's publishes a comprehensive brokers review every year. Here is the last one. Interactive Brokers (IB) was ranked #1 by Barron's third year in a row. This is the broker I personally have been using for the last 7 years and I'm very happy.
       
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      This demonstration shows how to execute some of our trades in Interactive Brokers.
       

       
      Download video:
       
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      Options Trading is a business. As in any business, there are costs. One of the major costs is commissions that we pay to our broker (other costs are slippage, market data etc.)
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