Brokers and Paying Margin Fees

I've been hit by short interest fees at the end of the month IIRC. Unsure if margin interest is paid in a similar manner. You should probably be able to see this on your IB paper account by looking through the monthly specification (forgot what it's called).

Thanks Petter; I guess I'll ask IB how they handle it.

Ok so here was their answer; and I'm still fuzzy about parts of it:

"Margin interest fees are assessed monthly and debited from your account within the first five days of each month."

I've asked them to clarify, but my remaining questions are:

• So this debit is automatic?
• If it is automatic, what happens if none of the account is liquid within the first five days of the month?
• If it is automatic and you have enough liquidity to pay off the interest fees, how does QC track the loss in equity?  Does it track it as a kind of fee?
• If it is just a "manual payment" type of thing (i.e. you need to log onto your account mgmt. to pay for it), how do you account for manual change in equity in your algorithm?  How do you have leverage > 1.0 without having to allocate some money on the side to NOT be involved in trading?  Do you need to reset your algorithm every month to account for levered trades that you need to pay off?

If anyone from QC staff could answer the third and fourth question, I'd greatly appreciate it.  Anyone that has had experience paying this off, details would be welcome. :-)

Thanks!

We reset the cash every day to sync with the IB account. I can't comment on how IB updates that cash.

In backtests we don't model this cost but its in the issues list.

I don't know about the questions relating to QC (I'm rather expecting the cashbook update to detect the change caused by fee), but I'm 99.9% certain the debit to the account happens automatically without your intervention.

For a margin account, I wouldn't expect being pushed above 1x leverage due to margin fees to be particularly traumatic (assuming you're not in instruments with less than that, e.g. long XIV or short UVXY). Above the overnight maximum of 2x leverage they're probably going to start liquidating at their discretion though. Conclusion: Leave some space in margin/leverage.

Thanks Petter and Jared!  This has been immensely helpful.  I also got some further clarity from IB.  Hopefully this helps someone else out in the future:

1. Margin Interest is directly debited from the account usually in the first 5 business days of the month.
2. If the debit balance is still open, the Margin Interest will be deducted from the excess liquidity in the account, and increase the debit balance.
3. If no excess liquidity is available when the Margin Interest posts, then the posting of the margin interest could trigger a margin violation and result in a liquidation which will bring the account back into margin compliance.
4. If the debit balance has been closed prior to posting, then when the Margin Interest is posted to the account it will be deducted from the available cash in the account.

Thanks for sharing the information back Stephen

Hi guys,

Sorry to bring this one back from the dead, but had a quick question.  To recap, IB posts a debit to your account if you trade on margin.  This posts within the first 5 days of each month.

Common sense says that you should keep some liquid cash in your account in order to cover the costs.  My question is: with the LEAN engine, how does one allocate some money for cash, while trading with the rest AND borrowing margin on it?  To my knowledge, to borrow on margin, you need to set your leverage above 1.0.  However by doing that you leave no room for liquid cash to pay the interest fees.

With LEAN, how would one allocate cash for paying interest fees while also simultaneously borrowing on margin?  Any help is greatly appreciated.