Interactive Brokers users

[reuptake]

Hey,

are here any IB users? I have some questions about some specifics of the platform.

– I’m using super convenient portfolio rebalancing tool. However, I have doubts if I use it correctly. My problem is, how to deal with shorting (I short TMV instead of buying TMF). For example: total allocation in TMV is now -20%. So when I enter all percentages of other ETFs/stocks it’s 80% total/20% in cash. Then I enter -20% of TMV. Now, total allocation is 100%, but the “total cash” is 40%. Is it correct? What does it mean? How much in cash do I really have? 40%? 20%?

– How to use MOC or LOC orders with Portfolio Rebalancing Tool? Do you trade at close or intraday?

[Derrick]

I use IB. My understanding is that when you short you are essentially borrowing the cash to be able to cover the position. This is why it increases the cash position in your portfolio. You are then paying interest on that borrowed cash while short. Whether you already have enough cash is irrelevant, you always must borrow when shorting. Currently TMV is about 3.8% to borrow I believe. This is a good deal to go short TMV because the edge over going long TMF is much stronger than 3.8% per year. On a side note, I did notice that TMF costs much more to borrow. Another option would be to go long TMF and tell IB you are willing to loan your shares to collect the interest paid by short sellers. I still think shorting comes out ahead, but if you can’t short, loaning your shares could be a great option.

I don’t use MOC or LOC for my LI portfolio. I use limit orders intraday or near the close. I do use MOC for another strategy and it works well. My understanding is that you must place the order at least 15 minutes prior to close and you can’t modify it within the final 15 minutes.

[Ivan Fisher]

not sure I would totally agree with Derrick, from memory , you are borrowing the stock to sell short, which means you will pay interest on that, but when when you sell short you will see the cash injection from the sale , then when you buy it back cash will be used to settle that trade . So overall when selling short, the cash component in your account will increase until you buy it back. Happy to stand corrected as I usually use CFD’s to short stocks , not physical

Ivan

[reuptake]

Thanks for explanation. I wasn’t sure if I’m doing right thing because I thought that I should have 0 cash or at most I should have percentage of cash equal to short. Why I have to borrow cash for shorting? I always thought that shorting is borrowing stock, not cash?

[Derrick]

You are correct Ivan, thanks for explaining that. I did not state that correctly. You are borrowing the shares, not cash. I guess the cash in your account increases by the amount you are short because you are essentially cancelling out your long positions. (a 50K account with 20K in long positions, 10K in short positions will have 40K in cash). I assume this means you can now use that cash without having to use margin. This would be relevant if you trade a leveraged portfolio or something like BUG leveraged because you won’t need to borrow as much to get that leverage. Is that correct?

[reuptake]

So 50K account with 50K in shorts would display 100K cash? Bit weird.

[reuptake]

Is anyone using Yield Enhancement Program from IB? Is it possible to get some income from it (considering the securities we trade and holding periods)?

[Tony Walker]

I use a yield enhancement function as it does create some additional income and has no effect on any trading in the account.

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