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User Profile Afaik, the OmniVest/TP combination is not yet able to properly handle an IRA account (please correct me if necessary).
That is, for an IRA account, regardless of account size, there is a mandatory day-of-trade-plus-three-business-days delay imposed any time a position is closed, BEFORE those funds are available again for opening new positions. The delay is less (one day instead of three) for Options trading in an IRA account.
OmniVest needs to be able to properly track what's going on for an IRA account, so that we don't have to continually update the current account balance. That is, when OVest closes out a trade in an Account designated as an IRA account, OVest should keep track of when those funds will become available and NOT presume they can be used the same day to open new positions.
Ed could you please comment on whether this is already planned, and if not, what you would consider the priority to be? Reason ... I'm considering a rollover of a pension plan into a GX Trader IRA account specifically for use with OmniVest.
Thanks.
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User Profile I'm also rolling over an IRA this week to GX Trader (as I suspect a number of people will do). Help in automating this check as Jim has suggested would be a DEFINITE plus...
Thanks,
Mark
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User Profile Jim, I think you just nailed the reason for the multitude of problems I am having trading two IRA accounts. I get all sorts of TP messages stating I have no buying power to fill MOO opening trades when only about half of my 100% trading funds are tied up in long positions at the time. This really needs to be addressed.
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User Profile Ed is aware of this. It's a specific rule for certain clearing firms. GXTrader & MB Trading would have this delay for IRA accounts, though IB does not. We could add an option at the OmniVest level for it.
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User Profile Please do add the option ... presumably a lot of us will be using GX Trader.
It's interesting that IB does not enforce that delay. I thought it was a legislated delay, rather than related to arbitrary clearing firm rules.
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User Profile I will start out stating that I am no expert in the subject matter being discussed. I wanted to intervene to make every one aware that the premise that this issue only applies to IRAs is not entirely true (IMHO).
The rule actually says that Investors must settle their security transactions in three business days. This settlement cycle is known as "T+3" — shorthand for "trade date plus three days." By the way, T+3 becomes T+1 for options and Government Securities. Note - its not specific to IRA accounts. More information on it can be found here:
http://www.sec.gov/investor/pubs/tplus3.htm
The issue here I believe is more accurately described as a Margin Account vs a Cash Account issue.
As the settlement date of trades is set by and regulated by the Federal Reserve (Regulation T). ALL firms settle trades on the settlement day – it’s the law. If you use a margin account - the broker will normally let you use the unsettled funds to make additional purchases. You may not be able to sell these securities until the purchasing funds are settled however. This issue is called "free riding" and is discussed further in the discussion below:
http://sixfigureinvesting.com/2010/01/trading-in-ira-accounts-and-avoiding-free-riding/
Also - be aware that different brokers handle the "Free Riding" issue slightly differently - even though they are all addressing the same regulations. Sorry - I'm not sure that I furthered the discussion in a positive way. Just wanted to let everyone know that this issue is not specific to IRAs
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User Profile I'm sure that GX Trader uses T+3 and T+1 for IRA's, even if the account size is greater than the $25k "daytrading" threshold ... I just spoke to Zack at GX this morning to confirm.
I checked IB's website and apparently they DO allow margin (at about 1.7% interest) on IRA accounts ... with some restrictions ... and I was very surprised to see that. I did not see anything on their site about T+3 for IRA's. If anyone knows about IB's IRA rules from actual use, please post here.
Thanks
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User Profile The position with IB for UK pension accounts is that only cash accounts may be used.
While dealing with this for MBT & GXT, please also code for IB cash accounts.
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User Profile Have traded an IB IRA account for a number of years. No shorts, only cash-no margin and IB does not delay use of trade proceeds for re-entries.
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User Profile Thanks FG ... I was confused by this IB page:
http://www.interactivebrokers.com/en/index.php?f=4966
which says:
"US resident customers may open cash or margin Individual Retirement Accounts (IRAs)."
But I could find no other info re margin restrictions on IRA's
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User Profile F Gordon,
Sorry, that's not correct. Cash account rules are:-
1. Account must have enough cash to cover the cost of stock plus commissions.
2. Shorting not allowed.
3. Cash from the sale of stocks is available three business days after the trade date.
4. Account may trade in different currencies but must have the settled cash balance to enter trades.
5. When authorizing market, relative and VWAP orders, a 5% cash cushion is required to compensate for market movements.
See http://www.interactivebrokers.com/en/index.php?f=tradingConfiguration&p=acctypes
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User Profile Hi, Steve:
FG and myself are located in GA (US) ... your link was to a UK-related page.
It's quite likely that the rules are different for domestic vs international.
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User Profile Jim
Link to US page (corrected above) says the same.
http://www.interactivebrokers.com/en/index.php?f=tradingConfiguration&p=acctypes
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User Profile Thanks. I guess the note on the intro page is just a misprint. I would have been VERY surprised if margin was avail with IRA's (even via IB ;~)
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User Profile SteveJ,
To my knowledge, rule 3 on your list has never been applied to any of my IRA trades at IB. I have entered positions at very close to my cash account limit which frequently include proceeds from same day exits.
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User Profile Responding to this thread...
APEX apparently has different rules about making funds available in an IRA than I.B. does. I would like to know, Is anyone using MB Trading? If so, do you see the same policy in force there? The reason I ask is that MB Trading also uses APEX.
The original post by Mr. Dean had to do with our adding an N-Day "funds available" rule in OmniVest, so the simulations reflect this, and so that new trades aren't generated until buying power is released. We can certainly do that. I have corresponded with Transcend about this and should get an answer back shortly.
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User Profile Does anyone understand exactly what IB means for what they call at Reg T IRA account - "US resident customers may open cash or margin Individual Retirement Accounts (IRAs)."
http://www.interactivebrokers.com/en/index.php?f=tradingConfiguration&p=acctypes2
Looks like they offer margin for an IRA with the restrictions you can't short stocks or borrow cash, but doesn't say anything about the 3 day cash clearing requirement like a Cash account has. Looks like the purpose of a Reg T IRA is to allow day trading in an IRA which would only be feasible if you did not have the 3 day cash clearing requirement.
Anyone know for sure if IB means you can have IRAs without the 3 day cash clearing if you are using a Reg T IRA? If so, it would be great if gxtrader figured out how to offer same for their IRA accounts.
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User Profile We hashed thru that earlier, Jeff ... I had the same question. The answer was ... NO, IB does not offer margin on IRA accounts. Info provided by an active IB+IRA user.
Ed ... is it safe to assume that the IRA 3-day delay SOLUTION will be in OVest rather than in the TP? That is, broker non-specific?
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User Profile IB DOES offer IRA margin accounts (except in Canada). Here is the link to IB's trading rules for IRA accounts.
http://ibkb.interactivebrokers.com/article/188
If you have an IRA margin account then you are permitted to trade with unsettled funds (no T+3 waiting period). Cash accounts are subjected to the waiting period.
So, any IRA 3-day solution implemented in OV would need to be configurable by account type (cash, margin) and maybe by broker.
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User Profile Steve ... someone who has been using IB's IRA's recently said the opposite. Are you actually USING a margined IRA account? If so, I'd really like to know ... I have some money waiting to be put somewhere, and the margin would make the decision easy.
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User Profile Jim, I don't have an IRA account with them so I'm just going by what they say on their website which seems pretty clear. I'll fire off a question to their customer support folks and let you know.
Steve
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User Profile Thanks!
Please find out what kinds of instruments the margin is avail for, and if the margin rate is the same as for non-IRA (ie approx 1.7% or so)
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User Profile Jim, IB customer service confirmed that they support IRA margin accounts. The instruments available in margin accounts are listed at the link I previously posted (make sure you scroll down to the margin account section). Margin rate is the same (currently 1.66%). I believe this is Reg-T margin rules for IRAs.
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User Profile VERY cool. Thanks!
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User Profile Ed, gxtrader/Transcend/Apex will need to consider doing the same, otherwise it makes IRA accounts with them not viable for OV due to the 3 day settling. I am already locked out of trading for 2 days this week due to waiting for funds to settle. I would rather have a solution at the broker address margin with IRAs than have OV add a 3 day lockout due to funds availability. Would rather keep my money invested than in limbo while funds settle.
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User Profile Wow,
Have been trading an IRA with IB right along and had no idea margin for an IRA was available in any form.
thank you,
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User Profile Nirvana -
When you build in logic for the Reg-T 3-day IRA rule (which I hope by now is a given), please also maintain an option for OVest to factor in MARGIN if the user says that it's avail for that IRA account. This is very useful to keep the account more fully vested and to avoid missing watershed market events.
Here is a scenario to consider as you design the logic:
Even WITH a 100% margin availability, it would be possible to be hit by the Reg-T rule - if OVest decides to "flip" 50% of my money on day one, then "flips" 40% on day two (while 50% is still Reg-T restricted) then attempts to "flip" another 30% (when 90% is still Reg-T) - I'll run into trouble … By "flip" I mean close some positions and open new ones.
Thanks.
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User Profile I inquired with gxtrader/Transcend whether they will be able to provide a similar "margin" IRA like what IB has so don't have the issue with 3 day clearing and the answer I got back was no. Their clearing firm (Apex Clearing) does not allow that type of account, and based on what FINRA had instructed them, they would not be able to. IB must be a self-clearing brokerage, so they must have different rules/interpretation of rules than Apex.
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User Profile Jim, for IB IRA margin accounts, the Reg T 3-day IRA rule does not apply the way you've indicated. The 3-day settlement period only applies to when you can withdraw funds from your account. Because IB lets you trade an IRA margin account with unsettled funds, the rule is
"Cash proceeds from unsettled sales are available for trading as long as the subsequent purchase order does not settle prior to the sale order"
Thus, you can flip things as often as you want but if you're fully leveraged, you need to ensure that the closing order completes execution before submitting an opening order. I called IB and confirmed that this is the way it works (assuming the person on the phone knew what they were talking about).
Steve
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User Profile Thanks Steve for checking on this ... that is great to hear but it sounds like IB is effectively somehow ignoring both the spirit and the letter of Reg-T. Not that I care ;~) Have you ever encountered a situation, trading a margined IRA account with IB, which WOULD have failed if my 30%, 40%, 50% scenario occured, but in fact did NOT fail?
And btw ... your final comment drew a wry chuckle from me ... thus the question above :~)
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User Profile No, I don't have an IRA account with them but I've just about convinced myself it's time to roll one over... :-)
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User Profile Jim, Why don't you contact IB directly and convince yourself one way or the other and let us know...
John
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User Profile Frankly I am quite wary of what I'm told over the phone. I'd much rather hear from someone who has actually used the product/service in a similar manner to what I'm intending ... if possible. That kind of person is the one who I am targeting these questions to. :~)
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User Profile Yes I understand what you are saying. The other choice if there are no IB IRA users in this forum who have the experience you seek is to put your particular questions in writing. I've always found IB very responsive and willing to provide information in writing.
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User Profile According to Transcend Capital, I.B. is bending FINRA compliance rules to do what they are doing. We are looking at adding the 3-day rule to OmniVest to see what the effect is. For longer term Strategies it shouldn't be that great. But I understand and agree there definitely is an effect.
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User Profile Ed, a verbal from a competing broker about IB doesn't pass muster.
May I respectfully suggest that since you are the boss of Nirvana and you shepherd a lot of customers to IB, could you write to IB's legal counsel and ask them definitively why they are not in breach of guidelines?
John
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User Profile From everything I have read, margin is not allowed in an IRA account. Asside from the obvious problem of limitations on additional contributions needed to meet margin calls, funds used as collateral lose their favored tax treatment (i.e., cease to be an IRA) and are included in taxable income per the following from the IRS:
http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Loans
Is there something I am missing?
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User Profile Hmm ... well, IB seems to be able to do it ... I'm sure that the gov't is aware of IB ... I'm sure that IB has a passel of attorneys ... and I doubt that it would risk its standing on such a relatively small issue.
So ... GUESSING here ... it appears to me that the referenced IRS document is referring to a SECURED loan. That is, a loan which might given that is secured by the IRA, like a home mortgage ... or more accurately, a home equity line of credit.
My guess is that broker margin can be viewed as a "promissary" note ... ie not backed by anything in particular other than the good word and faith of the customer ... much like a revolving credit card account.
So ... since margin is not a loan that uses an IRA as its backing (after all, by definition, the margin extends your exposure well BEYOND the total value of the IRA) ... then possibly that is how they are getting around it.
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User Profile I've been researching this quite a bit. Both IB and TD Ameritrade support IRA Margin Accounts. These are LIMITED margin accounts designed to comply with IRS rules for IRAs. As such, you cannot borrow funds (there really isn't any margin) and assets in your account cannot be used as collateral. So you can't perform any type of transaction that would require borrowing funds (e.g., shorting a stock). The purpose of these accounts is to give you a few more trading options than you get with a cash account and enable you to trade with unsettled funds (i.e., avoid the Reg T-3 waiting period). When you trade with unsettled funds, you have to make sure your trades are sequenced properly so that you never have a negative balance as each trade settles. If you go to IB's home page and type IRA MARGIN into the search box, you will see their documentation on IRA margin accounts. The following link will show you TD Ameritrade's margin disclosure document. The last section documents margin limitations in IRA accounts.
https://www.tdameritrade.com/retail-en_us/resources/pdf/AMTD845.pdf
I have been unsuccessful in finding any IRS or SEC related documentation that comments one way or the other on IRA margin accounts. I did find one website that documented some of the history of this. Here's the link
http://www.traderstatus.com/faq.htm
Scroll down to FAQ 5.9. Note that I can't vouch for the website or the accuracy of the information.
I would definitely check with you tax advisor before proceeding. I talked with mine and he initially said "no way" but after looking at the documentation said that it met IRS requirements. My only concern would be how well the broker is setup to prevent you from violating the rules (like shorting stocks or having an incorrect sequence of trades that results in a negative account balance). Hopefully that would be bullet proof but I'm not sure.
Steve
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User Profile Here's my latest go round with IB customer support on their IRA margin account:
Q: Thanks for the response but the information provided was not what I was after. I've read the material on the website and understand how your IRA Margin account works. I'm trying to ensure that this type of account meets IRS rules for IRAs and that there is no risk of rolling an IRA into an IB IRA margin account and then losing the tax deferred status of the funds. This could happen if the IRS has not approved this type of account or if there is anyway that IB software might allow me to borrow funds if I enter an incorrect trade sequence (e.g., buying before selling when I'm already fully invested) or enter a prohibited trade (e.g., shorting a stock). If I accidently attempt something like this will the IB software prohibit me from doing this? Also, could you tell me how many years you all have offered IRA margin accounts?
IB Response:
Thank you for your follow up question. Interactive Broker's software does not allow leverage in the IRA Margin accounts. The feature of this type of IRA is the immediate release of funds, instead of waiting for a normal cash settlement of T+3 on an Equity trade, and T+1 on an Option trade. The IRA Margin account has been offered for over 5 years now at IB. I hope this helps.
So, they still haven't provided any evidence that this type of account has been approved by the IRS. But given that they have offered it for 5 years, the IRS and SEC have had plenty of time to whack them if it violates any rules. So, I think this is just a clever (and legal) way of getting around T+3.
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User Profile Following is from IB's website and lists the trading permissions of an IB "Cash" or "Margin" type IRA account:
http://ibkb.interactivebrokers.com/article/188
Their "IRA Margin Account" is a bit of a misnomer since leverage is not allowed ("pseudo-margin account" may be a better name), but the account does allow the use of unsettled funds for trading "as long as the subsequent purchase order does not settle prior to the sale order." I assume IB's software assures compliance to Reg T rules.
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Location: Sydney, Australia
User Profile Just to let you know that all Australian IB clients have been forced onto cash accounts (T+3 settlement) as a result of a dispute over margin call practices with ASIC (Australia regulator). Hopefully this will get sorted out (soon), but in the meantime a setting catering for T+3 settlement would be appreciated. It is not just an issue for American IRA accounts. It should be a standard setting anyway in OV to cater for clients who have accounts that must conform to the T+3 settlement criteria.
How best to handle T+3 settlement though? If using RTM strategies then timing is important, so can't reliably delay a trade, and signals may not fire when equity becomes free... I'd want to see trades taken with what equity is available at the time, or skip the trade. This issue cuts a bit to the architecture OV has around liquidity management as this is more closely monitored by the Trade Processor. However it is something that can be calculated purely from within OV (and hence also simulated which is the main thing).
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User Profile Yup ... it ain't simple to implement ... but it sure is important!
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Location: UK
User Profile Has to be in place for UK pension accounts - still waiting ......
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Location: Grand Rapids, MI
User Profile As a noted by Charles, IB USA will provide margin to cover the T+3 settlement of a position AFTER the position is closed.
What often happens when an IRA account is close to fully vested is IB will reject Buy orders until all Close orders have completed. IB never allows all Buy(s) to be placed if value is > Current Buying Power, and Current Buying Power is not ‘recharged’ until all closing positions are closed. Logical order management by IB, but you can never really have a clean comparison/expectation in a simulation of an IRA account (unless maybe you only assume maybe 70% or less vested?).
Defines a need (that I believe has been requested) for TP to provide a user selection allowing resubmission of an order, at some time after the Open, if the original entry order was cancelled prior to Open.
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User Profile We have added an OmniVest Account Setting for "Settlement Wait Days (IRA Accounts)", so you may now specify the amount of days until funds can be used again. This feature is currently ready for testing in OmniVest V2 only.