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Duration: 8:50

Instructor:

Contributor: Interactive Brokers

Level: Advanced

The Main Goals:
The mechanics of margin trading at an international level; the key differences between US and foreign margin requirements and the concept of risk management and portfolio building.

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Study Notes:

Foreign Margin Criteria

  1. Where do you live? – This will be your country of legal residence. We collect this information from you to determine what type of margin account you may have and the applicable jurisdiction. You will need to comply with local regulations for margin trading in whatever jurisdiction you reside.
  2. Where do you want to trade? – This is the exchange that the product will be trading on. This is not always the same as where you live, especially if you trade with a broker offering global access.
  3. What products are you trading? – Whichever jurisdiction governs the margin requirements on a trade may also have specific margin requirements on the product itself.

Ready Market Rule

For customers of IB LLC (our US based entity), you will be subject to Securities Exchange Act 15c3-1(c)(11), also known as the Ready Market Rule.

This rule generally states that foreign securities are only marginable if there is a ready market for them. The rule also
provides the conditions a security must meet to satisfy the Ready Market Rule. IB systems are designed to indicate
which securities fall under the Ready Market Rule and therefore may be purchased on margin.

Risk Margin

Most leveraged trading abroad uses some form of a risk margin model to determine the risk of your portfolio, as
opposed to a rule based system such as Reg T in the US. The model itself may vary depending on the jurisdiction
or exchange. The remainder of this video assumes the viewer has a working knowledge of how a risk-based
margin model works.

Generally, you will encounter risk margin systems trading in Europe, India, Hong Kong, Japan, and Australia.

Notice we didn’t mention Canada. That’s because Canada operates in a way that’s very similar to US securities
with a rules-based system. Note that clients of IB Canada are still subject to Canadian margin requirements.

Foreign Margin Examples and Exceptions

At IB, our European entity, IB UK is actually structured as a Fully Disclosed Introducing Broker to our US entity, IB
LLC. This means that when trading these equities on margin, you’re also going to be subject to US regulations
including its margin requirements. Use the Margin Requirements section to monitor your margin.

If I select India as my country of residence (as required in order to place an order in an Indian security), notice
that I can only select an Indian exchange. At IB, Indian residents are limited to leverage trading on the NSE only
and cannot do so abroad with an IB India account.

Disclosure: Interactive Brokers

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Supporting documentation for any claims and statistical information will be provided upon request.

Any stock, options or futures symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

Disclosure: Margin Trading

Trading on margin is only for sophisticated investors with high risk tolerance. You may lose more than your initial investment.

For additional information regarding margin loan rates, see ibkr.com/interest

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