Interactive Brokers

[Sharkman]

I'm finding the XJO index options improving in liquidity and easy to get fills.

i find that for BHP, RIO and the big 4, quite a lot of the time the MMs will bite 1 or at most 2 ticks from the mid, however not always. sometimes i get a fill at the mid. although when the market gets volatile i find they often won't bite until you practically cross the whole spread (and of course the spreads are usually wider when the market does that).

usually not as easy to get a good fill for things like QBE, LEI though. hence i tend to mainly deal BHP, RIO and the big 4. there's enough liquidity for me there, i don't do more than 50 contracts/leg at a time on those six (30 on RIO and CBA), 50/30 contracts on those is plenty big enough exposure for me, i don't consider myself a fully fledged options trader yet.

i've never looked at doing ASX index options myself, but it is something i should consider. from articles i've read in the past, index options tend to have overpriced IVs, especially the OTMs on the put side, as the theory goes that the fund managers normally bid them up seeing as they're often looking to "insure" their portfolios which are generally long stock. hence on top of that the delta skew is even more heavily favouring puts over calls than it typically does for stocks. is that true in your experience? and if that usually appears to be the case, do you therefore tend towards selling index options vs buying? or would you usually put on spreads when trading index options?

 

[sails]

i find that for BHP, RIO and the big 4, quite a lot of the time the MMs will bite 1 or at most 2 ticks from the mid, however not always. sometimes i get a fill at the mid. although when the market gets volatile i find they often won't bite until you practically cross the whole spread (and of course the spreads are usually wider when the market does that).

usually not as easy to get a good fill for things like QBE, LEI though. hence i tend to mainly deal BHP, RIO and the big 4. there's enough liquidity for me there, i don't do more than 50 contracts/leg at a time on those six (30 on RIO and CBA), 50/30 contracts on those is plenty big enough exposure for me, i don't consider myself a fully fledged options trader yet.

i've never looked at doing ASX index options myself, but it is something i should consider. from articles i've read in the past, index options tend to have overpriced IVs, especially the OTMs on the put side, as the theory goes that the fund managers normally bid them up seeing as they're often looking to "insure" their portfolios which are generally long stock. hence on top of that the delta skew is even more heavily favouring puts over calls than it typically does for stocks. is that true in your experience? and if that usually appears to be the case, do you therefore tend towards selling index options vs buying? or would you usually put on spreads when trading index options?

Sharkman - I don't favour buying or selling - it just depends on the conditions at the time and will use different strategies as I think necessary.

You are correct in the options on the index are higher IV below the money. Here is a snapshot from the IB options trader so you can have a look:

(click to enlarge)

 

[jdninbrisbane]

What is involved in converting your profits back to $A? I have not used an online broker before so its all a bit new. Previously I have only used Australian based brokers where orders were taken over the telephone or by email. Still tossing up weather to go that way again. However they can't compare with IB's brokerage.

Here: http://ibkb.interactivebrokers.com/node/1172

Might scare the bejeebers out of you the first time, but then it'll gel and become a big yawn after that.

Don't bring cash back in $US or whatever - the domestic banks take substantial spreads.

As I type this CBA is quoting audusd (netbank international transfers) 0.9252/0.9982 while IB is quoting 0.96670/0.96675

One thing know is that while IB will accept transfers into your account from any Australian account, they will only transfer cash out to an account that is an exact match in its name to the name on your IB account. e.g. if you IB account is legally held as MyTrustee Pty Ltd then you must transfer to an Australian account with account title MyTrustee Pty Ltd.

So what? Well, the first time through this drill I spent best part of a couple of months trying to get a bit of cash out of IB and into the corresponding CommSec account (the only domestic financial account the Family Trust has is a legacy CommSec account).

[And don't even ask how painful it was to open the IB account for a family trust that had zero domestic financial accounts other than a CommSec account, and that used a PO Box for postal purposes, and that had for years been deliberately receiving most forms of correspondance electronically rather than via the IB mandated dead-trees. No, please don't ask, it still makes me wince...]

Well, that was extraordinarily painful for several compounding reasons. Recently though by forcing all CommSec holders to now be CommBank bank account holders (recent CommSec change for the "benefit" of its users - read CBA grab for low cost deposits) CBA has by default solved part of the problem. (you couldn't previously make SWIFT deposits into a CommSec account despite it using a CBA BSB).

The second problem was that CommSec was using a truncated version of the Family Trust name as the account name (rather than the trustee's name, as the actual account holder and legal owner of the assets).

So whenever I tried making a transfer it would bounce back. Anyway, it got to the point that IB started freezing my transfer attempts and made me call them and explain what the what going on in the account each time I attempted a new transfer. Guess they didn't like the look of all the try-and-fail, try-and-fail, rinse-and-repeat cash transfer activity in there.

In the end I took the GuerrillaMail approach - walked into a CBA branch (actually literally visited a bank branch - they still exist) and opened a regular bank account for the trustee, then xferred the cash from IB to that bank account (worked first time - but you know, I'd had plenty of dry runs to figure out the ins-and-outs of it...), then from there to CommSec, and then walked back into that branch and closed the temporary account.

Amazing.

Of course, the correct answer was always to stop fighting the trend and just open the disposable CBA account. But I can be a stubborn git when I don't like nature of the obvious answer.

 

[Sharkman]

[And don't even ask how painful it was to open the IB account for a family trust that had zero domestic financial accounts other than a CommSec account, and that used a PO Box for postal purposes, and that had for years been deliberately receiving most forms of correspondance electronically rather than via the IB mandated dead-trees. No, please don't ask, it still makes me wince...][/SIZE][/I]

really? i found it quite straightforward. it was straightforward 5 years ago, anyway. maybe it's not anymore, with all these regulatory reforms coming out. i trade thru a discretionary trust in IB (i control a company, essentially an empty shell with nothing in it, the company controls the trust). both entities were newly established at the time i was opening the IB account in its name, so i didn't have much in the way of correspondence at all. is your trust an australian trust?

if anyone's looking to start trading thru IB using a trust, contact their australian office on the number listed on here, http://www.interactivebrokers.com/en/index.php?f=1560, the guy will step you thru the whole thing and was very helpful. if the same guy is still there.

 

[bellenuit]

really? i found it quite straightforward. it was straightforward 5 years ago, anyway. maybe it's not anymore, with all these regulatory reforms coming out. i trade thru a discretionary trust in IB (i control a company, essentially an empty shell with nothing in it, the company controls the trust). both entities were newly established at the time i was opening the IB account in its name, so i didn't have much in the way of correspondence at all. is your trust an australian trust?

if anyone's looking to start trading thru IB using a trust, contact their australian office on the number listed on here, http://www.interactivebrokers.com/en/index.php?f=1560, the guy will step you thru the whole thing and was very helpful. if the same guy is still there.

I would side with jdninbrisbane. I too found it cumbersome setting up what in my case was just an individual account. Not overly so, but a bit more than I experienced with about 3 other online brokers that I have had accounts with. The bank transfer issue was also a pain. I too had an account with CommSec (before they changed to the NetBank CDIA) and got caught out when it was rejected right at the one time I needed funds in a hurry. But I now use Nabtrade instead of CommSec (not for trading, but to park any excess cash in their high interest account) and that works ok (I still must go through an intermediate NAB account, but that is a NAB restriction, not IB).

My main issue is dividend payments, which can often be delayed for a few days because they are not part of the Chess system (for US shares in particular or Aussie mining companies that pay in USD). I also have to work out the franking credits, which isn't difficult to do, but requires a bit of extra work. I know a report becomes available after year end that shows franking credits, but I like to know my tax position before year end so that I can optimise dividends (to maximise their tax advantage) I am able to pay myself from a private company I own.

 

[jdninbrisbane]

My main issue is dividend payments, which can often be delayed for a few days because they are not part of the Chess system (for US shares in particular or Aussie mining companies that pay in USD).

About the dividends - my understanding is that while dividends from USA-resident companies are subject to non-resident alien tax withholding, that dividends from non-USA-resident companies are not (i.e. most ASX listed companies). [Strictly, it's to do with the source of the income yada yada, but whatever...]

Is that correct? If I buy Telstra via IB then there is no non-res tax withholding applied to the cash component before you receive the dividend? i.e. you get the lot just as you would if you held it through CHESS via an Australian broker?

I have a couple of self-managed super funds that I'd like to migrate from CommSec to IB, but it doesn't make sense if withholding is applied as one of them is in pension mode (and therefore pays no tax in Australia) - the non-res withholding would result in the a slice of the fund's income effectively becoming taxable (to Uncle Sam, rather than Canberra).

 

[So_Cynical]

Got a bit of a shock while reading the book "Automate This: How Algorithms Came to Rule Our World" to learn that Thomas Peterffy the founder and largest share holder of Interactive Brokers is a genius that pretty much pioneered algorithmic trading back in the late 70's and early 80's.

This guy was writing code in fortran back before C was even invented...also pioneered the Tablet concept, and electronic trading in general...pretty damn impressive considering that ive never heard of this guy before and only found out who this guy was a couple of days ago.

I now have a whole new respect for IB.

http://en.wikipedia.org/wiki/Thomas_Peterffy

http://www.amazon.com/Automate-This-Algorithms-Came-World/dp/1591844924

http://en.wikipedia.org/wiki/Fortran

 

[bellenuit]

About the dividends - my understanding is that while dividends from USA-resident companies are subject to non-resident alien tax withholding, that dividends from non-USA-resident companies are not (i.e. most ASX listed companies). [Strictly, it's to do with the source of the income yada yada, but whatever...]

Is that correct? If I buy Telstra via IB then there is no non-res tax withholding applied to the cash component before you receive the dividend? i.e. you get the lot just as you would if you held it through CHESS via an Australian broker?

I have a couple of self-managed super funds that I'd like to migrate from CommSec to IB, but it doesn't make sense if withholding is applied as one of them is in pension mode (and therefore pays no tax in Australia) - the non-res withholding would result in the a slice of the fund's income effectively becoming taxable (to Uncle Sam, rather than Canberra).

Correct. I am assuming you open the account with IB in Australia, in which case your Australian Shares have nothing to do with Uncle Sam. As far as I understand how it works, your Australian Shares are held by an Australian based holding company in your name. They pay you the full amount of the dividend just like shares held though the Chess system. Assuming you have given your (Australian) tax file number when setting up the account, then no withholding tax should be deducted. The only difference I have come across is that there is sometimes a day or two delay in receiving the dividends for some shares and they only show the gross dividend in the IB activity statement. You have to work out the franking credits attached to the dividend yourself, unless you are willing to wait until after tax year end when a report is made available for Australian account holders that shows the dividends and imputation credits. The imputation credits information is available from other sources in any case (ASX website for instance) if you want to know what it is at the time the dividend is received.

I only have dealt with IB as an individual shareholder. I don't know what the implications are for SMSFs.

 

[Pager]

HELP

Has anyone set up an IB account who trades through a family trust ?, if so any advice as im getting bogged down, did a search of the thread but nothing came back so apologies if this has been covered, had a personal account for years which was easy to set up but for the Trust it’s a different kettle of fish……….

When I have set up accounts with local brokers here in Sydney I have done so in the family trust name but trading is done through a pty ltd, nether the less it’s the trust deed that they want when I set up the accounts, so with IB I have listed my pty ltd name followed by T/AS my family trust name and then listed the pty ltd as the trustee, so anyone who has done this, is this correct and did you choose simple or complex trust to fill in the W8 form ?

Then there is this W8 form, now I realise im a Foreign entity but im guessing if setting up an account I select Nonwithholding foreign simple trust ?, if in fact Australian Family Trusts are simple trusts which I guess they are but im not 100% on that, have emailed the accountant but wanted to ask here as well..

I’ve only got this far, so any other advice would be appreciated.

 

[keithj]

When I have set up accounts with local brokers here in Sydney I have done so in the family trust name but trading is done through a pty ltd, nether the less it’s the trust deed that they want when I set up the accounts, so with IB I have listed my pty ltd name followed by T/AS my family trust name and then listed the pty ltd as the trustee,

That's what I did.
Trust name is XXXXX PTY LTD IN TRUST FOR YYYYYY FAMILY TRUST
Trustee is my XXXX Pty Ltd

... so anyone who has done this, is this correct and did you choose simple or complex trust to fill in the W8 form ?

Mine was simple

.Then there is this W8 form, now I realise im a Foreign entity but im guessing if setting up an account I select Nonwithholding foreign simple trust ?, if in fact Australian Family Trusts are simple trusts which I guess they are but im not 100% on that, have emailed the accountant but wanted to ask here as well..

I'm oz resident & said 'NO the trust will not withhold taxes'

I’ve only got this far, so any other advice would be appreciated.

They will need to see various pages of the trust deed (IIRC - front page, beneficiaries section, signatures), so make sure you can find it.


And I agree - it took me a couple of weeks of to'ing & fro'ing to make it happen....

 

[Pager]

Thanks Keith

That’s very useful, could I ask did you to fund the account before it was set up, as ive reached the funding page with the online application and that’s how im interpreting what it says there ?, seems odd as they haven’t seen any paperwork and it could be weeks or a month or more before the account is set up.

 

[keithj]

Thanks Keith

That’s very useful, could I ask did you to fund the account before it was set up, as ive reached the funding page with the online application and that’s how im interpreting what it says there ?, seems odd as they haven’t seen any paperwork and it could be weeks or a month or more before the account is set up.

No, I wouldn't be funding anything until it was 100% set up. And I'd do a test with a small amount, and then ensure you could transfer some back into your own bank account! ... and be patient

 

[jdninbrisbane]

A few answers to your specific q's and some other random thoughts from my experience opening an IB account for a family trust that might be useful to others following later.

Has anyone set up an IB account who trades through a family trust ?

Yeah, did that. It was painful given my personal prefs for leveraging the available technology. I posted something on that in this thread a few days back - on the 31st May.

When I have set up accounts with local brokers here in Sydney I have done so in the family trust name but trading is done through a pty ltd, nether the less it’s the trust deed that they want when I set up the accounts, so with IB I have listed my pty ltd name followed by T/AS my family trust name and then listed the pty ltd as the trustee, so anyone who has done this, is this correct and did you choose simple or complex trust to fill in the W8 form ?

Not trading as, just in-trust-for/as-trustee-for. Trading As is a game face for an entity that doesn't want to go-to-market under its legal name or wants to address multiple markets with multiple public faces (e.g. Joe Smith [the legal entity] trading/as "Joe's Crack Plumbing" [the public face showing on the business cards etc])

ITF/ATF is a fiduciary relationship between the trustee that owns the assets and beneficiaries that benefit from them. That relationship is guided/controlled by the trust deed, if there is one.

So the legal account holder is the trustee. It owns the assets and is responsible for dealing with the admin overhead, tax compliance aggro, etc.

If you tag an account as being ITF/ATF a third party will usually then want to sight the trust deed and check that the detail you've given about the trust lines up with that showing in the deed.

From an operational perspective, whether the trustee is ITF or not won't feel much different - it will get a login, and you'll go ahead and trade, etc, but it makes a difference to the downstream stuff such as bookkeeping and income tax.

For IB, I was told to show a family trust with corporate trustee (and an SMSF with a corporate trustee) as a complex trust. Maybe I got dud advice from the offshore guy I spoke to - you might want to check that with the local folk at IB b4 you pull the trigger on the W8. Mostly what you care about is getting the right tax treaty handling.

Then there is this W8 form, now I realise im a Foreign entity but im guessing if setting up an account I select Nonwithholding foreign simple trust ?, if in fact Australian Family Trusts are simple trusts which I guess they are but im not 100% on that, have emailed the accountant but wanted to ask here as well..

On that point then - with the W8, if you go complex then you get the W8-BEN and you'll want to take a close look at "Claim of tax treaty benefits" based on whatever is going on in your situation. e.g. "The beneficial owner is a resident of Australia within the meaning of the income tax treaty between the United States and that country."

I took beneficial owner there to mean the tax residency of the trust.

The income tax treaty will get you reduced rates of USA non-resident tax withholding - down to something halfway decent, and that potentially has consequences come tax time back in Oz, particularly for low-rate taxpayers such as super funds and the tax-purpose beny's of effectively run family trusts.

Other things about the application that I recall:
o base currency - whether you choose aud or something else does have a couple of consequences (for the IB account - e.g. reporting, margins?, whether IB performs auto-currency conversions against your account balance under certain circumstances, others??), but you can change that choice later. Not sure of the ins-and-outs of this one.

o Friends-and-Family Group accounts: If you might end up with multiple accounts under your responsibility (e.g. a super fund, plus your family trust, plus extended family bits and pieces) then you can open a personal Master account (a shell/umbrella account) through which all trading is done and when you point-and-shoot you'll be operating across all/a subset of your linked accounts at once (there are account groupings and associated rules that can be established to control the way that is handled). That has got to be one of the big attractions of IB relative to, say, vanilla CommSec/NAB/Macquarie/..., for me.

And, upstream meta - know why you're operating through a family trust - accountants just love selling them to anyone with 2c of investable cash sitting in a bank account (assuming we don't flog you a self-managed super fund first) - you can distribute trust net income (sort of like profit) from a discretionary trust but losses remain trapped - you've got to have some trust income against which to apply the losses. (but of course we're all operating a +ve expectancy system and applying robust psychology, right... )

That's not a slight on family trusts or smsf's - I operate my own affairs principally via those two structures, and I've moved those I care for to similar structures, but they're not a good answer in many situations - except for the accountants and financial planning organisations that get to collect chunky fees that might otherwise be leeched out by the old-school big-name managed fund outfits, public-offer super funds, etc.

Cheers,
JD

 

[pavilion103]

Shorting...

Are there some stocks on IB that cannot be shorted?


One that I've placed a sell stop on twice is BPT. It hasn't gapped or anything but just has not been triggered.


Has anyone had a similar issue?

 

[chrislp]

Shorting...

Are there some stocks on IB that cannot be shorted?


One that I've placed a sell stop on twice is BPT. It hasn't gapped or anything but just has not been triggered.


Has anyone had a similar issue?

It depends on availability. Here is a list of current shortable stocks. BPT isn't on there at the moment.

 

[pavilion103]

It depends on availability. Here is a list of current shortable stocks. BPT isn't on there at the moment.

Thanks for that. Handy to know.

 

[skc]

Shorting...

Are there some stocks on IB that cannot be shorted?


One that I've placed a sell stop on twice is BPT. It hasn't gapped or anything but just has not been triggered.


Has anyone had a similar issue?

You can display a column on your TWS called "shrtbl". If it's bright green then there are shorts available.

Dark green supposed to mean they'd look for it - but I wouldn't hold my breath.

 

[pavilion103]

I'm in a FTSE June contract and its not moving. No volume. no price movement. It's topped on 6217.

I can't get out but my account is fluctuating in price.
The September contract is still moving.

Does anyone know why this is? It's annoying. I can't get out.

 

[Trembling Hand]

I'm in a FTSE June contract and its not moving. No volume. no price movement. It's topped on 6217.

I can't get out but my account is fluctuating in price.
The September contract is still moving.

Does anyone know why this is? It's annoying. I can't get out.

Oh dear! Its expired. call IB NOW.

 

[pavilion103]

Oh dear! Its expired. call IB NOW.

I phoned them up. Not sure what to ask them?

I guess it's out of my control now?

Will this price be impacted by the markets trading tonight? Is it likely to move up or down?

Can you PM me if possible. Would be much appreciated. Thanks mate.