Search | User Listing Vidsite | Calendars | Quotes
Home Page ->  Optimizing OmniVest -> Account Administration -> View ThreadLogon (or Register, or Join TradeTight)

You are logged in as a limited-access Guest.To join TradeTight, first read the info in the Organization & Content room, then click the link above. 

Luke 12:33 (NKJV) ... Sell what you have and give alms; provide yourselves money bags which do not grow old, a treasure in the heavens that does not fail, where no thief approaches nor moth destroys.


How the 3-day IRA rule looks in OVest
Jump to page : 1
Now viewing page 1 [50 msgs/pg]
Jump to room :
JimDean
Posted 4/28/2014 2:36 PM (#5827)
Subject: How the 3-day IRA rule looks in OVest



Owner/Admin

Posts: 3557
200010005002525
Location:
USA: GA, Lawrenceville
In version 2, Nirvana added a long-awaited Account Settings input, allowing us to specify the number of days that funds would be held after closing a trade out, to satisfy the regulations regarding IRA trading. This probably took them a lot of work to code it ... many thanks for doing so!

What this means is that if you do an OVest run with and without the 3-day effect, in the run that uses the 3-day hold, you'll likely see similar MDD's but the CAR will be lower (your money can't work as hard since it's tied up in a holding pattern part of the time), and the TPM will be lower (since you have less money to trade, you can't take as many trades), and the overall Return for the modelled period will be lower (same reason as CAR).

There is another difference that at first may seem counter-intuitive ... the run with the 3-day effect will show a HIGHER Avg Percent Invested than the other run. The explanation for this is that since OVest doesn't have a dedicated output box to report the "percent of money IDLE", they lumped that in with the "percent invested". A reasonable approach ... certainly that money is TIED UP and unavailable during that time.

This effect is clarified on the equity-output chart in the %Invested pane at the bottom of the chart. Normally, that area graph is a blue outline that fades gradually to a lighter color, and has a darker border at the edge. But when the account has the 3-day rule active, the chart changes in appearance. You see a dark blue background area, which is the "Total Percent Tied Up", and a light blue foreground area, that is always less than the height of the dark background, which is the true "Percent Invested" amount ... ie the amount of money that is "working for you" in the IRA account, as time progresses.

The chart illustrates this:


(IRA 3-day rule vestiture graphed.png)




Thread moved by JimDean on 8/4/2014 8:52 AM from Markets & Methods > OmniVest, Money Mgmt & Risk Control > How the 3-day IRA rule looks in OVest


Attachments
Attachments IRA 3-day rule vestiture graphed.png (68KB - 0 downloads)
Top of the page Bottom of the page
JimDean
Posted 4/28/2014 2:50 PM (#5828 - in reply to #5827)
Subject: How the 3-day IRA rule looks in OVest



Owner/Admin

Posts: 3557
200010005002525
Location:
USA: GA, Lawrenceville
Note that IB, alone amongst all other brokers (afaik) ... or at least alone amongst brokers that OVest supports ... has found a way to provide "sort-of-margin" for IRA accounts.

This is how I understand it ... but please verify for yourselves with IB before putting your money on the table ... your "funds on hold due to the 3-day rule" are treated internally as a margin account by IB, and you can trade your normal 100%-of-cash actively in the meantime ... as long as the funds on hold don't push the 2x margin limits. If you are trading very actively, with lots of hold-times of just 1-3 days, then it's theoretically possible that ALL of (or most of) your 2x "margined" account might get tied up on hold ... which reduces the funds that you can actively trade, once that total-on-hold goes beyond 100% of your "real" account size.

This explanation is probably "workably correct" but probably is imprecise enough to have some errors, so please check with IB if you need a precise story. This allows you to model an IB IRA account in OVest using a >100% Buying Power, plus the 3-day rule. For GX or MB accounts, the Buying Power input should be 100% or less. BUT, it's hard to say exactly what the ">100%" value should be ... iterative testing, looking at the % invested curve, should help identify the sweet spot.

The bottom line for IB is, they GET TO CHARGE YOU MARGIN fees on your IRA account, which other brokers who don't offer this service can't do. But, since IB's margin rates are *much* lower than most other brokers', it doesn't sting very much.

If anyone has any experiences trading an IRA account with IB that proves my explanation to be wrong or misleading or leaving out something really important, please let me know.

Thread moved by JimDean on 8/4/2014 8:52 AM from Markets & Methods > OmniVest, Money Mgmt & Risk Control > How the 3-day IRA rule looks in OVest

Top of the page Bottom of the page
SteveLuerman
Posted 4/28/2014 3:15 PM (#5829 - in reply to #5827)
Subject: How the 3-day IRA rule looks in OVest



Elite

Posts: 404
100100100100
Location:
USA: CO, Boulder
Jim,
Sorry, but I don't know anything more than what IB says on their website. But, in my reading of their site, I come to a little different conclusion than what you've described. Like you, I am interested in hearing about real live personal experience from someone else.

See IB IRA website: https://www.interactivebrokers.com/en/index.php?f=iraInformation&p=i...

It says "IRA accounts cannot borrow cash (i.e. have a debit balance or short stocks)" which I interpret that to mean you can't exceed 100% invested, ever. So, I wouldn't use 195% in the simulation.

It also says "IRA margin accounts are afforded all the benefits of a margin account, such as the ability to day trade...", which I interpret to mean that you can trade all you want (so long as you never exceed 100%), and their IRA margin option enables the 3-day settlement hold to be avoided.

So, the combination of these two would be better simulated (I think) by using 100% (not 195%) and 0 (not 3) day settlement period.

I will be interested to hear about actual experience.

Thread moved by JimDean on 8/4/2014 8:52 AM from Markets & Methods > OmniVest, Money Mgmt & Risk Control > How the 3-day IRA rule looks in OVest

Top of the page Bottom of the page
JimDean
Posted 4/28/2014 3:21 PM (#5830 - in reply to #5829)
Subject: How the 3-day IRA rule looks in OVest



Owner/Admin

Posts: 3557
200010005002525
Location:
USA: GA, Lawrenceville
Yep it's sort of ambiguous. You can look at it from different angles.

I take it to mean that you can't use more than 100% of your "real" money to actually "own" securities, and that the "margin" is there simply to help ride you past the 3-day hold issue. But I can see how your explanation might be valid. I did not recall seeing the phrase about day-trading ... I thought that they strictly adhered to that rule. It will be really helpful to hear from someone who has "exercised" it, or who may have spoken to a "knowledgeable" IB support person about it.

I just re-read it ... the link to the specific page is:
https://www.interactivebrokers.com/en/index.php?f=iraInformation&p=i...

I wonder if I just totally missed the daytrading thing when I first investigated it a long while back ... or whether they changed it recently ??

Thread moved by JimDean on 8/4/2014 8:52 AM from Markets & Methods > OmniVest, Money Mgmt & Risk Control > How the 3-day IRA rule looks in OVest

Top of the page Bottom of the page
SteveLuerman
Posted 4/28/2014 3:32 PM (#5831 - in reply to #5827)
Subject: How the 3-day IRA rule looks in OVest



Elite

Posts: 404
100100100100
Location:
USA: CO, Boulder
IMHO, your words don't match your configuration. You said "I take it to mean that you can't use more than 100% of your "real" money to actually "own" securities". I agree with that interpretation. Therefore, 100% max, not 195%.

By the way, your simulation on OmniVest should have "0% max Short Allocation" checked. You cannot go short in any IRA account (including IB). (See the IB quote in my previous post.)

Thread moved by JimDean on 8/4/2014 8:52 AM from Markets & Methods > OmniVest, Money Mgmt & Risk Control > How the 3-day IRA rule looks in OVest

Top of the page Bottom of the page
JimDean
Posted 4/28/2014 3:43 PM (#5832 - in reply to #5831)
Subject: How the 3-day IRA rule looks in OVest



Owner/Admin

Posts: 3557
200010005002525
Location:
USA: GA, Lawrenceville
Thanks for the comments Steve. We're speculating here ... if someone has actually been doing this with IB, please fill us in with your experiences. Re 195% ... I've modified the original comments accordingly ... it needs to be a "fuzzy number" input unless Nirvana improves the model. Somehow, there needs to be a way to tell OVest to cap the "real" investiture at 100%, yet let the "idle" funds push it up to 200%.

I did not block shorts in the Account Settings simply because each of the Strategies were already locked in to Long-Only trades. That's a better way to go, I think, since it assures that the strat is not "thinking" that it's got a short trade on, thereby missing a Long-trade entry opportunity. But ... it wouldn't have hurt to also block Shorts in Account Settings ... it just wasn't necessary.

Thread moved by JimDean on 8/4/2014 8:52 AM from Markets & Methods > OmniVest, Money Mgmt & Risk Control > How the 3-day IRA rule looks in OVest

Top of the page Bottom of the page
SteveLuerman
Posted 4/28/2014 4:14 PM (#5833 - in reply to #5827)
Subject: How the 3-day IRA rule looks in OVest



Elite

Posts: 404
100100100100
Location:
USA: CO, Boulder
Some more IB IRA info: http://ibkb.interactivebrokers.com/node/188

Note the 3rd restriction (hightlighting is mine). Sure would be nice to see some specific examples. For example, if you are an active day trader (I'm not) and all the buys & sells settle 3 days later, does that meet the "subsequent purchase order [must] not settle prior to the sale order" requirement?


Restrictions:

- Reg T margin rules enforced (including Pattern day Trading rules)

- Cash proceeds from sales not available for withdrawal until settlement (generally 3 business days for stock, 2 for Forex and 1 for options). Unsettled funds may be used for trading

- Cash proceeds from unsettled sales are available for trading as long as the subsequent purchase order does not settle prior to the sale order

- No short stock

- No negative or debit cash balance (subject to immediate position liquidation in an amount sufficient to restore cash to non-negative balance)

- If purchasing a security or trading a product denominated in a currency different from the Base Currency of the account, a currency conversion must first be executed

- If the exercise or assignment of an option results in the delivery of either a long stock position for which the account does not have sufficient cash to purchase (e.g., call exercise) or any short stock position (e.g. put exercise) the account will be subject to liquidation

- Not eligible for Portfolio Margining

- Not allowed for customers of IB Canada


Thread moved by JimDean on 8/4/2014 8:52 AM from Markets & Methods > OmniVest, Money Mgmt & Risk Control > How the 3-day IRA rule looks in OVest

Top of the page Bottom of the page
JimDean
Posted 4/28/2014 4:24 PM (#5834 - in reply to #5833)
Subject: How the 3-day IRA rule looks in OVest



Owner/Admin

Posts: 3557
200010005002525
Location:
USA: GA, Lawrenceville
I read the highlighted blue portion to be referring to what I mentioned earlier ... if you are trading very actively, it's possible to push the "hold" funds beyond 100% "float margin" limit ... IB doesn't allow that. I think that's what it means anyways.

I've written Ed about this and asked for the OVest model to be improved to properly handle IB margin.


Thread moved by JimDean on 8/4/2014 8:52 AM from Markets & Methods > OmniVest, Money Mgmt & Risk Control > How the 3-day IRA rule looks in OVest

Top of the page Bottom of the page
KeithParsons
Posted 4/29/2014 2:00 AM (#5835 - in reply to #5834)
Subject: How the 3-day IRA rule looks in OVest



Veteran

Posts: 114
100
Location:
S.Africa: , Umgeni Park, Durban
Hi Jim,
Thanks for this and also to Steve.

I note that you have written to Ed on the matter. Please add the questions below to his office. I am assuming Ed has established personal links to IB. I have not as yet asked IB the questions below and before doing so (if required) it would be nice to hear what Ed's response is to you.

My trading style is likely to be the 2/3 days hold

a) For those of us who fall under their own countries tax regime (i.e. South Africa) how does (can) IB exclude us from the 3-day IRA hold rule ?

b) As "foreign investors" - would we simple place zero in the "Settlement Wait Days (IRA accounts) ? A zero can only be placed if the IB program acknowledges this.

c) The 3-Day IRA rule plus the 100 Lot IB shorting rule would have an effect on ones equity curves. Also note below MOO and Nasdaq symbols

Many thanks,

Keith


Transferred by on 4/29/2014, Original Author: Jim Dean - 4/28/2014, Original Title: How the 3-Day IRA rule looks in OVest



Thread moved by JimDean on 8/4/2014 8:52 AM from Markets & Methods > OmniVest, Money Mgmt & Risk Control > How the 3-day IRA rule looks in OVest

Top of the page Bottom of the page
JimDean
Posted 4/29/2014 7:03 AM (#5836 - in reply to #5835)
Subject: How the 3-day IRA rule looks in OVest



Owner/Admin

Posts: 3557
200010005002525
Location:
USA: GA, Lawrenceville
I'm pretty sure Ed has no personal links to IB. His personal links are to GX. You're welcome to write Ed yourself if you'd like: Ed at Nirvsys dot com. He is very very busy these days - don't expect a reply quickly. Ed's not a "support staff" person. After you read this post I doubt that you'll need to contact him anyways.

You mentioned your trading style is likely to be 2/3 days hold. That is entirely different than what is being discussed here. You are referring to how much time passes between your entry and exit. The "IRA hold" is referring to an additional 3 days time after the exit, during which all the funds related to the trade are unavailable for another trade or for distribution to the account owner. Very, very different things.

The OV+TP routines have no control over how IB deals with IRA's - they only simulate, separately, what the performance would have been. Their rules differ a bit from other brokers - I don't know of any other broker anywhere that offers margins on IRA accounts. IB found a way to "get around the rules" to do this, somehow.

I'd also be surprised if IRA accounts apply to people who are not obliged to the US tax code - IRA's are a limited means of deferring income tax. So, non-US customers can just ignore this thread and that special Account Settings input. Your strategies will perform much better, without it (ie set to zero).

You don't need to be "excluded from the 3-day hold rule" since that rule relates only to a specific kind of account that you have to consciously set up with iB, distinct from a normal trading account. Legally there can be no crosstalk between IRA and standard accounts.

Bottom line- fill in a zero in Account Settings for the IRA hold days and ignore all threads like this one :-)

Thread moved by JimDean on 8/4/2014 8:52 AM from Markets & Methods > OmniVest, Money Mgmt & Risk Control > How the 3-day IRA rule looks in OVest

Top of the page Bottom of the page
KeithParsons
Posted 4/30/2014 5:38 AM (#5839 - in reply to #5827)
Subject: How the 3-day IRA rule looks in OVest



Veteran

Posts: 114
100
Location:
S.Africa: , Umgeni Park, Durban
Thanks for the reply Jim

Transferred by on 4/30/2014, Original Author: Jim Dean - 4/28/2014, Original Title: How the 3-Day IRA rule looks in OVest



Thread moved by JimDean on 8/4/2014 8:52 AM from Markets & Methods > OmniVest, Money Mgmt & Risk Control > How the 3-day IRA rule looks in OVest

Top of the page Bottom of the page
SteveFox
Posted 5/14/2015 4:24 PM (#6234 - in reply to #5839)
Subject: How the 3-day IRA rule looks in OVest



Spectator

Posts: 1
0
Location:
MD: ,
I've been trading an IB IRA Margin account with OV for some time now and thought I would clarify how it works.

First some background. The IRS has rules that prohibit IRA investments using borrowed money but could care less about settlement wait periods on brokerage accounts. The SEC defines two types of brokerage accounts -- Cash and Margin. In a Cash account, the investor must pay the full amount for securities purchased and is not allowed to borrow funds from the broker to pay for transactions in the account. The SEC requires that all transactions in a Cash account settle in 3 days (the T+3 rule). Almost every broker simply uses a Cash account model for IRAs since it satisfies the IRS rule that investments can't be made using borrowed money. However, IB has creatively created something called an IRA Margin account that complies with IRS rules for IRAs and the SEC rules for Margin accounts and enables investors to avoid the T+3 rule associated with Cash accounts.

An IB IRA Margin account acts like a Margin Account in that funds are immediately available to be reinvested once a closing trade is executed. However, to comply with IRS regulations it does not permit the investor to borrow money. This means that you cannot attempt to open a short position and you must carefully control the execution order of your trades in order not to inadvertently be short of cash to cover an opening position.

Awhile back, OV introduced the Settlement Wait Days account setting as a way to enable users to take advantage of IB IRA Margin accounts. However, this didn't really solve the problem if you were using TP to submit trades. While TP would always submit closing trades before opening trades, there was no guarantee that these trades would execute in the order submitted so there was a possibility that you could have insufficient funds to cover an opening position if it executed before previously submitted closing positions. The only way around this using TP was to set Settlement Wait Days to 1 which was better than having to set it to 3 but still not desirable.

With the beta version of TP that became available in Dec 2014, a configuration option was added called "Delay Opening Orders". This enabled the user to configure a specific time to submit opening orders. Closing orders would then be submitted at the start of TP's trading window and opening orders would be delayed until the user-specified time setting. So, by configuring TP to submit closing orders before market open and delaying opening orders to, say, 5 minutes after market open, the user can be virtually assured that all closing orders will have completed execution before opening orders are executed. With this setting, the user can safely set Settlement Wait Days to 0, taking full advantage of IRA margin accounts.

I've been using this configuration for about 5 months now without any rejected transactions due to insufficient funds. I'm not sure when Nirvana is planning on releasing this version of TP but if you want to trade an IB IRA Margin account you can request access to the beta version. It works fine.

Steve

Thread moved by JimDean on 8/4/2014 8:52 AM from Markets & Methods > OmniVest, Money Mgmt & Risk Control > How the 3-day IRA rule looks in OVest

Top of the page Bottom of the page
Jump to page : 1
Now viewing page 1 [50 msgs/pg]
( E-mail a Link | Printer Version | Search Room )

Owner of site: Jim Dean -- Forum content is confidential, and may not be distributed without written permission.