I am still new to InteractiveBroker since April 2020 and learning all the different charges to my margin account.
I realized I had a negative MTD Interest of $125 and wonder what is MTD interest?MTD Interest stands for Month-To-Date Interest and consists of 3 components, interests earned or lost from your cash, interest earned from lending your shares to short-sellers, and interests owed from your borrowing of cash. Do note that some cash like Euros has a negative interest rate beyond a cut-off amount. Your Net Asset Value and type of IBKR account (Pro or Lite) also affects the interest rates.
Rather than go through the complex calculations, I will break down the 2 reasons for either positive MTD interests or negative MTD interests to let you read particular to your case.
Both positive and negative MTD interests happened to me over a few months. While the replies from IBKR were correct, they were very not satisfying for someone who liked specific numbers. Therefore, I went to research more myself.
Why MTD Interest Is Positive
Firstly congratulation to you have a few extra dollars that were unexpected.
Given the low-interest environment, this is usually not the case so I think you should be happy.
The reasons you have positive MTD interest are:
- Your cash balance earns Interest within IBKR. Different currencies have different interest rates with Turkish lira (TRY) above $60,000 earning 5% and South African Rand (ZAR) above 150,000 earning 2.945% currently as of 30 October 2020. Find the latest rates athttps://www1.interactivebrokers.com/en/index.php?f=46385
- The rates are higher if you are using an IBKR Pro account and have a Net Asset Value over 100,000 USD.
- You signed up for the "Stock Yield Enhancement Program" and IBKR lent your fully-paid stocks or "excess-margin" stocks (stocks held on margin but whose market value exceeds 140% of your margin debit balance) to short-sellers. It is automatic and there are no notifications when it happened.
Regarding Stock Yield Enhancement Program, I was a bit worried with the 1st condition below and did not sign up during my registration. Nevertheless, I signed up eventually thinking it should be fine. See below for the more concerning conditions, in exchange for having a paltry interest:
- The Securities Investor Protection Act of 1970 may not protect shares loaned out. This is why under SEC rules IBKR must provide you with cash collateral in the same amount as the value of your shares to protect you in the very unlikely event that the stock is not returned to you.
- Shares loaned out are typically used to facilitate short sales. Shares are attractive in the stock loan market because other traders want to borrow and sell them short, possibly affecting the value of the shares.
- Voting rights go to the borrower. During any period in which your securities are loaned out, you will forfeit your right to vote those shares by proxy.
I started with positive MTD interest, having transfer my cash into IBKR but eventually end up in negative MTD interest which started my research and asking IBKR (why think too much when you got extra money?)
Why MTD Interest is Negative
I have been getting negative MTD interest of around -$125 USD in my account which is around 1% per year. That was alarming to me!
If you only have a cash account, it would be even more worrying. I have a margin account so it was more reasonable to think that was the cost to borrow cash to invest.
I suggest checking with IBKR directly and wait for answers. Do not expect them to give you the breakdown and you would just get simple answer.
Below are the reasons I know that can lead to negative MTD interest:
- if you have cash in currency with negative interest rate. I did not know about this as I would think my money is just 0% interest rate at most like a bank. Instead, your free cash will end up negative interest rate if you put it beyond their threshold in negative interest currencies. Find full list herehttps://www1.interactivebrokers.com/en/index.php?f=46385
- Remember to convert your currency accordingly, especially when currency have 0% interest, as I didn't not realized that the interests is based on each currency rather than the overall cash (meaning having negative 10K in USD and 10K in HKD means you get 0% interest in HKD and margin interest on USD, rather than the 10K in HKD offsetting the USD amount). There is a currency conversion fee but definitely worthwhile in the long run.
- If you have margin account, you are likely to use it without knowing much like me. Have buying power is not equivalent to having money. You will overspend and end up into margin lending. Using IBKR Pro will have better margin rates than IBKR Lite too.https://www1.interactivebrokers.com/en/index.php?f=46376
Conclusion
After going through all these, I figure that is how IBKR make money, they give you lower interest or even negative interest (around -1.5% from their benchmark rate) and charge you margin interest (around +1.5% from their benchmark rate).
While they are transparent about the rates, it would be better if they have a breakdown of the MTD interest in the monthly report. You could see your stock being borrowed if you looked hard enough but I think there is no easy way to figure the interest rates of cash balances which is a bummer.
Nevertheless, there is no perfect platform. Choose one you liked and just figure out all the charges to make sure you are not overcharged.
FAQs
MTD Interest stands for Month-To-Date Interest and consists of 3 components, interests earned or lost from your cash, interest earned from lending your shares to short-sellers, and interests owed from your borrowing of cash. Do note that some cash like Euros has a negative interest rate beyond a cut-off amount.
Why do I have a negative cash balance in Interactive Brokers? ›
A (negative) cash balance = Being on margin
immediately to the right of your account number. When your cash balance is negative (in parenthesis), your account is on margin and borrowing cash to hold your portfolio's positions.
Why is my settled cash negative? ›
A Cash Debit (negative value) is an amount that will be debited from the account at settlement. Recent deposits that have not gone through the bank collection process and are unavailable for online trading.
What does MTD interest mean? ›
MTD describes the return so far this month. For example: the month to date return for the stock is 8%. This means from the beginning of the current month until the current date, stock has appreciated by 8%.
Is margin interest charged daily? ›
Margin interest is accrued daily and charged monthly when the cash in an account is negative. The interest accrued each day is computed by multiplying the settled margin debit balance by the annual interest rate and dividing the result by 360.
How is MTD calculated? ›
MTD – if The date in today's month and the day of the month is smaller or equal to today then it is MTD. Otherwise it is not. QTD – If the date is on the same serial month* and the day of the date is smaller or equal to the day of today, then it is QTD.
What happens if your margin balance is negative? ›
If you have a negative listed cash balance in your margin account, that means you are currently borrowing money. Your margin account will automatically borrow money whenever you make a trade that is not covered by the available cash of the currency of the trade in your account.
Can a negative balance be turned into cash? ›
You can do this because a negative balance is similar to a statement credit. If you'd prefer, you can also request a check, money order, or even cash in the amount of the negative balance. Simply call your card issuer and let them know that you would like the negative balance to be converted.
How do I close a negative balance account? ›
If you decide you want to close your bank account while it's negative, the bank could refuse and ask you to pay the balance first. But banks don't keep negative accounts open indefinitely. If you overdraw an account too many times or let an account stay negative for too long, your bank will likely close the account.
How much does TD Ameritrade charge for margin interest? ›
Margin Rates
When setting base rates, TD Ameritrade considers indicators like commercially recognized interest rates, industry conditions related to credit, the availability of liquidity in the marketplace, and general market conditions. As of March 24, 2023 the current base rate is 13.00%.
As with any loan, you will be charged interest on your margin loan by your broker-dealer. This interest directly reduces your return on investment, increasing the amount your investment needs to earn to break even. You should carefully consider this expense before trading on margin.
How do you calculate interest on a margin loan? ›
How is it calculated? Margin interest rates vary based on the amount of debit and the base rate. The formula is: Interest Rate x Margin Debit / 360 = Daily Interest Charge. Although interest is calculated daily, the total will post to your account at the end of the month.
Is margin money my money? ›
Margin is the money borrowed from a broker to purchase an investment and is the difference between the total value of an investment and the loan amount. Margin trading refers to the practice of using borrowed funds from a broker to trade a financial asset, which forms the collateral for the loan from the broker.
Can you pay off margin loan without selling? ›
You can access cash without having to sell your investments. Pay back your loan by depositing cash or selling securities at any time.
Is margin balance my money? ›
Margin balance is the amount of money an investor owes to the brokerage. When an investor uses the brokerage's funds to buy securities, this results in a margin debit balance. Similar to a credit card or traditional loan, a margin balance is a line of credit that the borrower must repay with interest.
What is average balance MTD? ›
A simple average balance between a beginning and ending date is calculated by adding the beginning balance and the ending balance together, then dividing that amount by two.
What is the difference between MTD and YTD? ›
To summarize, the MTD column tracks from the start of the month to the present day and resets every month. The YTD column (which displays as the current year) continues to add up over the year and will only reset on January 1 of the next year. It is what is achieved (history), not a forecast.
What is MTD and YTD? ›
YTD: Year-to-Date (from January 1 of this year to current date) QTD: Quarter-to-Date (From beginning date of the current quarter to current date) MTD: Month-to-Date (From beginning date of the current month to current date)
Can you end up owing money on margin? ›
With a margin account, it's possible to end up owing money on an individual stock purchase. Your losses are still limited, and your broker may force you out of a trade in order to ensure you can cover your loan (with a margin call).
Why my margin used is negative? ›
Margin Used means the amount you have used to purchase anything(Equity or Commodity), Account Value means the amount you are having in Zerodha Account. Margin Used in negative means that you are in profit.
A failure to promptly meet these demands, known as a margin call, can result in the broker selling off the investor's positions without warning as well as charging any applicable commissions, fees, and interest.
What does a negative balance amount mean? ›
A negative balance indicates that your bill was overpaid and that you may be eligible for a refund.
What is an example of negative cash balance? ›
Example: You have 10,000 EUR in cash in your account. You decide to purchase 500 XYZ stocks on the New York Stock Exchange (NYSE), each costing 2 USD. As a result, you will notice a negative position in USD cash equal to - 1,010 USD (commission included).
Can a bank sue for negative balance? ›
The amount your account is overdrawn is a legal debt you owe, which means the bank can sue you and use legal remedies such as wage garnishment to get the money.
Can you freeze bank account with negative balance? ›
Consider closing your checking account
If you cannot pay your negative account balance, try to freeze or close the account because most banks charge a negative account balance fee on a negative account. If you cannot make a deposit, these costs will make it even more challenging to settle your obligation.
How long does it take for a bank account to close for negative balance? ›
In most cases, banks will close a checking account after 60 days of being overdrawn.
What are the disadvantages of margin trading? ›
The biggest risk from buying on margin is that you can lose much more money than you initially invested. A decline of 50 percent or more from stocks that were half-funded using borrowed funds, equates to a loss of 100 percent or more in your portfolio, plus interest and commissions.
Is margin worth it? ›
Margin trading is risky since the margin loan needs to be repaid to the broker regardless of whether the investment has a gain or loss. Buying on margin can magnify gains, but leverage can also exacerbate losses.
How do I get rid of margin on TD Ameritrade? ›
To remove margin, please make sure that your account is clear of debit balance. Please also make sure that there are no option positions with margin requirement; those include all naked options and spreads (long options, covered calls, and cash-secured puts are permitted).
How do brokers make money on margin? ›
In a margin account, your broker may lend your shares to short sellers or hedge funds without notifying you. The broker does this to earn additional interest on the lended shares.
Margin accounts let you borrow money using assets in your account as collateral. Getting margin loans and using them to buy stocks won't impact your credit.
How are margin loans paid back? ›
You can repay your loan at any time by depositing money or by selling securities. Margin loan rates are typically low. These types of loans also have low fees also. You will not have to pay annual fees, closing costs, non-use fees, or other fees that traditional loans might charge.
What is an example of margin interest? ›
Suppose you want to borrow $30,000 to buy a stock that you intend to hold for a period of 10 days where the margin interest rate is 6% annually. In order to calculate the cost of borrowing, first, take the amount of money being borrowed and multiply it by the rate being charged: $30,000 x . 06 (6%) = $1,800.
Can you claim interest on a margin loan? ›
Tax deductible interest - The interest you pay on a margin loan may be able to be claimed as a tax deduction. Tax implications of interest payments - For a fixed rate loan, you have the ability to pay your interest in advance on your margin loan for up to 12 months.
What is a MTD for a credit? ›
Month till date or Month to date (MTD) is the period starting from the beginning of the current month up until the present date, not including the current date.
What is different between MTD and YTD? ›
Just like YTD, MTD (month-to-date) is a period that starts at the beginning of the current month to the current date. It is a much shorter period compared to YTD, but it is very useful in reporting interim monthly performance. And, like YTD, MTD only covers the period ending at the last finalized business day.
What does MTD mean in supply chain? ›
To cope with increasingly volatile markets and shareholder expectations for continually improved financial performance, manufacturing companies are moving to Make-to-Demand (MTD). The goal of MTD is to keep activities synchronized with demand as it shifts.
What are MTD orders? ›
Updated: Nov 29, 2022. MTD – Month to date is the period starting from at the beginning of the current calendar month and ending at the current date. While.
What is MTD in litigation? ›
MTD stands for Motion to Dismiss (legal)
What is an MTD invoice? ›
The Month to Date (MTD) and Year to Date (YTD) dialogs allow you to view the ship to customer's sales history during the invoicing process. This feature allows you to quickly locate a previously purchased item or gain an insightful overview of the customer's purchasing tendencies.
The first mandatory use of digital methods was for Value Added Tax, beginning in April 2019 for many businesses and organisations. Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) has been delayed until 2026.
What is MTD P&L? ›
Overview. MTD Profit and Loss Report. This report displays your profit and loss figures for each month for a given financial year. This report lists your account classifications and accounts down the page and the months across the page.
How do you calculate MTD in Excel? ›
Step 1: Ensure the starting date is properly formatted – go to Format Cells (press Ctrl + 1) and make sure the number is set to Date. Step 2: Use the =EDATE(C3,C5) formula to add the number of specified months to the start date.
How do you calculate MTD in sales? ›
Calculating Month-To-Date and Week-to-Date
- Current YTD Sales = CALCULATE(sum(Sales[Sales]),YEAR(Sales[Created Date])=YEAR(TODAY()))
- Current MTD Sales = CALCULATE(sum(Sales[Sales]),MONTH(Sales[Created Date])=MONTH(TODAY()))
- Current WTD Sales = CALCULATE(sum(Sales[Sales]),WEEKNUM(Sales[Created Date])=WEEKNUM(TODAY()))
MTD's regional brands include Troy-Bilt® in the Americas, Rover® in the Pacific, and WOLF-Garten® in Europe. The portfolio also includes Remington®, Yard Machines®, Columbia®, and MTD Genuine Parts® brands, all primarily sold in the Americas; and Robomow® which is sold in the Americas, Europe and the Middle East.
How do you calculate month to date return? ›
Take the ending balance, and either add back net withdrawals or subtract out net deposits during the period. Then divide the result by the starting balance at the beginning of the month. Subtract 1 and multiply by 100, and you'll have the percentage gain or loss that corresponds to your monthly return.
