It's nice to hear someone writing about margin debt as a fraction of GDP, rather than the more usual fraction of market cap. The latter is usually an article saying that margin levels aren't so bad, missing the point that elevated prices make the ratio look high. The two things, not coincidentally, tend to rise to the moon at the same time.

This bit of the article is a bit misleading:
"Instead of margin-calling its clients—demanding money when the value of their collateral drops too low—Interactive Brokers sells the underlying assets to return the investor to their borrowing limits."


Though true, it makes it sounds almost reasonable and convenient. It would be better phrased thusly: When they discover you are in violation of any one of their margin rules, the start selling your portfolio, and they keep on going as long as they feel like it. They don't consider the minimum amount of liquidation which would be needed to bring things into balance.

Sad tale of woe:
I had a secondary account that I wasn't paying attention to, and it had a cash deficit of $684 (margin loan) on a portfolio value of about $110k. No short option positions or anything which could require that cash be found, just long positions. One of their margin rules triggered (having to do with which portfolio balance is allowed which margin rules), so they liquidated positions to cover the deficit, as is their right. Can't complain. But (a) they liquidated $79400 worth of positions to cover the $684 margin loan, which seems a bit excessive. This was during a one-day market freak-out, and (b) they didn't notify me, so a couple of months later when I checked the balance, I had missed the rebound, foregone gain of $69800. They also mention that IB's trading group may be the counterparty when things are liquidated.

So, moral of the story: don't *ever* be in the situation that they might do liquidations. As they can change the margin rules without notice, this means don't ever have a margin loan.

Jim