Calculation and mechanics
Interactive Brokers calculates the NLV continuously from cash and the market value of all positions. Long positions such as stocks, funds or bought options add to it, short positions count negatively with their buy-back value. A loan, i.e. negative cash, is subtracted. Smaller items such as accrued interest and dividends come on top. For futures, not the full contract value counts but only the profit or loss. It flows into cash daily.
When an option is sold, cash rises by the premium. At the same time the sold option sits in the account at the negative amount that buying it back would cost. The NLV therefore barely changes at the sale. If the option then loses value, the NLV rises by the same amount, if it gains value, the NLV falls.
All amounts are converted into the base currency. The NLV therefore also changes when only an exchange rate moves. Since options count at their current price, it also moves with time value and implied volatility.
NLV (simplified) = cash + market value of long positions - buy-back value of short positions
Distinction
The margin is the collateral the broker requires for open positions. It is not paid and not subtracted from the NLV but sets how much account value must at least be present. At Interactive Brokers the gap between the loanable account value (equity with loan value) and the maintenance margin is called excess liquidity, its share of the NLV the cushion.
The NLV is a snapshot. Total return and realized profit describe results over a period. Deposits and withdrawals change the NLV without being income or loss.
Related terms
- Margin (Initial and maintenance margin, margin requirement, collateral)
- Base currency (Reporting currency)
- Realized P&L and total return (Realized profit, total return)
- Sold Premium (Short premium, sold option premiums)
All market and analytical information is provided for educational and analytical purposes only and does not constitute investment advice or a trading recommendation.