Anyone experienced with synthetic borrow?

T

tonyf

Some are advising synthetic borrow (buy fx, sell future) as a cheaper mean than borrowing directly from IB.

I am an equity analyst (fundamentals) and not well versed with what is being proposed here. Any advice to give on this matter? What are the effective borrow rates? and pitfalls?

Thank you
 
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Let's say one has 250K EUR in an IB account.
1/ Do nothing:
The blended EUR rate is -0.442%
Cost for one month: 250K x-0.442% / 12 = EUR-92
Maintenance margin cost: 0

2/ Buy 250K EUR.USD (FXCONV) / sell 2 Oct11'19 EUR futures (0.0027 net spread)
Maintenance margin for futures: EUR 10K
Maintenance margin for USD: EUR 5.5K
Initial fees: USD 5 + EUR 5
The blended USD cash rate is 1.571%
Interest paid for one month: USD 360
Gain after one month : 250K x 0.0027 = USD 675
Net gain: around USD 1025 with EUR 15.5K maintenance margin
Main drawback: one cannot use combo orders hence increased operational risks
 
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Well I guess there is a 'fat finger mistake' concerning 2/. Should rather be:

2/ Sell 250K EUR.USD (FXCONV) / buy 2 Oct11'19 EUR futures (0.0027 net spread)
Maintenance margin for futures: EUR 10K
Maintenance margin for USD: EUR 5.5K
Initial fees: USD 5 + EUR 5
The blended USD cash rate is 1.571%
Interest paid for one month: USD 360
Loss after one month : 250K x 0.0027 = USD 675
Net loss: around USD 325 with EUR 15.5K maintenance margin
 
betcashrun said:
Well I guess there is a 'fat finger mistake' concerning 2/. Should rather be:

2/ Sell 250K EUR.USD (FXCONV) / buy 2 Oct11'19 EUR futures (0.0027 net spread)
Maintenance margin for futures: EUR 10K
Maintenance margin for USD: EUR 5.5K
Initial fees: USD 5 + EUR 5
The blended USD cash rate is 1.571%
Interest paid for one month: USD 360
Loss after one month : 250K x 0.0027 = USD 675
Net loss: around USD 325 with EUR 15.5K maintenance margin
More...

Thanks for that - do you select some auto-roll functionality for the futures or roll them manually on or prior to expiry?

Don't want to be left naked...
 
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