Cheaper financing than IB's margin rates?

[Fxmove88]

This is due to the Euro zone's current negative interest rate. Keep in mind IB charges you interest now to hold Euro (over $100k) and if you attempt to hedge the position to USD using futures you give back that same amount, so no free lunch.

Hi Sig, thank you for your respond. This ESTX50 Box Spread uses Futures Options. Does it mean that the loan proceeds is credited into futures account instead of into the regular type 3 account for stocks? I don't trade futures. if this is so, then this Euro loan is of no use to me. Am I correct in making this conclusion?

https://www.interactivebrokers.co.u...ex=eu&rgt=0&rsk=1&pm=0&rst=121204040808080808

I am using a demo account. IBKR does not provide ways to check if the Euro is credited into futures / type 3 accounts on a demo account.

Options are traded beyond market closing. For a fully utilized margin account, IBKR robot will liquidate those boxes legs one by one in spite of last liquidation setting, if there is an event that causes futures to drop significantly after market closes.

 

[Sig]

Hi Sig, thank you for your respond. This ESTX50 Box Spread uses Futures Options. Does it mean that the loan proceeds is credited into futures account instead of into the regular type 3 account for stocks? I don't trade futures. if this is so, then this Euro loan is of no use to me. Am I correct in making this conclusion?

https://www.interactivebrokers.co.u...ex=eu&rgt=0&rsk=1&pm=0&rst=121204040808080808

I am using a demo account. IBKR does not provide ways to check if the Euro is credited into futures / type 3 accounts on a demo account.

Options are traded beyond market closing. For a fully utilized margin account, IBKR robot will liquidate those boxes legs one by one in spite of last liquidation setting, if there is an event that causes futures to drop significantly after market closes.

That's a good question, I've only ever done this with SPX spreads so I don't know the answer.

I obviously don't ever recommend using IB for any options spreads because of the incorrectly coded auto liquidation algorithm. However back when I used them I found you could trick it by putting in an opposite GTC order for one contract just outside the max value of the spread. It will never be hit (and if it is you get free money) and The Algorithm is too stupid to realize the order is yours and uses it for it's faulty valuation based on best current bid/offer.

 

[Fxmove88]

Finally I've got the courage to trade Euro box on my own account.

The Euro created from selling a box was credited into my F account (IB-UKL) account while my cash securities account remained negative. They will net off each other and if they are of the same amount will not generate interest expense.
https://www.interactivebrokers.com/en/index.php?f=46381&p=m

 

[tradegoodstocks]

That's what I would have thought.

I have a couple of questions.

Why were you not able to see the cash credited in your demo account?

"For a fully utilized margin account, IBKR robot will liquidate those boxes legs one by one in spite of last liquidation setting, if there is an event that causes futures to drop significantly after market closes." - Neither the value nor the margin requirement of your box are affected by movements of the underlying (the futures). What makes you believe that your box or part of your box would get liquidated when the underlying moves?

Lastly, why do you use ESTX50 futures options and not ESTX50 index options? I can see ESTX50 index options at IB, but I can't even find Euro Stoxx 50 futures options - are you sure you are using futures options?

 

[Fxmove88]

That's what I would have thought.

I have a couple of questions.

Why were you not able to see the cash credited in your demo account?
Not that I know of. Demo account does not provide statements.

"For a fully utilized margin account, IBKR robot will liquidate those boxes legs one by one in spite of last liquidation setting, if there is an event that causes futures to drop significantly after market closes." - Neither the value nor the margin requirement of your box are affected by movements of the underlying (the futures). What makes you believe that your box or part of your box would get liquidated when the underlying moves?
I believe when one's account is over leveraged then it is possible to be liquidated. Hence I use leverage sparingly.

Lastly, why do you use ESTX50 futures options and not ESTX50 index options? I can see ESTX50 index options at IB, but I can't even find Euro Stoxx 50 futures options - are you sure you are using futures options?

I am using ESTX50 Index options but the proceed from the box was credited into my futures account.

 

[Fxmove88]

the link on calculation is a bit difficult to understand but here is the respond from a knowledgeable customer service.

 

[tradegoodstocks]

I am using ESTX50 Index options but the proceed from the box was credited into my futures account.

Finally I've got the courage to trade Euro box on my own account.

The Euro created from selling a box was credited into my F account (IB-UKL) account while my cash securities account remained negative. They will net off each other and if they are of the same amount will not generate interest expense.
https://www.interactivebrokers.com/en/index.php?f=46381&p=m

I find that very bizarre. Proceeds from index options are usually credited to the securities segment of the account, as (in my understanding) options and securities are regulated by the same government organization in the U.S., which is different from the one that regulates futures (an unfortunate fact probably for historic reasons, that makes things unneccessarily complicated). The proceeds from my SPX options were always credited to my securities account. I'm in the U.S., but I have a hard time imagining that this would be different for IBUK accounts.

"They will net off each other and if they are of the same amount will not generate interest expense." - That's what I naively thought too, until I sold a box spread of futures options. My cash balances in Trader Workstation showed a small positive number, representing my net cash after the proceeds from the box spread. But I realized two weeks later when I looked at my statements, that the balances were NOT netted, and I was charged margin interest on the negative balance in the securities account, while the positive cash in the futures account was just sitting there and doing nothing. The cash goes to the futures account, and is NOT swept to the securities account, as it is collateral for the futures options spread in the futures account and will stay there, and there is no way to get it out and net the balances.

I'm sure the retail brokerage industry is happy about the regulatory complexity (with no rational justification that I can see) that leads to this unfortunate situation, as they can earn huge profits from the spread between debit and credit interest rates of client balances that just sit in different account segments, instead of being netted.

I think this is a ripoff, and makes certain strategies impossible to implement. I suspect (but I don't know) that brokers catering to professional traders would allow equities as collateral for futures margin, which would mean the balances could effectively be netted. If anyone knows a broker that allows securities other than cash as futures margin, please let me know.

 

[Sig]

I find that very bizarre. Proceeds from index options are usually credited to the securities segment of the account, as (in my understanding) options and securities are regulated by the same government organization in the U.S., which is different from the one that regulates futures (an unfortunate fact probably for historic reasons, that makes things unneccessarily complicated). The proceeds from my SPX options were always credited to my securities account. I'm in the U.S., but I have a hard time imagining that this would be different for IBUK accounts.

"They will net off each other and if they are of the same amount will not generate interest expense." - That's what I naively thought too, until I sold a box spread of futures options. My cash balances in Trader Workstation showed a small positive number, representing my net cash after the proceeds from the box spread. But I realized two weeks later when I looked at my statements, that the balances were NOT netted, and I was charged margin interest on the negative balance in the securities account, while the positive cash in the futures account was just sitting there and doing nothing. The cash goes to the futures account, and is NOT swept to the securities account, as it is collateral for the futures options spread in the futures account and will stay there, and there is no way to get it out and net the balances.

I'm sure the retail brokerage industry is happy about the regulatory complexity (with no rational justification that I can see) that leads to this unfortunate situation, as they can earn huge profits from the spread between debit and credit interest rates of client balances that just sit in different account segments, instead of being netted.

I think this is a ripoff, and makes certain strategies impossible to implement. I suspect (but I don't know) that brokers catering to professional traders would allow equities as collateral for futures margin, which would mean the balances could effectively be netted. If anyone knows a broker that allows securities other than cash as futures margin, please let me know.

Interestingly the ability to mostly treat stock and futures accounts as fungible is something that IB/Schwab... are better at than some of the more boutique companies which actually treat them as two separate accounts where you have to wire funds from one to the other to trade. I too would be interested to learn if you found a company willing to allow equities as collateral for futures in a sub 9 figure account.

 

[tradegoodstocks]

True, although the accounts are internally completely separate and neither cash balances nor margins are netted, you can see the combined balances and easily sweep cash between them, which it's better than the pure futures brokers which don't offer trading in equities. On the other hand I heard that some allow treasuries as futures collateral, which would be a big benefit especially once interest rates rise because otherwise you would have cash sitting at 0% as futures margin. If you have treasuries anyways in your asset allocation, then frequent transfers between securities and futures account would not be necessary.

 

[Fxmove88]

My Euro securities account does not accrued interest even though it is negative. I will wait for a month to see if I really get charged with Euro interest.

I have compared my account with my wife's which happens to have negative Euro balance since it has not been granted for Euro box trades. My wife's account gets Euro interest accrued on a daily basis.

I would like to see what will happen if the futures account gets more than Euro50k deposit. Will it get negative interest rate?