Cost of Carry in FX Futures vs. Swap in Forex

[globalarbtrader]

Apologies accepted.

Just a few points and feel free to address or to consider the case closed

• You still talked a lot about diversification across asset classes. This has never been the topic of this thread and i never brought it up or even hinted at it. Unless it is me who completely misunderstands, this thread is about the difference between cash and futures when trading fx, specifically the cost of carry. I mentioned the inability to build fx baskets via futures because I wanted to show a major drawback of fx futures, which is the very few instruments available. all carry considerations are useless when a trader can't express a view via fx futures for lack of available instrument.
• All my points pertain to retail investors. Every retail investor with a reasonable account balance can fund an account with the brokers I mentioned. Each broker I mentioned pays/charges reasonable funding rates. IB is definitely overcharging and dis-proportionally marking up funding rates to their advantage.
• Your point re credit risk between a broker that specializes in fx futures vs fx cash is misleading, this topic is not about fx bucket shops. I am not sure why you keep on coming back to this. Perhaps the following helps to calm the nerves: "I do not ever recommend anyone to engage in any capacity with an fx bucket shop"? Credit risk is determined through an analysis of management savy and ethics, balance sheet strength, and market perception.
• Finally here my claim, unless a broker or its liquidity provider marks up financing cost: By the argument of no arbitrage, futures fx cannot possibly provide a better carry than cash fx. Hence, I leave it to the reader to do his/her proper research and ask prospective brokers the right questions about their financing rate markups.

Just to add: if you do know of a retail facing broker with reasonable financing costs who actually discloses financing costs on a public web page, I'd really like to see it. Not because I disbelieve you, but I'm actually writing a (3rd) book about trading and I'd like it to include accurate information.

GAT

 

[CFerret]

Just to add: if you do know of a retail facing broker with reasonable financing costs who actually discloses financing costs on a public web page, I'd really like to see it. Not because I disbelieve you, but I'm actually writing a (3rd) book about trading and I'd like it to include accurate information.

GAT

Not sure if that's what you talk about, but Oanda for example has interest calculator on their site and you can evaluate cost of carry of any FX positions.

 

[srinir]

Just to add: if you do know of a retail facing broker with reasonable financing costs who actually discloses financing costs on a public web page, I'd really like to see it. Not because I disbelieve you, but I'm actually writing a (3rd) book about trading and I'd like it to include accurate information.

GAT

What is your latest book about?

 

[GRULSTMRNN]

Most don't disclose financing rates nor commission nor other fees and charges nor the exact type of liquidity pools that can be custom tailored. The reason is that it completely depends into which volume tier you fall. Not every broker who does not disclose all information is shady by definition. But as part of your book due diligence it should be very easy to reach out to different firms to inquire about what missing information you need.

Just to add: if you do know of a retail facing broker with reasonable financing costs who actually discloses financing costs on a public web page, I'd really like to see it. Not because I disbelieve you, but I'm actually writing a (3rd) book about trading and I'd like it to include accurate information.

GAT

 

[globalarbtrader]

Not sure if that's what you talk about, but Oanda for example has interest calculator on their site and you can evaluate cost of carry of any FX positions.

Yes exactly that.

From https://www.oanda.com/forex-trading/analysis/financing-calculator for EURUSD Oanda charge 2.5% to borrow USD and -0.9% to deposit EUR on a long position. On a short position it's 0% lending on EUR and 2% deposit on USD. So an average funding spread of 0.7%. On GBPUSD the average spread is 0.6%. Still far too high relative to vol IMHO, albeit to be fair the levels are about half those charged by IB; so this has still been a useful fact finding exercise.

GAT

 

[CFerret]

Yes exactly that.

From https://www.oanda.com/forex-trading/analysis/financing-calculator for EURUSD Oanda charge 2.5% to borrow USD and -0.9% to deposit EUR on a long position. On a short position it's 0% lending on EUR and 2% deposit on USD. So an average funding spread of 0.7%. On GBPUSD the average spread is 0.6%. Still far too high relative to vol IMHO, albeit to be fair the levels are about half those charged by IB; so this has still been a useful fact finding exercise.

GAT

I agree costs are steep. I'm sitting in a slightly profitable CHF long for about three weeks, but am net losing money due to carry. Not pleasant, but, well, who said it's market's job to please me . Had I held 6S long future, effect would be the same.