Fully automated futures trading

Hi Rob,
What is the best way to maintain foreign currency balances. You have mentioned previously that one ought to make a spot fx trade rather than have Interactive Brokers lend you the currency of the instrument you would like to trade. But how much of the foreign currency should you buy? Might it be as simple as: I have 10 instruments, 9 in USD and 1 in EUR, so with my 100K account, I will maintain a 10K Euro balance and a 90K USD balance?
 
Napoleon@Dynamite said:
Hi Rob,
What is the best way to maintain foreign currency balances. You have mentioned previously that one ought to make a spot fx trade rather than have Interactive Brokers lend you the currency of the instrument you would like to trade. But how much of the foreign currency should you buy? Might it be as simple as: I have 10 instruments, 9 in USD and 1 in EUR, so with my 100K account, I will maintain a 10K Euro balance and a 90K USD balance?
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It depends on what you buy: stocks or futures? For stocks you'll need the foreign cash at purchase (i.e. buy), whereas with futures you need foreign cash to compensate for the maintenance margin requirement as long as you hold the position. And even then you may want to consider your general trading pattern: do you want to cover the foreign cash position at each trade, or e.g. once per month, or only correct things when the foreign cash position gets too large (positive or negative)?
 
Hi HobbyTrading,
I would be trading futures, using a system similar to Rob's. I was hoping for a "set-and-forget" process, which maybe I could update monthly. That's why I am leaning towards the process I described in my earlier post.
 
Napoleon@Dynamite said:
Hi HobbyTrading,
I would be trading futures, using a system similar to Rob's. I was hoping for a "set-and-forget" process, which maybe I could update monthly. That's why I am leaning towards the process I described in my earlier post.
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I am familiar with his system as I'm trading my own implementation of it for 5+ years with real money. I am using an "almost set and forget" system when it comes to non-BASE currencies. Especially in the last few years when interest rates were low I didn't really care about those cash positions. These days, now that interest rates have gone up, am I a bit more careful. This is what I do:
To buy or sell a futures contract you don't need cash, except for the commission (usually less than 2~3 USD or EUR per contract). Then you need to fulfill a maintenance margin for that position, in the future's currency. If you don't have that amount in cash in your account IB will loan it to you and charge debit interest for this.
So this is what I do: I regularly check the total required maintenance margin per currency (thus combined for all positions I hold which use that currency), and compare that to the cash amount I have in that currency. If it is very negative, such that the debit interest becomes much more than the cost of a forex trade, I buy cash in that currency. If I am racking up debit interest, but not exceeding the commission of a forex trade by much I don't bother to take action.

Beware that there are cases where you can't do anything: in case of Korean Won (KRW) you can buy KRW to offset a negative cash balance. But you can't buy additional KRW to cover maintenance margin. It's not allowed to buy KRW if you are not in Korea. In this case you have to accept that you will incur debit interest (or stop trading KRW futures).
 
HobbyTrading said:
I am familiar with his system as I'm trading my own implementation of it for 5+ years with real money. I am using an "almost set and forget" system when it comes to non-BASE currencies. Especially in the last few years when interest rates were low I didn't really care about those cash positions. These days, now that interest rates have gone up, am I a bit more careful. This is what I do:
To buy or sell a futures contract you don't need cash, except for the commission (usually less than 2~3 USD or EUR per contract). Then you need to fulfill a maintenance margin for that position, in the future's currency. If you don't have that amount in cash in your account IB will loan it to you and charge debit interest for this.
So this is what I do: I regularly check the total required maintenance margin per currency (thus combined for all positions I hold which use that currency), and compare that to the cash amount I have in that currency. If it is very negative, such that the debit interest becomes much more than the cost of a forex trade, I buy cash in that currency. If I am racking up debit interest, but not exceeding the commission of a forex trade by much I don't bother to take action.

Beware that there are cases where you can't do anything: in case of Korean Won (KRW) you can buy KRW to offset a negative cash balance. But you can't buy additional KRW to cover maintenance margin. It's not allowed to buy KRW if you are not in Korea. In this case you have to accept that you will incur debit interest (or stop trading KRW futures).
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Also, what if the borrowed currency (the country of that currency) has a lower interest rate than the base or some other currency, wouldn't you make more on the interest on the currency you hold than spend on the borrowing rate on the currency you borrow? And if that's the case then looks like it makes sense to simply hold all your funds in the currency that pays the highest interest rate?
Although, there are FX-risk diversification concerns and I'm not sure what's IB's spread between the borrowing rate and the interest it pays on the remaining balance in the same currency..
 
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Kernfusion said:
Also, what if the borrowed currency (the country of that currency) has a lower interest rate than the base or some other currency, wouldn't you make more on the interest on the currency you hold than spend on the borrowing rate on the currency you borrow? And if that's the case then looks like it makes sense to simply hold all your funds in the currency that pays the highest interest rate?
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I agree with you: if there are differences in interest rate then you could potentially make some money. However, a higher interest rate often relates to more volatility in the exchange rate. I did think of these aspects and concluded that it would become too complicated for me to make a more fancy system (yes, you may call me lazy).
My cash positions are not my main source of profit: the futures trading system is. And forex futures are included in this system.
 
Kernfusion said:
Also, what if the borrowed currency (the country of that currency) has a lower interest rate than the base or some other currency, wouldn't you make more on the interest on the currency you hold than spend on the borrowing rate on the currency you borrow? And if that's the case then looks like it makes sense to simply hold all your funds in the currency that pays the highest interest rate?
Although, there are FX-risk diversification concerns and I'm not sure what's IB's spread between the borrowing rate and the interest it pays on the remaining balance in the same currency..
More...
It's worth looking into the concept of Interest Rate Parity. In theory, there should not be an advantage to holding high-yielding currencies over low-yielding ones. In theory...
 
I don't know, for sure I wouldn't put everything in e.g. MXN, but among the "stable currencies" it seems that many countries have stopped hiking rates, while the US still continues, so if the choice is between e.g. EUR and USD it does seem more profitable to hold USD at the moment.
here's what IB pays on the balance: usually (BM - 0.5%)
https://www.interactivebrokers.com/en/accounts/fees/pricing-interest-rates.php
and what it charges for borrowing: usually (BM + 1.5%)
https://www.interactivebrokers.com/en/trading/margin-rates.php

so if I for example exchange all my EUR to USD and borrow EUR, I'll be earning 4.580% on the USD balance and paying 4.557% on the EUR, so a tiny profit, and both currencies seem to me as equally stable..

But there's probably a theory that explains the difference in terms of risk you're taking, and on top of that I'll be paying that additional -1.5% for borrowing.. So probably not a good idea at least in terms of holding negative balances..
 
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newbunch said:
I'm not sure it's the same situation, but VIX futures have weekly and monthly expirations that overlap. This is handled by setting the "TradingClass," which you mentioned in the previous post.
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Looks like this old potential problem has just materialized: I noticed that my system hasn't been able to retrieve EOD prices for 'M1MS' exp: Jun 2023 (a EUREX Emerging markets contract) since May 25, I'm getting "The contract description specified for M1MS is ambiguous; you must specify the multiplier or trading class." and upon checking we now have 6! contracts expiring in June, and they all have the same Trading Class 'FMEA'. The multiplier is also the same.
The only "usable" difference I can see between the normal monthly contract and all these other (daily?) ones is in the "Local Name" property, which is "FMEA JUN 23" for the monthly and something like "FMEA 20230605 D" for the other ones. I really don't want to provide the exact expiration date in 'LastTradeDateOrContractMonth' because I don't always know it precisely, e.g. for this contract according to the spec it's 3-rd Friday, which is June 16, but this time it's "19/06/2023", maybe because it goes my settlement day, which is the next exchange day.. In any case, it's a pain trying to figure out the exact exp days..

I Just tried temporary hardcoding contract.LocalSymbol = "FMEA JUN 23"; for the current contract and it worked, so looks like I can get away with knowing the exp month only not the day..
Now I need to figure out how to modify my system to populate it... Ohh.. why??!! :)

I wander what other EUREX contracts have this issue now.. Well, I guess I'll wait and see until something else breaks in the system :)
 
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Kernfusion said:
Looks like this old potential problem has just materialized: I noticed that my system hasn't been able to retrieve EOD prices for 'M1MS' exp: Jun 2023 (a EUREX Emerging markets contract) since May 25, I'm getting "The contract description specified for M1MS is ambiguous; you must specify the multiplier or trading class." and upon checking we now have 6! contracts expiring in June, and they all have the same Trading Class 'FMEA'. The multiplier is also the same.
The only "usable" difference I can see between the normal monthly contract and all these other (daily?) ones is in the "Local Name" property, which is "FMEA JUN 23" for the monthly and something like "FMEA 20230605 D" for the other ones. I really don't want to provide the exact expiration date because I don't always know it precisely, e.g. for this contract according to the spec it's 3-rd Friday, which is June 16, but this time it's "19/06/2023", maybe because it goes my settlement day, which is the next exchange day.. In any case, it's a pain trying to figure out the exact exp days..

I Just tried to temporary hardcoding contract.LocalSymbol = "FMEA JUN 23"; for the current contract and it worked, so looks like I can get away with knowing the exp month only not the day..
Now I need to figure out how to modify my system to populate it... Ohh.. why??!! :)

I wander what other EUREX contracts have this issue now.. Well, I guess I'll wait and see until something else breaks in the system :)
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Funny because about a week ago I was looking to add FMEA/M1MS and also FMJP/MXJPUS into my system but I noticed this issue. Since neither instrument adds much, if any, value to my system, I decided that it wasn't worth my time to figure it out.
 
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