Il Principe
Guest
Can anyone enlighten me on this process? How it works, minimums, etc.
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Funding an account with a T-Bill.
- Thread starter Il Principe
- Start date
Just transfer it into your broker account and I think you would be able to use it against margin. I've never traded T-Bills, but have transferred funds, stocks, bonds, and cash; which are all marginable. I believe, but not 100% positive that the only things that are not marginable are options, foreign stock exchange stocks, and OTCBB issues.
Il Principe
Guest
Quote from Comptalk:
Just transfer it into your broker account and I think you would be able to use it against margin. I've never traded T-Bills, but have transferred funds, stocks, bonds, and cash; which are all marginable. I believe, but not 100% positive that the only things that are not marginable are options, foreign stock exchange stocks, and OTCBB issues. [/QUOTe
Lordy....what part of my question were you trying to answer? Obviously, I know it can be transferred and used as margin.
the tbill is considered a security with 500k sipc ins. some brokers allow you to margin 90% and others up to 97% . the problem comes if you hold overnight positions. you better have enough cash in your account for overnights are you'll trigger margin calls. why are you doing this to make sure all your money's sipc insured?
if you are holding a larger balance in a futures account, you will want to purchase T bills. I believe the minimum purchase is $1000, but I believe for whatever reason most futures brokers don't want you buying them in less than 10k increments. Likely they want your cash liquid as possible on smaller accounts, and want to be earning that interest for themselves!!
Either wire them into your broker, or ask them to purchase them for you at the weekly T bill auction.
I am not sure what % you can currently margin against, however it is good to have plenty of cash on top of the T bills in the account to meet daily margin fluxuations, as already mentioned.
you want to submit a noncompetitive bid (likely assumed by broker) for the 13 or possibly 26 week bills. I have used, and I believe most use, the 13 week bills.
there is really not much to it. one note is, it takes some getting used to reading the brokerage statements if you have never used them in your account, because they are issued at a discount.. Not saying you don't know this, just something to look for when you get your statements, if you are a first time T bill buyer.
Either wire them into your broker, or ask them to purchase them for you at the weekly T bill auction.
I am not sure what % you can currently margin against, however it is good to have plenty of cash on top of the T bills in the account to meet daily margin fluxuations, as already mentioned.
you want to submit a noncompetitive bid (likely assumed by broker) for the 13 or possibly 26 week bills. I have used, and I believe most use, the 13 week bills.
there is really not much to it. one note is, it takes some getting used to reading the brokerage statements if you have never used them in your account, because they are issued at a discount.. Not saying you don't know this, just something to look for when you get your statements, if you are a first time T bill buyer.
How about a broker that has access to both the cash bond market like ICAP and access to the future exchanges. How much would you have to have to get a major bank prime broker to take you on? I have often thought that if you had 10 million and you had to live on the proceeds the best way to do it would be to buy the cash t-bills and use futures to trade against them.
Quote from Nattdog:
if you are holding a larger balance in a futures account, you will want to purchase T bills. I believe the minimum purchase is $1000, but I believe for whatever reason most futures brokers don't want you buying them in less than 10k increments. Likely they want your cash liquid as possible on smaller accounts, and want to be earning that interest for themselves!!
IB requires a minimum of $1 million for T-bills!!!
Anyone knows which broker has a favorable T-bill deal (and reasonable commissions)? I am mostly trading futures.
Policy varies among FCMs (Futures Commission Merchants -- the futures equivalent of Stock Brokerage Houses) and in some cases, among different brokers within the same FCM. Man Futures, for example, has lots of different policies at its various arms, because Man has grown by acquisition and the FCMs it acquired had different T-bill policies which they don't dare change for fear of alienating their customers.
Many will let you use free cash to buy a T-bill and then allow 95% of the face (maturity) value of the T-bill to be used towards margin. If you buy a 13 week T-bill with face amount $100K and yield of 5.00%, it costs you $98,765 plus approx $45 commission to the FCM. 13 weeks later it magically turns into $100,000 and they don't charge commission when T-bills mature. In between, your $98.8K investment in a T-bill, can be used as $95K towards margin on futures positions. ($95K is 95% of the $100K face amount).
However, if your (cash + Open Trade Equity) dips negative, the FCM will "break" (liquidate) your T-bill in order to get your balance positive. They will also charge you approx $45 commission to do this. So most people leave a bit of extra "cushion" or "safety margin" in the form of extra cash that isn't in T-bills (and isn't earning interest). Who benefits from this? The FCM, of course.
If you shop around, and if you have a sufficiently large account, you can find FCMs who don't monkey around with T-bills at all. Instead they just pay you a money market interest rate on your daily (cash + open trade equity) balance. It's usually pegged to some index, such as "LIBOR minus 50 basis points" or "EONIA minus 75 bips" etc. The advantage of this is, you don't have to mess around buying and selling T-bills every week, and it pays interest on ALL your cash; there is no "cushion" that earns nothing. The disadvantage is, if the FCM goes Refco (bankrupt) then more of your money is potentially at risk.
Finally, there are FCMs which also operate stock brokerages (example: Morgan Stanley). If you are a big enough player you can negotiate a deal to let assets in your stock account, serve as margin for your futures account. You can buy T-bills etc in your stock account, and let them margin (at some reduced rate like 95% or 90%) your futures trades.
Many will let you use free cash to buy a T-bill and then allow 95% of the face (maturity) value of the T-bill to be used towards margin. If you buy a 13 week T-bill with face amount $100K and yield of 5.00%, it costs you $98,765 plus approx $45 commission to the FCM. 13 weeks later it magically turns into $100,000 and they don't charge commission when T-bills mature. In between, your $98.8K investment in a T-bill, can be used as $95K towards margin on futures positions. ($95K is 95% of the $100K face amount).
However, if your (cash + Open Trade Equity) dips negative, the FCM will "break" (liquidate) your T-bill in order to get your balance positive. They will also charge you approx $45 commission to do this. So most people leave a bit of extra "cushion" or "safety margin" in the form of extra cash that isn't in T-bills (and isn't earning interest). Who benefits from this? The FCM, of course.
If you shop around, and if you have a sufficiently large account, you can find FCMs who don't monkey around with T-bills at all. Instead they just pay you a money market interest rate on your daily (cash + open trade equity) balance. It's usually pegged to some index, such as "LIBOR minus 50 basis points" or "EONIA minus 75 bips" etc. The advantage of this is, you don't have to mess around buying and selling T-bills every week, and it pays interest on ALL your cash; there is no "cushion" that earns nothing. The disadvantage is, if the FCM goes Refco (bankrupt) then more of your money is potentially at risk.
Finally, there are FCMs which also operate stock brokerages (example: Morgan Stanley). If you are a big enough player you can negotiate a deal to let assets in your stock account, serve as margin for your futures account. You can buy T-bills etc in your stock account, and let them margin (at some reduced rate like 95% or 90%) your futures trades.
Il Principe
Guest
Bravo, bravo.. it's clear, now. It was the mechanics of margin when initiating a trade which had me wondering. Excellent, informative responses.
"The advantage of this is, you don't have to mess around buying and selling T-bills every week, and it pays interest on ALL your cash; there is no "cushion" that earns nothing. The disadvantage is, if the FCM goes Refco (bankrupt) then more of your money is potentially at risk"
You never have a reason to sell T bills every week. most use the 13 week bill. Perhaps someone with the details can chime in, but if you are using a pure futures broker, not IB, which is a stock broker that u can trade futures with, you will want to get the majority of your ballance out of the general brokers cash pool and into a segrigated something like T bills. it is a security measure against blow up. like i said, i don't remember the details, but i do know futures brokers have different responsibility for deposits depending on what the money is put into. Some of the big multi market brokers who do stocks as well, likely offer money market like funds, insured, etc. most futures brokers I have used don't offer this. Futures is a different world. U just buy T bills, for the added safety, on any decent sized ballance u have.
You never have a reason to sell T bills every week. most use the 13 week bill. Perhaps someone with the details can chime in, but if you are using a pure futures broker, not IB, which is a stock broker that u can trade futures with, you will want to get the majority of your ballance out of the general brokers cash pool and into a segrigated something like T bills. it is a security measure against blow up. like i said, i don't remember the details, but i do know futures brokers have different responsibility for deposits depending on what the money is put into. Some of the big multi market brokers who do stocks as well, likely offer money market like funds, insured, etc. most futures brokers I have used don't offer this. Futures is a different world. U just buy T bills, for the added safety, on any decent sized ballance u have.