Interest on cash balance wile trading margin?

C

Chris311

Hello all, first post for me. My broker currently does not pay any interest on cash balances. I saw Interactive Brokers pays a pretty decent interest rate on cash.

I only do intra-day trades and hold nothing overnight. My question is, does interactive brokers allow you to use the margin to trade and not touch the cash so it can earn the full interest amount each day? Most brokers only pay interest on the settled cask meaning you dont get it on the full amount even if your all cash b the end of the day. Is it any different with IB and will they let you just use your margin and leave the cash be?
 
Quote from Chris311:

Hello all, first post for me. My broker currently does not pay any interest on cash balances. I saw Interactive Brokers pays a pretty decent interest rate on cash.

I only do intra-day trades and hold nothing overnight. My question is, does interactive brokers allow you to use the margin to trade and not touch the cash so it can earn the full interest amount each day? Most brokers only pay interest on the settled cask meaning you dont get it on the full amount even if your all cash b the end of the day. Is it any different with IB and will they let you just use your margin and leave the cash be?
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If you hold nothing overnite, then at IB, your settled cash will always equal your account balance, and you will earn interest on your account balance (minus the first $10k). If you want to earn on the first $10K, at IB, then you learn how to sell EFPs, which will pay you more interest on your entire account, including the first $10K, than any broker will pay for cash.
 
Quote from jimrockford:

If you hold nothing overnite, then at IB, your settled cash will always equal your account balance, and you will earn interest on your account balance (minus the first $10k). If you want to earn on the first $10K, at IB, then you learn how to sell EFPs, which will pay you more interest on your entire account, including the first $10K, than any broker will pay for cash.
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Thanks Jim. After some research I realized the same. Just nice to get some interest for a change.

In regards to EFPs, what exactly are they? I have ssen them mentioned alot but never seen a explanation. I will do some searching and see if I can figure out what they are.
 
ok...nevermind. there is pleanty of info on it on the forums. Not to familiar with stock futures but will do some studying. Thanks for the tip.
 
So out of curiosity, say you deposit $20,000 with IB...

They will pay interest only on $10K...while the other 10K's interest goes to them?

I got confused because I know the min balance used to be $5K, but they wouldn't pay interest til you had $10K...

now that the min deposit is $10K, does that mean they pocket the interest on the first $10K and then pay you anything above that?

Thanks.


That could definitely skew the bottom line on commissions with them for a swing trader type....interest on $10K would be *roughly* $40/month.....if you don't take that many trades a month, then you may not really be saving anything considering you are losing the interest on your money.
 
Yeah I just went and looked...they withhold the first $10K from interest paid.....

So you only get interest on anything above $10K, but not the first $10K.

Which means that if you are losing $40K due to lack of interest paid, and you aren't a high volume trader, (ie swing/position not playing big size) you may be more inclined to go to a firm with similar commissions, and good customer service. I think at that point the customer service is worth it.

IB has the best rates to my knowledge, but the lack of CS is a big turnoff (even if it's rarely needed...it's the time you do need it that counts, worth more than many many round trip commissions saved if you're in a magic surprise/ghost position or need out badly).....

So if you're at IB losing interest on the first $10K, which again, is *around* $40 depending on rate, and you have a minimum commission threshold of $30 or you have to pay an additional $10...(which is the case at IB) then you may as well go with a broker that has good CS, because IB's main strength which is low commissions, will not apply to you as a smaller swing/position trader...in fact, you'll probably end up paying significantly more staying with IB, and you won't have the benefit of placing a phone order or having someone to help you if something crazy goes down.

I think that as long as commissions and executions are reasonably good, then interest paid and customer service are the most important characteristics of a broker a swing trader/position trader should look for. I think that too many longer term traders (ie anything beyond a scalper/daytrader) fail to consider how much lack of interest affects their bottom line. Of course, if you're a scalper or otherwise daytrader, commissions and execution would be your priority, as interest paid would quickly be overtaken by execution costs if you were paying higher commissions.

P.S. Of course if you have a very large account then you may not worry about the "little" lack of interest being earned on your first $10K....but remember that $40 or so still can make a difference as to whether or not you're saving money.
 
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