long USDHKD with IB

L

luisHK

Hi

What do you think would be the less costly way to take a long position USDHKD with IB, aiming at the pair to leave its 7.75bottom range over the next few months. As the upside is very limited to cover the carry, is there a better way than to use margin on spot forex ?

Thanks in advance
Luis
 
I think this is the better way and quicker rather than wait for the next 6000 next. Sometimes there is free lunch in this world.
 
Quote from luisHK:

Hi

What do you think would be the less costly way to take a long position USDHKD with IB, aiming at the pair to leave its 7.75bottom range over the next few months. As the upside is very limited to cover the carry, is there a better way than to use margin on spot forex ?

Thanks in advance
Luis
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The problem is IB's expensive markups on both sides (USD and HKD) (adding 1.5% percent per year on each side).

As far as I can see these add-on percents are very high and typical of retail brokers. They would not normally be charged to institutional forex clients, I think.

I like IB overall but these interest rate fees are too high in my opinion for carry trades. I guess they are intended to cater to those looking for very brief holding periods only, not longer-term carry trades.
 
Quote from comintel:

The problem is IB's expensive markups on both sides (USD and HKD) (adding 1.5% percent per year on each side).
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Shouldn't it be on either side rather than both side (on the HKD side when going long USDHKD) ? But the margin rates with IB is exactly what disturbs me with that trade (it comes down to 0.59% over 1Mil USD, but below that it's indeed roughly 1.59 and 1.09 ).

Hence I wondered if there are instruments, like futures that would bring down the carry cost ?

Also I wouldn't feel safe beeing highly margined on this trade as the free luch might turn into bankruptcy in case the peg is changed, but it one holds HKD cash at the moment, it looks like the right time to sell it for USD.
 
Quote from luisHK:

Shouldn't it be on either side rather than both side (on the HKD side when going long USDHKD) ? But the margin rates with IB is exactly what disturbs me with that trade (it comes down to 0.59% over 1Mil USD, but below that it's indeed roughly 1.59 and 1.09 ).

Hence I wondered if there are instruments, like futures that would bring down the carry cost ?

Also I wouldn't feel safe beeing highly margined on this trade as the free luch might turn into bankruptcy in case the peg is changed, but it one holds HKD cash at the moment, it looks like the right time to sell it for USD.
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I was assuming a leveraged trade,hence 2 sides.

Actually if you are just converting cash, then there is no carry cost I believe.

Futures do have much lower carrying cost than IB's forex interest fees where they exist, but there are no HKD futures. I think the reason that they do not exist is to discourage currency speculation involving the HKD.

There are HKD forwards and options I believe but not through IB. These would be a better vehicle.
 
Quote from comintel:

Yes if you are unleveraged then it is only one side, but still too high in my opinion.

I was assuming a leveraged trade.
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One side looks still too high considering the 1.2% maximum potential upside, but I actually meant leveraged. If one borrow HKD to buy USD they only pay margin rates on HKD - don't they ?

If unleveraged and one is only selling cash HKD they have in their account, they shouldn't be charged any interest rates ?!?


Besides thanks for your input on other instruments.
 
Quote from luisHK:

One side looks still too high considering the 1.2% maximum potential upside, but I actually meant leveraged. If one borrow HKD to buy USD they only pay margin rates on HKD - don't they ?

If unleveraged and one is only selling cash HKD they have in their account, they shouldn't be charged any interest rates ?!?


Besides thanks for your input on other instruments.
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Oh you are right I was mixing it up - it would only be one side - but still too high.

They theoretically pay interest on the credit balance side but the rate is zero for USD.

What I was thinking of is that for currency pairs where you are earning interest on the credit side, they nick the market rate on that side so that you do not gain the full benefit. This does not apply to USD or HKD though - since market rates are near zero, they do not have room to nick you on the credit side as well.

Agreed that on a cash transaction there would be no carrying charge.
 
The basic problem is that IB does not treat a forex transaction as such.

Instead, they treat it as borrowing in one currency and lending in another, as if the two sides were totally unrelated.

This means that they are not able to quote competitive swap rates on specific pairs.

This approach allows them to claim SIPC coverage for foreign currency balances, even when these are really part of carried forex trades, since they are represented on IB books as loans and cash balances rather than as forex transactions.
 
Quote from comintel:



What I was thinking of is that for currency pairs where you are earning interest on the credit side, they nick the market rate on that side so that you do not gain the full benefit. This does not apply to USD or HKD though - since market rates are near zero, they do not have room to nick you on the credit side as well.
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It sure adds up in that case. I'm not keen on opening a separate acount only for forex as I trade little forex and enjoy the multiplatform IB offers, but is a broker like Oanda cheaper for forex carry trades ? Or rather are there other multiproduct brokers offering better conditions on such trades ( i'm pretty keen on investing part of my trading funds with another broker than IB, but the more products it would offer the better, particulary in terms of international markets )
 
Quote from comintel:

This approach allows them to claim SIPC coverage for foreign currency balances, even when these are really part of carried forex trades, since they are represented on IB books as loans and cash balances rather than as forex transactions.
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Despite IB's claim on this, it is unknown whether SIPC would agree that foreign currency is covered unless that currency is on deposit for, or the result of, a securities transaction.
 
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