Negative interest rate (Interactive Brokers)

[Angelo_60]

"Sig" buys short dated treasuries instead of holding cash.

If I get it right, "Sig" buys short dated treasuries in US dollars for totally another purpose, he's not bothered by negative interest rates.

Short term treasuries in EUR offer negative yield too, so that's not an answer.

I've never found an easy turnaround, every solution has risks potentially greater the 1.1%/y.
As far as I know, only solution is using multiple brokers (not 100% satisfactory, I know....).

Thanks Tonyf, this is a solution that I had evaluated, but in my case it is not applicable because I should have several dozen sub-accounts with all the complications that would result for their management.

Just to let me know, has IB confirmed the limit of 100k EUR is evaluated at the sub account level?

 

[traderslair]

Open an GBP account and enjoy the Brexit trade

 

[tonyf]

We seem to share the same risk aversion profile, and possibly approach to investing.

But in fairness to OP, his question is properly framed to only deal with his EUR holdings. He is not looking for advice regarding planing, FX or asset allocation. Why do you feel entitled to give him such unwarranted advice?

If I get it right, "Sig" buys short dated treasuries in US dollars for totally another purpose, he's not bothered by negative interest rates.

Short term treasuries in EUR offer negative yield too, so that's not an answer.

I've never found an easy turnaround, every solution has risks potentially greater the 1.1%/y.
As far as I know, only solution is using multiple brokers (not 100% satisfactory, I know....).




Just to let me know, has IB confirmed the limit of 100k EUR is evaluated at the sub account level?

Yes - confirmed by IB to me just now

 

[ciccio]

My account is quite large as well but 90% USD.
Another idea that I have not explored yet can be found here: https://www.elitetrader.com/et/thre...sition-liquidation.336414/page-4#post-4952652

"Sig" buys short dated treasuries instead of holding cash.

I am curious to see if this works for you - keep us posted.

Dear Tonyf,
Thank you for your reply but this solution does not work.
If I'd buy USD treasuties I would have again the risk of the exchange rate with the Euro as my base currency is Euro.
Moreover when buying treasuries (as with any other bonds)IB asks you a maintenance margin and in this way I would not have all the liquidity available for trading.
Also, If I'd buy Eur denominated short term bond I would have in this case negative interest on the purchased bond.

 

[nooby_mcnoob]

Dear Tonyf,
Thank you for your reply but this solution does not work.
If I'd buy USD treasuties I would have again the risk of the exchange rate with the Euro as my base currency is Euro.
Moreover when buying treasuries (as with any other bonds)IB asks you a maintenance margin and in this way I would not have all the liquidity available for trading.
Also, If I'd buy Eur denominated short term bond I would have in this case negative interest on the purchased bond.

Can you buy currency options?

 

[ciccio]

I see from your other replies that you are talking about a fairly large trading account. In that case you may want to reconsider whether you only want to have exposure to EUR. Maybe your expenditures are in EUR (cost of living etc.) and thus that you want to have EUR cash, or EUR-based investments in your account. But to better hedge your capital to future geopolitical and -economical events it could be preferential if you do have exposure to non-EUR currencies (e.g. USD, GBP, CHF, JPY).

I am surprised to see that you are willing to take the financial risks of futures, but consider the risk of stocks as too high and undesirable. Futures have a much higher volatility and risk profile than stock for the same amount of invested money.

Dear tonyf,
Thank you for your reply but I have a different point of view.
In relation to the first point, holding position in currencies other than your base currency is always a risk and I wouldn't like to have any not calculated risk. Eventually I could have a maximum 15% account of non Eur currencies to diversify my portfolio but in this way I would not have solved my problem.

In relation to the second point it is true what you say but I have been trading futures for the last 20 years with tested trading system, instead I do not know the stock market because I have never worked with it and in this way I would take useless risk. Moreover buying Usd denominated stock would not eliminate my problem because I would have an added risk on the currency and on the stock and also less cash available on my account because of the margin used to trade stock.

 

[ciccio]

We seem to share the same risk aversion profile, and possibly approach to investing.

But in fairness to OP, his/her question is properly framed to only deal with his/her EUR holdings. He/she is not looking for advice regarding planing, FX or asset allocation. Why do you feel entitled to give him/her such unwarranted advice?

Tonyf I totally agree your opinion.

 

[ciccio]

If I get it right, "Sig" buys short dated treasuries in US dollars for totally another purpose, he's not bothered by negative interest rates.

Short term treasuries in EUR offer negative yield too, so that's not an answer.

I've never found an easy turnaround, every solution has risks potentially greater the 1.1%/y.
As far as I know, only solution is using multiple brokers (not 100% satisfactory, I know....).




Just to let me know, has IB confirmed the limit of 100k EUR is evaluated at the sub account level?

Dear Angelo_60,

I agree with your point of you.
I have contacted IB customer support and they have told me that the €100.000 is valid for every account and not on the total liquidity amount you have with IB. So if for example you have €100.000 on the main account and €100.000 on the sub account you do not pay any interest. Note: IB customer support gives wrong replies 80% of the time.

 

[ciccio]

Can you buy currency options?

Dear nooby_mcnoob ,

Currency option are priced keeping into consideration the difference value between the two currencies interest rates. In the end, the cost that I would have to pay would be identical if not bigger than what I pay to IB keeping my cash in Eur.

 

[nooby_mcnoob]

Dear nooby_mcnoob ,

Currency option are priced keeping into consideration the difference value between the two currencies interest rates. In the end, the cost that I would have to pay would be identical if not bigger than what I pay to IB keeping my cash in Eur.

If you've priced it out, most likely you are correct. But thought experiment: you convert 1M EUR to equiv USD. Get 1% interest on that. Pay 1% to buy equivalent currency option. Could be net zero? Haven't priced it myself so wouldn't know.