Negative interest rate (Interactive Brokers)

[kotika]

@tonyf That cant be right. IB will do calculations in your base currency but if the margin is posted in KRW or whatever it will charge you interest on the amount. I was recently hit with unexpected and high interest charges on CNH-denominated margin just by having a position in RMB (CNH) currency futures on USD.CNH

 

[Angelo_60]

@tonyf That cant be right. IB will do calculations in your base currency but if the margin is posted in KRW or whatever it will charge you interest on the amount. I was recently hit with unexpected and high interest charges on CNH-denominated margin just by having a position in RMB (CNH) currency futures on USD.CNH

You are perfectly right, any broker charges margin on local currency, and - except for day trading - if you are short the local currency you have to pay the daily interest (as the rollover in FX trading) on local currency.

But, still, this doesn't help, still problems remain on idle cash you have in your account, just because you don't trade in 100% margin, do you?

Incidentally, for people having multimillion dollar account, the question is not restricted to the Euro.
For example, 3 months Tbill yield about 1.5%, many brokers pays nothing on USD liquidity, while IB pays 1.06% (above 10k). For little accounts (or even for median ones), 0.5%, or even 1.5% means a little cash amount, so there's no reason to worry about.

Burt for very large accounts, 1.5%/y can be a very substantial amount, so I guess the original question should be rephrased as this: "does anyone know any brokers, who has

- the standing of IB (well, sort of...), as global coverage, security of funds, fees, API.... etc
- is accessible to retail,
- accept short term treasury (both in EUR or USD) as collateral?

If yes, please let me know.

It doesn't matter the currency, if one has a very large account and is not allowed to use ST bond as margin (with the proper haircut, of course), this one is leaving a lot of money on the table.

 

[kotika]

if one has a very large account and is not allowed to use ST bond as margin

One retail broker which allowed ST bonds for margin, was Vision. It was a place with a long tradition and competent customer service and good floor brokers (back when it mattered). They closed down around 2010 after a mini-scandal.
Then, after Refco also closed down and my initial enthusiasm for IB was starting to wear off, and I thought that I would be trading in volume, I went to Newedge and had nice conversations with them. They welcomed a retail account, but the sticking point was the minimum commissions volume, something like $3K/mo. On top of that you needed to take care of your own datafeed and trading platform. Trading platform at that time meant TT or Orc, costing maybe $1K/mo or something like that. And not to forget, you needed to have a custody account at a bank to hold the positions, which I think meant that the bank would be the one deciding what they accepted for margin and so on... a whole can of worms on its own which I wasnt too eager to crawl into.

 

[luisHK]

I went to Newedge and had nice conversations with them. They welcomed a retail account, but the sticking point was the minimum commissions volume, something like $3K/mo. On top of that you needed to take care of your own datafeed and trading platform. Trading platform at that time meant TT or Orc, costing maybe $1K/mo or something like that. And not to forget, you needed to have a custody account at a bank to hold the positions, which I think meant that the bank would be the one deciding what they accepted for margin and so on... a whole can of worms on its own which I wasnt too eager to crawl into.

Things have changed apparently at Newedge, I contacted 2 of their asian offices 4 and 5 years ago, also with a multimillion acct ( minimum account balance was 5mil USD , which was OK), minimum commish per year was 100K net of exchange fees (just looked up an old email from them to double check the numbers). Even went to their Sing office offering to trade that much volume, which was almost what I was doing at that time, but they still weren´t interested with the account (it was more stock than futures trading )

 

[luisHK]

From memory US-T margin requirements are 1 or 2% @IB (might B 1% for Bill and 2% for longer expirations, I hold some bills at the moment which show 1% requirement, but margins with IB usually change depending on one´s portfolio), the rest can be used to fulfill margin requirements on other products. Still if the margin necessary is not available in cash on the account, the interests one has to pay on it is more than what US-Ts pay.

 

[schizo]

At the moment on EUR account bigger than €100,000 , IB is charging a negative interest rate of 1.1%.
Has anyone of you found a solution to avoid such expensive cost?
I trade only futures.
I need to take advantage of all off my liquidity at every moment to be able to use the maximum leverage in the event of trading signals.
Do you have any suggestions?
Thank you.

Simple. Don't use IB. Move you account to another broker or among different brokers.

 

[def]

Simple. Don't use IB. Move you account to another broker or among different brokers.

Interesting - blame IB for offering market rates. Those borrowing EUR for as low as 50 bps are not complaining of course. Can't have it both way. Banks charge to deposit Euros and we pass it on. When Banks pay interest, we pay out better than pretty much every other firm.

https://www.global-rates.com/interest-rates/libor/european-euro/euro.aspx

There are alternatives - convert to an interest yielding currency but assume some FX risk. Purchase Bonds and use to margin. Buy stock on margin to take advantage of margin loans in Eur which approach 0.005% depending on the balance.

 

[schizo]

Interesting - blame IB for offering market rates.

Well, my reply was in response to OP's concern about the effect of negative interest rate. I wasn't merely singling out IB. It could have been any other broker who offers negative yield.

There are alternatives - convert to an interest yielding currency but assume some FX risk. Purchase Bonds and use to margin. Buy stock on margin to take advantage of margin loans...

Is carry trade even possible in a negative interest rate environment?

 

[def]

Well, my reply was in response to OP's concern about the effect of negative interest rate. I wasn't merely singling out IB. It could have been any other broker who offers negative yield.


Is carry trade even possible in a negative interest rate environment?

Ok then. Still doesn't change the case where if a firm is not charging negative rates to hold large amounts of euros, they are most likely eating the cost. Perhaps they can offset that against the low or little interest they pay for other currencies.

Carry trade - you certainly can use higher yielding currencies as collateral for Euro trades.

 

[kotika]

Carry trade is alive and well, and in fact explains the negative German bond yield - what you do is convert money to euros, buy Bunds, buy currency forwards to convert back to USD and you come out ahead of buying US treasuries.
Quick math:
Ger. Bund 2yr -0.6%
ECB rate -0.5%
Fed rate +2.0%
UST 2yr rate +1.6%

Profit per year: -0.6 - (-0.5) + 2.0 - 1.6 = 0.3 percent per year.
Not bad for a risk free, self financing trade.

(for the same reasons, if you have EUR, it does not pay to convert your euros to USD, invest in UST and convert back to Euros via forwards - thats why OP rejected the solution of buying USD and hedging)