How does interest on SPAN margin work? For example, most brokerages charge 5 to 7 percent (IB charges 2-3, but is an outlier) on equity trading. These don't apply to futures trading, or do they? Do all brokerages essentially charge the same thing for futures? If I trade 500 shares of SPY vs 1 contract of ES, is there a difference? Same for Silver futures vs trading SLV? Thanks
SPAN Margin Interest charged vs Equities
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They don't.
Essentially, yes, until you get to very high volumes. Then price-shopping can be worthwhile.
Robert Morse
Sponsor
SPAN margin is not margin like equites. You are required to have the entire "good faith deposit" to cover risk on the trade. That value is based on Exchange SPAN margin requirements. Your broker can always require more for risk. Hereis a simple example.
Equity account: You buy $100,000 in equities and your cash leaves your account and the security settles in 2 days. In 2 days, you have $100,000 less cash and the security instead. If you had an account with $125,000 before, you now have $100,000 is stock and $25,000 in cash. In this account, with Reg-T margin, you can buy up to $250,000 in equities before you get a margin call. At that level, you will get charged interest on the excess over your equity.
Futures account: You buy or sell futures with a requirement of $100,000. Your account has the same $125,000. You now have positions representing your futures and the same $125,000. No money leaves your account as you don't pay for the futures. you have on deposit enough to cover risk. You are limited at most to margin of $125,000. Any requirement over that creates a call as you can't borrow that. This makes it possible to fund your account with some T-bills and earn interest as long as your equity stays above the value of the T-bill. T-bills are marginable at 95%.
I hope this helps.
So hypothetically, a $100,000 account, that is funded with $75,000 worth of T-bills, and $25,000 worth of cash, is able to be traded with SPAN margin for $96,250 of the $100,000
($75,000 x .95 = $71,250 + $25,000 = $96,250)?
Also, my potential losses would need to stay below $25,000, so as to not violate the $75,000 value of the T-bills?
Robert Morse
Sponsor
I'm not sure how to answer that. You can't borrow money for futures-in most cases. You can borrow money for equites. I expect this will not be your only criteria. At Wedbush Futures, we offer access to most US listed Futures using SPAN margin in most cases. We can do the same for a IRA if you open through a self directed IRA company like Midland IRA.
Ok, thanks. I'll demo your platform tomorrow.
Robert Morse
Sponsor
Since T-bills trade at a discount to par, the $75,000 in face value T-bills would have less value than $75K, but to keep the math simple, let's say the current value is $75K. (Wedbush keeps T-bills at cost) Then yes, your buying power would be $96,250 in your example. Any margin requirement above $96,250 would create a call. If you liquidating equity were to drop below $75K, you would be charge interest on that missing value as you are now borrowing money to carry the T-bill. That rate I expect is high, so you would likely add cash or sell some T-bills. Wedbush charges $50/order for T-bills. I don't know what they charge to finance the t-bills. I would avoid that.
Bob
Robert Morse
Sponsor
Lightspeed Trader does not offer futures. Email me and we can go over what we offer to meet your needs.