So far only IBKR provides the best margin loan interest rate among online brokers i.e. with a spread of 1.5% over the cost of fund. i.e. for USD around 1.56% for the 1st USD100,000.- of a loan. Schwab and Fidelity offer obscenely choking high rates at 7-8% pa for USD loan. This is really wrong when USD cost of fund is practically near 0%. Full commission brokerages actually provide better margin loan interest than IBKR. I have been able to get as little as 0.7% over cost of fund (around 0.76% per annum for USD) on a 1-month loan booked at Julius Baer Singapore with minimum booking of USD50,000.- Though it is a bit hassle every time must confirm via telephone to book/rollover the loan. Anyone found a better rate for margin among online brokers?
Latest USD Libor rates. https://www.global-rates.com/en/interest-rates/libor/libor.aspx As of 5/28/21 Overnight USD cost of funds : 0.06113% 1 Month USD cost of funds : 0.08558%
Sell short against a box a wide SPX spread to fund, you end up with better than IB and can do it with any broker.
It's called price gouging. They gotta finance their free commission models somehow. Payment for order flow and margin rates.
Yeah if those very same brokers did not charge an arm and a leg for lending rates of individual names...
Thanks for the revelation. I found Box Spread Financing article on reddit. One can do an FX spot and 1-year swap to fund Euro purchases cheaper than paying 1.5% margin interest, eliminating price fluctuation of Euro vs USD.
It's an SPX option spread, there is no lending involved. The broker charges you nothing but the SPX commission which is minimal for this especially if you do a wide spread.
But the risk of IBKR selling of legs of the box and leaving you naked is real, right? Any experience doing this at Schwab?
I never had IB do that on boxes like this but I suppose it is a risk. The idea was more to do it at other brokers in order to get the best of both worlds, IB's admittedly low margin rates without their horrendous "customer service". I used to do this at OptionsXpress which is now Schwab, can't imagine it wouldn't work at Schwab now.
I am not talking about your idea, I am talking about after obtaining cheaper funding you still get raped by many other retail brokers, such as via sec lending rates if one wants to short individual names. The reason of doing all this is to avoid paying high margin rates and obviously avoiding IB. My point was that one still gets bitten by many other retail brokers through various insanely marked up fees. I wonder how much margin rates are even with slightly more reputable firms like the one Robert M is working for.