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Stok
Registered: Sep 2003
Posts: 786 |
03-12-12 11:38 PM
Since IB does their interest based on benchmark (BM) and they either pay you BM minus some percent (based on tiers) on your long currency and charge you the BM plus some percent on the short currency, it seems to be a headwind and interest expense can add up fast, especially leveraged.
Question: Is this how all spot forex brokers do this? This must be a big $$ maker for IB.
For example, had two long USD/JPY trade this month, and while the USD BM is slightly higher than the YEN (0.11% USD vs. 0.106%), but after they take off/add to the BM, those trades have a high interest charge.
So, I am tier two, I got paid 0% for long USD and charged 1.106% for short YEN. Not complaining too much, it may shave 2-3% a year off performance, just wondering if all forex brokers do this?
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Trader KGB
Registered: Jan 2005
Posts: 1090 |
03-13-12 12:18 AM
Quote from Stok:
Not complaining too much, it may shave 2-3% a year off performance, just wondering if all forex brokers do this?
They all do. Many of them don't even publish their rates, it's an arm and a leg to get the data from them. IB's rates are in fact very competitive, most spot FX brokers charge higher interest rate spreads.
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Trader KGB
Registered: Jan 2005
Posts: 1090 |
03-13-12 12:19 AM
If you're doing longer term position trades, trade FX futures. The interest rate differentials are factored into the price at a much more narrow spread than spot. There's also the tax advantage of having the interest gain/loss factored into the futures price (at 60/40 tax rates).
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Stok
Registered: Sep 2003
Posts: 786 |
03-13-12 12:45 AM
Quote from Trader KGB:
If you're doing longer term position trades, trade FX futures. The interest rate differentials are factored into the price at a much more narrow spread than spot. There's also the tax advantage of having the interest gain/loss factored into the futures price (at 60/40 tax rates).
I used to trade futures fx, moved to spot for more liquidity. I wish the futures fx market was as liquid as the ES or ZN.
Yeah, it's not that big of a deal. My average trade holding is 2 days, but I use leverage and since trading spot for a little over a year, interest exp is shaving off about 2.5% of annual returns so far.
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Stok
Registered: Sep 2003
Posts: 786 |
03-13-12 05:37 PM
This is where the $$ is made for forex brokers. I guarantee the spread they made is much higher than on commissions or even MM.
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