Some are advising synthetic borrow (buy fx, sell future) as a cheaper mean than borrowing directly from IB. I am an equity analyst (fundamentals) and not well versed with what is being proposed here. Any advice to give on this matter? What are the effective borrow rates? and pitfalls? Thank you
Let's say one has 250K EUR in an IB account. 1/ Do nothing: The blended EUR rate is -0.442% Cost for one month: 250K x-0.442% / 12 = EUR-92 Maintenance margin cost: 0 2/ Buy 250K EUR.USD (FXCONV) / sell 2 Oct11'19 EUR futures (0.0027 net spread) Maintenance margin for futures: EUR 10K Maintenance margin for USD: EUR 5.5K Initial fees: USD 5 + EUR 5 The blended USD cash rate is 1.571% Interest paid for one month: USD 360 Gain after one month : 250K x 0.0027 = USD 675 Net gain: around USD 1025 with EUR 15.5K maintenance margin Main drawback: one cannot use combo orders hence increased operational risks
Well I guess there is a 'fat finger mistake' concerning 2/. Should rather be: 2/ Sell 250K EUR.USD (FXCONV) / buy 2 Oct11'19 EUR futures (0.0027 net spread) Maintenance margin for futures: EUR 10K Maintenance margin for USD: EUR 5.5K Initial fees: USD 5 + EUR 5 The blended USD cash rate is 1.571% Interest paid for one month: USD 360 Loss after one month : 250K x 0.0027 = USD 675 Net loss: around USD 325 with EUR 15.5K maintenance margin
Thanks for that - do you select some auto-roll functionality for the futures or roll them manually on or prior to expiry? Don't want to be left naked...
In this example with a EUR portfolio, it is better to keep EUR rather than to get USD hedging with futures...