Background: I have recently moved to higher timeframe trading and margins and interest rates are now an important consideration in my world. I trade using Prorealtime platform through Interactive Brokers. The question: If you trade a financial instrument quoted in a currency that you do not hold, the broker will create a loan for those funds. So if my account is in GBP and I open a position on Gold lets say - IB will charge me *BM + 3.5 % for an overnight position. In other words 2.2 %+3.5% = 5.7% overnight charges per contract! Is this normal? Seems extreme. *BM = Benchmark rate
I remember the time I thought the government charged me the annual rate compounded daily on underpaid taxes. Ah, youth.
Would you mind helping me out with the calculation? Long one contract on gold futures. Base currency = GBP. Benchmark rate = 3.5% USD rate = 2.2% How would I calculate the overnight interest fees on that?
Divide the number of days in the year into the interest rate to get the overnight amount. https://www.interactivebrokers.com/en/index.php?f=1595 3.62%/365 I make it 0.009917808% per day
0.009917808% per day against what number? Per contract amount (GC = $10 per tick)? That comes to 0.001
What does IB need the USD for? They need to post the money as margin to the NYMEX. So it's x% of the GC contract margin (currently $5.5k). To avoid thinking about it too much just do an FXCONV of enough GBP into USD in your IB account. Then you already have the USD for margin should you trade a USD based contract and will pay no interest to borrow it. You do then have FX risk obviously.