Commodities Broker: Interest on Cash Collateral

Discussion in 'Professional Trading' started by Ridu, Mar 4, 2008.

  1. Ridu


    Can anyone confirm if it is normal practice for a commodities broker to pay interest on cash deposits? I currently have $600K deposited with my broker and thus far they are refusing to pay any interest on the cash. (It's an introducing broker running through Man Financial)

    My other question: I understand that commodities margin can be covered with fixed income securities, I think t-bills? Can anyone confirm how this works in practice? would the t-bills need to be liquidated if free equity dips into negative?

    Extremely grateful for any answers to the above.

  2. tns4774


    It is common practice not to pay interest. You can still use T-bills, although I haven't dealt with it for a while. Years ago you could use 90% for margin requirements. Might have been some changes, I can check for you if your broker can't answer your questions.
  3. Contact Open ECry. Over $100k and they will consider an interest bearing account.
  4. Normal practice for futures brokers is to pay zero interest on cash. Interactive Brokers is one of the rare ones that does pay interest on the cash balance over $10,000.

    Futures margin can be covered by using T-bills with a haircut. If your daily cash goes negative, then you must sell some of your T-bills for cash.

    With a $600K account they should have told you about using T-bills as margin. There are plenty of futures firms out there.
  5. BJL


    one of the reasons i'm switching from MFGlobal to IB.

    my base currency is euro's and I don't want to buy T-bills and then hedge to euro's with all the hassle involved.
  6. MGJ


    If you open an account with more than $1.5 million, every broker will gladly pay you interest on the cash balance, so you don't need to fool with T-Bills. Typical rates paid are (LIBOR minus 25-50 bps) or (EONIA minus 25-50 bps). You may want to put some of it in another institution in case your broker does a Refco. One popular "second home" for futures account cash is (the gubmunt).
  7. BJL


    I have more than that in my account but MFGlobal wouldn't pay interest.

    Not that I'd trust them with my money any more after their grain stunt.
  8. Ridu


    thanks for the replies. is there a euro denominated equivalent to t-bills which is accepted by brokers for commodity margin? I have base currency euro which makes the t-bills tricky. other than that it looks like I may need to move to IB, or another broker who can offer interest.

    thanks again