Discussion in 'Retail Brokers' started by Finchy, Oct 12, 2006.
Is IB the only firm out there paying credit interest on short stock balances?
I haven't heard of any other broker that does, other than full-service brokers for their larger clients. I would imagine (hope) that any prop shop with their salt also offered this bonus.
While on the topic, I have a question about how IB calculates the credit balance. Their first threshold (LIBOR - 150bp) is only offered on the excess balance over the first $100k. With that being said, take this example:
Orig. Account Cash Balance = $100k
Short 10k shares @ $20/sh = $200k
Do they give you credit interest on $200k ($300k-$100k)? Or do you only receive interest on just the short balance less $100k, i.e. $200k - $100k = $100k?
Short Stock Balance is $200k so you'd receive interest on the incremental over $100k, ie. $100k
However, note that in your example if your original cash balance is $100k then your adjusted settled cash balance would be -$100k which would be subject to debit interest.
There are a few examples on our website.
So in that example I posted, I'd actually end up paying the spread between the debit/credit rates, ex:
BM+1.5% debit on the adjusted settled cash balance of -$100k, minus BM-1.25% credit on the short stock value in excess of $100k. For a net debit of 2.75% on $100k. Am I correct?
If so, neither receiving (nor paying) interest on short transactions suddenly doesn't seem so bad..
Does tradestation pay interest on short balances?
Yes, thats right.
Every broker would charge you on the debit balance, but not every broker would credit you on the short stock value.
Wouldn't that depend on how the broker calculates the adjusted cash balance? My existing broker (AMTD) offsets the opening short balance with the short stock value (initially a wash). Even if the initial short balance is 2x account equity, no interest is paid.
As the trade moves in my favor, the excess of the above is marked to market daily & swept into a money market. Vice versa if it moves against, interest is charged on just the difference.
IB calculates the short proceeds against your equity. Thus if your initial short value exceeds your equity, you end paying interest from day 1. That to me seems to mitigate the benefit of receiving a short credit on >$100k.
(unless, as in example 5 on your site, your short balance far exceeds $100k and doesn't far exceed your equity).
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