I believe walter situation is with regards to daytrading. It would make no sense for IB to loan their dollar reserves at no interest. Also I dont think IB pays interest for the CAD or EUR money that is being used as collateral for a dollar position. So for swing and position trading the cost of doing that walter tatic should be around 6-8% a year or so in interest payments.
I agree especially wiht a 100k trading portfolio. If someone is quite big or an import/export biz..than that type of hedging makes more sense.
some say the dollar may one day drop to 50 cents ! personally i won't hold huge amounts of cash in $ . not these days . read some of the analysis on : http://www.dailyreckoning.com quite a few $ predictions there
Daal, IB does pay credit interest on cash positions. Obviously there is a spread, so moving cash out of your base currency using IB's cash management will cost you a few percent a year of carry on top of whatever the interest rate differential is. However it won't be a 6-8% difference... nowhere near (unless you're borrowing dollars to buy yen or something like that). You can look up the debit and credit interest rates on IB's web site. Anyway, the smart way to do this is with futures. That way you can hedge your dollar exposure to whatever currency you want with almost no cost of carry. To be precise, here are the actual costs of hedging to another currency using futures: 1) The interest rate differential between the currencies (which could be positive or negative). This is built into the pricing of the futures contract. 2) The margin requirement of the futures position, which is probably around 5%. So you forego your cost of capital on 5% of the value of the contract. If you think you can earn 20% a year trading, hedging your entire account to another currency with futures will cost you 1% a year of foregone trading gains. 3) Commissions on buying, selling, and rolling over the futures contract. Also you need to be comfortable with the size of the futures contract, usually $50k and up. Martin
say you live in the UK and trade in dollars , could you not just hedge with a GBP/USD long contract for the total value of your $ positions . lower spreads cheaper costs maybe ?