Forex vs FX Futures. Which one has cheaper financing for a long euro trade?

Discussion in 'Forex' started by Daal, Jul 24, 2007.

  1. Daal


    Lets say you want to go long $50K in euro to hedge a certain exposure you have. you want to tie little capital as possible(but not so little as you get a margin call every hour, so leverage is not an issue here) and pay as little in financing as possible.

    Through Oanda the negative carry of a long EUR/USD is around 1.5%(EUR 3.9% earned USD 5.4% to finance), you will earn 3.9% on the margin money kept as collateral

    I'm not sure what are the costs involve with futures though
    Lets take IB. The cost of carrying the contract I believe is around 1%-1.25%(in built on the futures price as it goes through to expiration) since its a market determined interest rate and not by IB.(If it were it surely would be worse than oanda)

    The margin money put up as collateral I'm not sure IB pays interest on(does anyone know if that goes in the no interest on the first 10K rule?), I do know that the rate is probably lower than oanda rate since oanda is pretty generous with their interest so the costs of both seem to be pretty similar.

    In the end FX would be better because you would be able to choose an exact amount to hedge instead of being forced by futures contracts standards. There might be other tax differences but I dont want go into it since I'm not american

    Did I got something wrong here?