It makes no difference if you are not going to use more than 4 to 1 leverage. So, i think it doesnt affect futures guys. And if u are a stock guy, you should not sell EFP if you are already borrowing money from IB anyway. In conclusion, i think it makes no difference whatever the margin requirement is. And I think the exchange sets the requirement, which a paricipant has no control over.
But the real problem with EFPs are that foreign guys can only choose stocks that pays no dividend, otherwise the net return will be cut by a lot because of foreinger's dividend tax (30%). That means the choice of the available of EFP is really small.
I don't understand you. Let's say you spare cash. To sell an EFP is: You buy the stock with your cash (not on margin). You sell the SSF, that needs 20% margin. Unless IB recognizes that the position is practically risk-free, to sell an EFP requires 20% margin. True or not?
True My point is if you have free cash, why does a 20% margin bother you? You dont need leverage anyway
The question is rather how to utilize the EFPs if you only trade futures. So it's not really free cash, it's cash used as margin. Let's say I have a $10k account, and my futures trading is using up to $5k maintenance margin. How much $$$ can I put into selling EFPs? $5k? ~$10k? or $8k? That's my question.
I understand your concern about the 20%. But even with the 20% you can still sell 10K worth of EFP. Let's see all the potential outcome after you sell the 10K EFP with 5K maintanence margin of your futures position. If you make money on the futures position then you have no problem, your cash can only increase. If you lose money say 2K in the futures, you should buy back 2K worth of EFP anyway, so you dont pay IB any interest. So either way, i dont think the 20% margin requirement ever come into play in both situation.
Or if you decide not to buy back the 2K EFP and hope the futures position is going to turn around, you can go down to a couple of hundred bucks before they liquidate your EFP position. (If i understand correctly, EFP maintanece margin is 5%. So basically you can go down to 500 bucks in your account before it makes a difference with all cash and EFP). With that being said, it acts same as a t-bills. T-bills are only 95% marginable anyway.
Here is a link to IB on how to trade EFPS http://www.interactivebrokers.com/en/trading/pdfhighlights/PDF-ExchPhysical.php?ib_entity=llc
OK. So I can fund my IB account with $10k, sell EFPs for $10k, and use up to $8k for initial futures margin and up to $9.5k for maintenance margin. Not bad at all. Please correct me if I am wrong. Now, what's the story with non-US accounts and dividends? Also, I think the commissions are only $0.5 per EFP. It makes me wonder what's in for IB and promote those EFPs. They practically give you back the interest from your first $10k...
What's so special about being able to earn interest on your futures account? You deserved it anyway. Is just brokers are being cheap and doesnt promote you can fund it with t-bills. There are risks with selling EFP, if the stock doubles overnight, then you are screwed. If u are in foreigner, whatever u get for dividend needs to be taxed by 30%. So, sell EFP that doesnt pay interest. IB has a stake in one chicago, it makes perfect sense for them to promote SSF. EFP's are not only for your extra 10K. It can also be used to finance your exisiting long or short position, which can mean a new revenue stream down the road.