IB accrued interest

Discussion in 'Forex Brokers' started by gwac, Feb 14, 2006.

  1. IBj

    IBj Interactive Brokers

    That works out to a 3.78% annual rate. That is better than IB for a 10K account. It is worse than IB for any account over 140K.
    Note that IB doesn't support FX trading on the PRO platform for amounts under 25K. The reality is that accts with small capital are probably better off trading futures rather than spot markets (at least with IB).
    #31     Feb 23, 2006
  2. IBj

    IBj Interactive Brokers

    Our calculation method is explained in great, even excruciating, detail on our website.
    The entire interest schema is available under the 'fees' tab on our home page. There are examples, formulas, everything you need. There are no hidden costs at IB, ever. You might not like some part of our cost model but nothing is hidden.

    'Disgusting' is how one describes bad food, not an inability to find information.
    #32     Feb 23, 2006
  3. 168


    so what is the rate for account over 140k with ib ?
    #33     Feb 23, 2006
  4. KS96


    Please explain how this works...
    If I make a single forex day-trade (in-and-out before 1700EST
    e.g. on Monday, I am still credited/debited interest until
    the trade settles (i.e. Wenesday). Right?
    #34     Feb 23, 2006
  5. IBj

    IBj Interactive Brokers

    The trades you do on Monday only settle on Wednesday (for most FX pairs). Since you neither pay nor receive funds for Monday trades until Wednesday, they will have no bearing on the Monday (or Tuesday) night balances for purposes of interest. There is an explanation on settlement day principles on the link I cited.
    monday AM: acct has 100K USD
    monday: sell 100K USD, buy 83K EUR
    Monday closing *settled* balance = 100K USD, 0K EUR. You will earn interest on your USD.
    Wednesday: monday trade settles, balances are: 0K USD, 83K EUR
    Wednesday close: interest will be credited for 83K EUR
    #35     Feb 23, 2006
  6. KS96


    Sure. Yet, a single word can bring an almost
    buried thread into life.

    Another question:

    Since IDEALPRO is an ECN, it's possible that a forex
    trade takes place between two IB traders.
    Why this trade settles after 2 days and not immediately
    (or at least at the end-of-day)?
    It's just money transfered between 2 IB accounts.
    You could save us the ugly interest "haircut"....

    As for the "industry standard"... the industry has been
    changing fast...
    #36     Feb 23, 2006
  7. KS96


    OK, this sounds too good.
    Monday + Tuesday you still receiving interest on 100K USD.
    From Wenesday on, you start receiving interest on 83K EUR.
    Everybody happy.

    However, it's not a realistic forex trade at all.
    You assume someone just changing his 100K USD to EUR.
    The trade doesn't even need margin!

    Try this:
    monday AM: acct has 1K USD
    monday: buy 25K EUR/USD

    what happens?
    #37     Feb 23, 2006
  8. IBj

    IBj Interactive Brokers

    2 day settlement is still standard (USD/CAD is 1 day). Has been for 10 years.
    There is no savings by settling earlier. You get faster but you also pay faster. And there is the problem of mixed settlements. You buy against a liquidity provider and sell against another client: you want both trades settling cosynchronously otherwise you will have unmatched settled balances.
    #38     Feb 23, 2006
  9. IBj

    IBj Interactive Brokers

    Depends on the balance. The higher the balance, the better the rate. Assuming a 4.5% libor benchmark, then 200K -> ~3.92%, 500K -> 4.12%, 1M -> 4.19%
    #39     Feb 23, 2006
  10. IBj

    IBj Interactive Brokers

    If your point is the interest on tiny balances, then it is simple: IB doesn't pay interest on balances under 10K. Please note that we are talking about something like 1$/day. To be honest, IB's platform is targeted to professional traders, or traders with a professional's priorities. It is feature rich, and like most feature-rich systems, reasonably complex. While we don't turn away small balance accounts, our interest model does not target that audience. Remember, it is not the rate that matters (you can't buy a pair of jeans with a 'rate'). It is the amount of money that matters and the amount of interest on small balances is a small amount of money. Our rate model is optimized for clients with large balances where the actual amount of money involved in even a 20 basis point difference can be substantial.

    If you are asking another question, then I will answer using balances 100x as big. We will discuss USD/EUR (which is spot standard convention rather than the EUR/USD you proposed):

    On monday, you buy 2M EUR, sell 2.5M USD. The settled incoming balance prior to the trade was 100K USD.
    Prior to wednesday, you will get interest on 100K USD (with our tier model applied).
    Starting wednesday you will have -2.4M USD and pay interest on that . You will have +2M EUR and receive interest on that.
    There is no difference in this example and my prior example in terms of the methods or principles.
    #40     Feb 23, 2006