IB accrued interest

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

  1. gwac


    No matter how you want to look at it, if I take
    a long gbp/usd transaction i am paying
    1.25%(annulized) more in interest expenses than it cost you to swap that transaction. This is base on 100,000 gbp.

    .25 is taken off the gbp int and 1% is added to the usd.

    This is very expensive. It is way cheaper do deal in futures
    for all amounts than to take any overnight position with
    IB. No matter if it is 125k euro or 2m euro.
    #41     Feb 23, 2006
  2. IBj

    IBj Interactive Brokers

    I agree that trading futures is usually cheaper than trading spot in any asset class (index futres are cheaper than trading baskets, for example). The main reason people trade spot instruments is that price discovery is usually in the cash market. The futures follow the spot, not the other way around (at least in forex). But the arb is so tight that only the most time sensitive trading strategies will suffer from using futures over spot.

    You suggest that interest parameters at IB are expensive. Who lends money cheaper and has the execution services also? I am asking, not saying there arent such firms.
    #42     Feb 23, 2006
  3. gwac



    I do not want to get into some huge thing about this, I like
    your system. I like your service, i just think that if
    you are going after the professional trader you
    have to change your model concerning overnite.

    You guys should not be looking at this like equities and
    lending money, you should look at this as the mkt does
    and that is swapping the currency out which basically means
    extending the settlement date. That is what I do
    all day long in my real job. When I take positions at work
    and do not square it up, i swap the exposure for a day or 2.

    Most people do not understand how it should really work so
    it a easy source of revenue for you.

    As a person who does understand how it works I will
    square up before 5 or use futures for longer term

    #43     Feb 23, 2006
  4. KS96


    #44     Mar 5, 2006
  5. Here is what some other sources write:

    The pairs have an interest rate differential and when held in the positive interest direction you get paid...and when held in the negative interest direction you pay...

    Here read what Oanda says about their innovative way of calculating it:

    First and only platform to calculate continuous interest, eliminating rollover swaps OANDA makes continuous interest payments second by second. This is in contrast to other firms and other financial markets, where interest rate payments are calculated only once a day for that entire business day’s activity. What if your electric utility company based their monthly charge on the power you happened to be using at 7 PM on one day? Why do you think phone companies have largely switched to second-by-second billing? We have to ask: how do other financial firms get away with it?

    OANDA also doesn’t conform to the complex and outdated rules requiring you to swap positions overnight. Instead, OANDA pays interest on long positions and charges interest on short positions, all calculated second-by-second while the positions are open. At OANDA, clients keep their positions open for as long as they want without having to do daily swaps.
    Professional traders can exploit this flexibility by arbitraging the continuous and discrete interest-calculation scenarios through two trading lines—one with an established player, such as Citibank or UBS, and the other with OANDA. Whenever they sell a high-interest-rate currency (such as South African Rand) they can do so with the traditional player, where they will pay no intra-day interest for shorting that currency. On the other hand, they can always buy a high-interest-rate currency through OANDA, where they earn the “carry” (interest-rate differential) for the position, however briefly they may hold it.

    Here is what investopedia says:

    strategy of holding two offsetting positions, one of which creates an incoming cashflow that is greater than the obligations of the other.
    Similar to arbitrage, positive carries generally occur in the currency market where interest paid to investors in one currency is more than they have to pay to borrow in another currency. Another example of a positive carry would be borrowing $1000 from the bank at 5% and investing it into a bond paying 6%. Thus, the coupon on the bond would pay more than the interest owing on the loan to the bank, and you pocket the 1% difference.
    #45     Mar 6, 2006
  6. IBj, that must be the most opaque, complex, convoluted, and
    confusing interest rate explanation I have seen on any broker's
    site! It seems deliberately designed to confuse the reader.

    Compare it with the simplicity of Oanda's continuous interest
    payments, with one rate for long and one rate for short in
    each currency.

    Spot forex trading doesn't work at IB. How much business
    do you think you have lost with your bad fills, brain-dead
    stop calculations, and excessive interest charges? You say
    IB was designed for professional traders? Not professional
    forex traders, apparently.

    BTW, what is the median size of your spot-forex-only trading
    accounts? Under $50k, I'd wager. "Professional" indeed!
    #46     Mar 6, 2006
  7. taboni


    On the surface the Oanda policy looks great to retail traders who think the "complex and outdated" swap method is costing them huge money, but one must realize that this is still the way the market operates outside of Oanda's little world. Oanda is carrying the positions and they have to roll them over using the swap market at the end of each day. Surely they wouldn't be doing this at a loss to themselves so is the second to second interest payment/deduction really benefitting the trader or would you do better with conventional rollover at MARKET RATES? (This is the key here since so many brokers use grossly exaggerated swap rates as a big source of revenue)

    Just a thought.
    #47     Mar 6, 2006
  8. IBj

    IBj Interactive Brokers

    The web site is not "soft marketing". It is an exact step-by-step guide as to how we do it. It allows people to understand precisely what they get with IB. We aren't trying to convince anyone that our methods are better. We are spelling them out precisely so clients and prospects can decide themselves.

    We believe the fully informed user will find that our model compares favorably, therefore we aren't afraid to expose the details. As in our implementation of conflict-of-interest-free FX trading, our interest model is based on transparency. If you are unwilling to invest a few minutes to understand the method (it really isn't that complex, just detailed), perhaps it isn't that important to you.

    To make my point in a more casual, understandable way, "How to cook eggs":
    Easy-to-understand 'marketing' version: "take our prime gradeA eggs, grown under loving and innovative techniques seen nowhere else in the world. Throw them in a pan. Enjoy!"
    Detailed, fact oriented version: "take 2 eggs, 60+ grams. Leave at room temperature for 3-4 hours. Preheat high quality 8 inch egg pan ... etc for another 10 lines ... The instructions take a long time and aren't particularly 'sexy' because they are detailed and provide explicit information. If you already know how to cook an egg, then version 1 is perhaps enough. If you really want to understand the process, version 1 probably isn't enough.
    #48     Mar 6, 2006
  9. KS96


    The process is understood.
    It is just that your eggs are golden (expensive).

    To put it simply, your spreads are similar to Oanda,
    BUT your costs of interest + commissions are HUGE.
    Give us one good reason why anyone wants to
    trade forex at IB. Save us the ECN argument....
    it is disputable.
    #49     Mar 6, 2006
  10. lol
    #50     Mar 6, 2006