IB EFP implied rates

Discussion in 'Trading' started by bestfriend, Dec 16, 2006.

  1. Is it really possible to significantly increase your earnings on free cash by using EFP's? Does anyone do this and what is an example of the rates you can earn?
  2. I've been playing with this function at IB. You can get it to show you annualized yields on efp's in basis points and then do it in one click. Looks like you get around 5.5% on GOOG. This depends on commissions and whether you get the bid or the ask price. You basically get LIBOR minus transaction costs.

    It looks you buy stock for cash, then sell a SSF against it at a higher price. At expiry you deliver the stock against the futures obligation. The gain (about 2 bucks on GOOG for Jan expiry) is your implied interest.

    One thing I'm not sure about is how this affects your buying power. You have a fully hedged position of stock against futures, but can you use this to margin other trades?

  3. The EFP implied rates don't seem right to me. I think many times IB has dividends included in their calculations that don't exist in the futures time frame.

    Although even when there are no dividends the IB implied interest calculation looks wrong.

    Anybody have any insight?

  4. spinn


    I have looked at these too.....

    SO an efp is you buy 100 shares of goog and sell one futures contract against it and are guaranteed 5.5%???

    Is that all it is?

    If so.....why not just get a money market at 5.1%?

    What am I missing?

    I called IB and the guy on the phone didnt understand it either....he just directed me to the webianar...which didnt really explain it either.
  5. IBsoft

    IBsoft Interactive Brokers

  6. Well in my book 5.5% is better than 5.1%. Also, I think that IB interest on cash is only 4.8%. So if you need a temporary place to park some money 5.5% ain't too shabby.