IB no interest on first 10K rule, what do you do with the money?

LOL, cool way of answering to posts. I was really surprised to see it before my own.

Just interesting how all this thing is done and if done, why it's not possible to max the margin.

I am not going to transform my trading account into a savings, but it's just interesting how this EFP thing really works.

 

if you understood how things were priced you would understand why this would be a really dumb idea. Answers can be found using www.google.com and a little logic ...

 

Yes, well some of us didnt have rich daddies that could send us to Wharton.

That notwithstanding, I think we all understand where the yield comes from. The stalk brought it. Or for those born after 1965, it was left on the doorstep by a ho.

Dude, we are confused about the account funds implications, not the yield from selling the future. Thanks for asking.

 

Right now looking again at IB's EFP page. On a comparison presentation of short stock vs. EFP there is clearly stated that short EFP gives total credit.

And yes I don't know exactly how it is done. I have a degree in psychology, not finance and furthermore, mostly trade futures outright and don't deal with my positions for more than several minutes.

So the question is not about that. What's more interesting is exact margin requirements etc.

 

I thought market scanner displays yield for EFPs.

 

Yes but as you can see some people say it's impossible.

 

Put up X dollars, earn yield. Yeah , I can dig it. I have bank CD's that do that too.


Need to see how this keeps me from losing that interest on the first 10k, in print, before I roll my 5 million dollar account into an EFP.

 

You don't ever get interest on your first 10k USD at IB. Only way around it is to spend it on something that earns interest, no matter what the position is.

I was looking at GOOG today and realized I quoted it wrong earlier. The futures trade higher than the underlying, so you buy the stock and sell the futures.

To really make this work and still have intraday buying power you will need a portfolio margin account. It is probably not worth the trouble solely to get interest on balances between zero and 10k, but would be decent if you have a larger account and want to beat the 4.8% rate on cash.

Also, the spread on the efp is about .20, so if you want out of it early because you need the cash for something else, you will have to eat it, or pay margin interest instead.

 

TWS EFP Example:
For instance, let’s say a client has $10k on the sidelines. IB pays no interest on the first $10k. So the client examines IB’s EFP market scanner for opportunities to receive a high rate of return. They see that they can receive 5.40% by selling the BSX September EFP. They would collect $0.37 for each EFP sold. With $10k to invest, they could sell 6 EFPs. The transactions would look like this:

+600 shares of BSX for 14.93 (600 x 14.93 = $8,958) – can’t do 7 EFPs because capital would be exceeded (700 x 14.93 = $10,451)

-6 BSX Sep futures at 15.30

Collect $0.37 (15.30 – 14.93) for each EFP sold = 6 x 0.37 x 100 (contract multiplier) = $222

BSX does not pay a dividend (clients should be careful of high yielding EFPs – if it appears too good to be true, it probably is – clients need to verify dividends on their own)

Days until Sep expiration = 167

A $222 return on an $8,958 investment over 167 days ~ 5.40%

167/365*X = 222/8958

X = 5.42%

The 0.02% difference is due to 2.5 bps conventional rounding in TWS.

 

what about transaction costs