Negative interest rate (Interactive Brokers)

Discussion in 'Interactive Brokers' started by ciccio, Jan 2, 2020.

  1. Angelo_60


    Yes, as for today, this is the only practical alternative (sad to say, IB is a very good broker, IMHO).

    Does anyone know if Tradestation charge negative rates on a future account funded in EUR?

    Of course IB has all the right to choose to pass the cost of holding Eur to customers (even if Citigroup Deutch, which is the bank receiving my wires to fund IB account, should not charge any negative rates to his clients…..) or even to double the cost (as of now, for cash >100k..... 1.1 vs 0.6). That's company policy, nobody quarrel with it.

    But - in the same way - real IB clients (like me, a satisfied one, more often than not), have all the rights to think about it and look for alternatives.

    Your suggestions are not “real alternatives”, but investments, and OP has said more than once he needed to keep cash, in order to fund futures trading.

    So, the only real alternative would be for the broker to accept Short Term Treasury Bond as 70-80% of collateral (you decide IF and HOW MUCH), with the remaining 20-30% in cash. This could at least lighten the pain..... but of course everything comes with a cost: in this case the broker would not cash the 0.5 markup he's charging right now.... (and are nasty times right now - 19% commission revenues in DEC 19....)
    Last edited: Jan 14, 2020
    #51     Jan 14, 2020
    ciccio likes this.
  2. Angelo_60


    Certainly so.

    IF you are “almost” bank.

    You buy the 2yBUND and go short 2Y UST = - 0,6 – 1.6 = -2.2
    To cover the FX rate:
    You sell EUR and cash 0.5 overnight
    You buy USD and cash 2.0 overnight = +2.5

    You don’t get 0.3, because of cost and slippage, but probably something above zero. As you said, arbitrage is the reason these four rates are where they are.

    If you are "almost" a bank.

    Well, this is not the carry trade doable by any retail.

    With IB (but it could be any other broker), one short EUR and pays (not receive) 0.5-1.5% - depending on the amount – and go long USD and receive 1.06%.

    So, for a retail trader, the carry trade is more like this: you sell the EUR you previously have and go long the USD.

    Short term rates differential is about 2%/y.

    The broker pockets the mark up (compounded by the possible leverage) and has no risk whatsoever. No wonder why they speak about "the carry trade".

    The retail trader pockets 1%/y, save 1%/y and has FX risk. THIS trade is like a short volatility strategy. It has a substantial amount of tail risk.

    So, IMHO, it's not exactly the advice to give to someone who doesn't want to pay neg rates on idle EUR Cash.

    PS long time ago, with IB quotes, I checked the chance to carry trade the Indian Rupee (INR) against my base currency (EUR).

    Indian Rupee used to have – and still has - very high nominal rates (by European standards) and even a positive real rate.

    Unlucky I was, I checked IB, and they paid 0% interest on INR.

    Apparently, their remark on linking at market rates was not longer valid when you go from EUR to INR.
    Last edited: Jan 14, 2020
    #52     Jan 14, 2020
    schizo, luisHK and tonyf like this.
  3. Alexpung


    What are the edges/services you get for such a hurdle and commitment?
    #53     Jan 15, 2020
  4. luisHK


    Well, they said they weren´t interested before making me an offer, so can´t comment on the plus side. But the platform they use (back than it was Fidessa I think) offers far more markets than IB, should have access to some otc products as well.
    Last edited: Jan 15, 2020
    #54     Jan 15, 2020
    Alexpung likes this.
  5. Vstk_


    Would you mind explaining why you pay 0% on RUB deposits? Doesn't sound like market rates to me. Last time I checked Russian Central Bank interest rates were at 6,25%.
    Curious if it was 0 when the interest rates were at 15% a few years ago.
    #55     Feb 2, 2020