Paying interest on margin requirements for futures

Discussion in 'Forex' started by helpme_please, Jan 4, 2019.

  1. I would like to use Interactive Brokers platform to buy forex futures.

    Suppose I buy forex futures AUD. The margin requirements for this futures contract is in AUD. My account does not have enough AUD cash to support this overnight margin requirement because most of my cash is in USD.

    Does this mean I have to pay interest to support the AUD margin requirement for the AUD futures contract even though there is enough cash in USD in the IB account? Should I convert some of my USD cash holdings into AUD to maintain enough AUD to support the margin requirement for the futures contract to avoid paying interest for the AUD margin requirement? I would like to keep as much USD as possible because of the high interest earned, thanks to Fed for raising interest rates in past years.
  2. MattZ

    MattZ Sponsor

    I do not think that you have to pay interest on the AUD. The brokerage should recognize that you have enough in USD and allow you to trade the AUD Dollar. Some software like CQG platform can recognize your foreign holding as far as I know.
    helpme_please likes this.
  3. Which AUD forex futures do you refer to? If it is the one traded at the CBOE then it denotes in USD. And your margin requirement will be in USD, not AUD.

    IB does its margin calculations, and debit interest calculations, on a per-currency basis. So, even though you have ample USD in your account, you will be charged debit interest on a negative AUD position. At the same time will you receive credit interest on your positive USD position (provided that it is large enough). Whether it makes sense to convert some USD to AUD depends on your situation and might be different for other traders. You would have to calculate the "before" and "after" situations in order to be able to answer that question for yourself.
  4. koreil90


    I am operating an IB account and I am holding forex futures often. You never pay interest on margin requirements, no matter what the security is.

    The way it works is that IB updates your cash balances to reflect the forex futures variance daily.

    I will use 6E Euro FX Futures as example. Let's assume that you go long one contract Dec 2019 at close for 1.1700 (on the expiry date, your cash balance will change +100k EUR / -117k USD).

    • Next day, 6E closes at 1.1750. Your cash balance gets updated immediately with -0.5k USD (117k USD - 117.5k USD).
    • The third day, 6E closes at 1.1650 and you get an +1k USD update.

    With IB, whenever you have a negative cash balance, you pay interest and you are getting paid interest when you hold a positive cash balance. You can see the daily adjustments in the "statement of funds" flex report.
    Last edited: Jan 5, 2019
  5. Hi koreil90,

    Thanks for your post. It is crystal clear now. If the forex futures enjoys a gain from day one, there will be no interest charges. If the forex futures suffers a loss from day one, there will be interest charges if there is insufficient cash in the currency of the margin requirement. One needs to keep track of negative cash balances in the Account Window to see if there is any need to pay interest for margin requirement. Correct me if I understood you incorrectly.

  6. My monthly IB statement tells me otherwise.
    You can get more details about how they calculate your debit interest by applying for a specific report, which is by default not available in Account Management.
    helpme_please likes this.
  7. You are correct. I have confirmed with IB helpdesk that interest will be charged for margin on futures if the cash in the relevant currency is not available.

    koreil90, take note. You have been paying interest on your margin all this while on your forex futures without realizing it. You can confirm it with IB helpdesk.
  8. You have done the right thing by contacting IB and asking them for their comment.
    What was very confusing for me at first was that the margin requirements are not visible in the cash amount. Because of that did I initially not understand why I was being charged debit interest, even though the cash value was positive. IB was then able to explain it to me, and gave me access to a special report which can be run from within Account Management. This report shows, on a per-currency basis, what your net cash position is (cash value minus margin requirements) and how much interest is being charged.
    helpme_please likes this.
  9. This special report is called a margin report. It can be generated under Account Management.