I copied the example from the ‘Belgium section’ to use as discussion point:
Fixed:
1 Roundturn = EUR 9.00
Tiered:
1 Futures Contract = IBKR Execution Fee EUR 0.90 + Exchange Fee EUR 0.52 + Clearing Fee EUR 0.00 + Regulatory Fee EUR 0.00 = EUR 1.42
JSParticipant
Veteran
Okay, a worked example (off your link) against a margin loan of 42250 (current US30 Price of 45000 – 5% margin of 2250).
Above shows 2172 annual or 6 USD Daily (over 365 days) interest charge for margin loan … see attached.
JSParticipant
Veteran
What you’re showing relates to financing costs (debit interest) when borrowing money from IBKR…
The price of an index future already includes:
- Interest (cost of carry)
- Expected dividends
So you pay these costs indirectly, rather than as a separate daily fee…
So the price of a Future via IBKR would be made up of the Spot Price from the Exchange + Interest (cost of carry) added on by IBKR dependent on if one’s Account covers margin, 2 x margin or 3 x margin?
JS wrote: financing costs (debit interest) when borrowing money from IBKR…
If one’s Account covers margin only ( at 5%) then one is borrowing money from IBKR equal to 95% of the cost of the Future … which in my example above for US30 equates to 2172 USD annual / 6 USD daily?
JSParticipant
Veteran
No, that’s not how it works. You are not borrowing 95% from IBKR. When you buy an index future, the margin (collateral) is blocked in your account.
If your account balance falls below the required margin level, you will receive a margin call requesting that you top up your account. If this does not happen, the position may be liquidated by IBKR…
Margin-Commission-cost of carry (indirect)
JS wrote: You are not borrowing 95% from IBKR. When you buy an index future, the margin (collateral) is blocked in your account.
Let’s assume the margin is 5% of the value of a 45,000 US30 Contract and the margin we have blocked in our Account is 2250.
Why / how are we not borrowing the other 95% of the cost of the US30 Contract?
Where does the 95% cost of US30 Contract come from (if not borrowed from IBKR) which allows us to buy a 45,000 US30 Contract on 2250 (only) margin?
JS wrote: Margin-Commission-cost of carry (indirect)
Confused, should there be an = in there?
JSParticipant
Veteran
There is no borrowing involved…
I cannot believe IBKR would be so kind as to allow us to gain from a 45000 value position by simply having 2250 in our Account.
The 45000 position is purchased by IBKR (on our behalf) on an external exchange (outside of IBKR). I can’t believe the external exchange allows such favours (zillions of times over for all traders) without the full value of the Contracts sitting somewhere.
I know all about margin calls etc, it is the same on IG.
IG Contracts are all manufactured in-house, but nonetheless they don’t allow traders to benefit from full contract value for (just) 5% margin … IG make their money from higher spreads (than IBKR).
Then overnight when we are all sleeping and not trading and not giving IG any spread money, they charge us overnight interest.
IBKR are very very kind indeed if they do not charge 95% borrowing fees (called something else maybe?) when we only put up 5% margin.
Anybody else, please feel free to add your views / comments?
JSParticipant
Veteran
You have probably never traded futures before, otherwise you would know that there is no loan and “overnight cost”…
@GraHal
For me the absence of overnight fees at IB is offset by the fees charged on each contract (excluding spread).
And it seems to me that if you trade forex with IB you pay overnight fees.
They’re not unhappy 🙂
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turame wrote: absence of overnight fees at IB is offset by
An extra cost that is often forgotten, is the ‘contango’ on Futures, i.e. a Future with a full 3 months / 90 days to expiry is ?00’s above spot price.
The contango value reduces daily, until at expiry the Future equals the Spot Price.
The ?00’s / 90 days daily erosion can work out at several USD per day that the Future Contract value is reducing … this is a direct cost / reduction in profits for the trader.
The contango is the market-makers way of charging interest / carry-fees.
As an example on ‘IG-in-house Future’, the contango is around 300 USD for a Full US 30 Future Contract.
As a comparison, it would be good if somebody could add / post the contango for a Full (MY is it?) Contract Future on US 30 with IBKR?
JS has been talking about this often (the last time a few posts back (in this thread IIRC)). My stance on this : this doesn’t do a thing because …
… No Buy & Hold.
Example : If I would have caught the 2% of gain for a Nasdaq Future costing USD 487000, then my profit would have been 9740.
So what USD 300 over 90 days ??
With B&H yes, then I’d have to wait and see, lose at least 10K on it because of the markets *and* lose the 300 on top of it.
Or I don’t understand. 🙂
PeterSt wrote: Nasdaq Future costing USD 487000
That must be 20 Full Contracts / 20 per point?
So the contango could be more like 6,000 (20 x 300) over 90 days = 67 per day … becomes annoying the longer the position is held, esp. if a losing position.
