Purpose of this request: Have more true-to-life backtests.
Most, if not all, brokers use a Benchmark (BM) interest rate plus a positive offset amount for their Margin Rate (MR); the offset may be tiered such that the rate progressively decreases the more you borrow (see below) but even then there's a floor for the MR.
Note: For MR, a floor value of 0 is often used for the BM if its below 0.
Likewise, for Interest Rate on Cash the BM is adjusted by a negative offset; like MR, this may also be tiered. Note that interest is paid on settled cash so 'T+n' settlement period comes into play ([link]https://www.wealth-lab.com/Discussion/T-1-Settlement-for-US-Securities-wef-May-28-2024-10905[/link]).
Margin Rates at IB: [link]https://www.interactivebrokers.com/en/trading/margin-rates.php[/link]
Interest Rates at IB: [link]https://www.interactivebrokers.com/en/accounts/fees/pricing-interest-rates.php[/link]
Currently, WLab only allows input of a static value for Margin Rate (under Preferences). This is inadequate as it fluctuates with the BM rate and thus can vary widely over a long period e.g. The Fed Funds Rate is often used as a BM and it has fluctuated between 0% and 5.5% in the last 20 years (numbers rounded).
A few simple tweaks to existing framework can largely fulfill above goals and make for more realistic backtesting:
1. Preferences already has a box for "Use UST Yield" which is currently used for Interest on Cash; kindly extend its use for Margin Rate also (the tooltip will need to be modified).
2. Create user input boxes for separate offset values for Interest Rate and Margin Rate vis-a-vis the chosen UST Yield metric (the BM). To reduce clutter they could be tacked on to the existing "Use UST Yield" box.
3. Kindly add an option for Fed Funds Rate under the dropdown choices for UST Yield. Or the user can input their own symbol if they have local data.
----------------------------
Optional suggestions (for even finer control):
1. Ability to specify a minimum value for MR.
2. Instead of a single offset one can have multiple offsets w.r.t. the BM, especially for MR, to mimic broker tiers. Perhaps at some future date the developers can create broker-specific rate structure plug-ins for the most popular brokers.
Most, if not all, brokers use a Benchmark (BM) interest rate plus a positive offset amount for their Margin Rate (MR); the offset may be tiered such that the rate progressively decreases the more you borrow (see below) but even then there's a floor for the MR.
Note: For MR, a floor value of 0 is often used for the BM if its below 0.
Likewise, for Interest Rate on Cash the BM is adjusted by a negative offset; like MR, this may also be tiered. Note that interest is paid on settled cash so 'T+n' settlement period comes into play ([link]https://www.wealth-lab.com/Discussion/T-1-Settlement-for-US-Securities-wef-May-28-2024-10905[/link]).
Margin Rates at IB: [link]https://www.interactivebrokers.com/en/trading/margin-rates.php[/link]
Interest Rates at IB: [link]https://www.interactivebrokers.com/en/accounts/fees/pricing-interest-rates.php[/link]
Currently, WLab only allows input of a static value for Margin Rate (under Preferences). This is inadequate as it fluctuates with the BM rate and thus can vary widely over a long period e.g. The Fed Funds Rate is often used as a BM and it has fluctuated between 0% and 5.5% in the last 20 years (numbers rounded).
A few simple tweaks to existing framework can largely fulfill above goals and make for more realistic backtesting:
1. Preferences already has a box for "Use UST Yield" which is currently used for Interest on Cash; kindly extend its use for Margin Rate also (the tooltip will need to be modified).
2. Create user input boxes for separate offset values for Interest Rate and Margin Rate vis-a-vis the chosen UST Yield metric (the BM). To reduce clutter they could be tacked on to the existing "Use UST Yield" box.
3. Kindly add an option for Fed Funds Rate under the dropdown choices for UST Yield. Or the user can input their own symbol if they have local data.
----------------------------
Optional suggestions (for even finer control):
1. Ability to specify a minimum value for MR.
2. Instead of a single offset one can have multiple offsets w.r.t. the BM, especially for MR, to mimic broker tiers. Perhaps at some future date the developers can create broker-specific rate structure plug-ins for the most popular brokers.
Rename
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