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Saxo charging interests for purchase of CEF

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  1. #1

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    Saxo charging interests for purchase of CEF

    This is something very odd I am not sure I understand correctly. I attach the screenshot I got from Saxo.

    When I try to buy PCN (Pimco Corporate Income Fund) at Saxo, I think what happens is that Saxo lends me money to buy this position (even though I have much more cash than I am trying to buy PCN for). Looking at the screenshot, I am trying to buy PCN for $9,842. In addition to taking out $9,842 from my account, Saxo is taking out another $9,821 as "Maintenance margin impact" which is the "Margin required to maintain the open position", and charging me $1.18 a day, which sums up to $430.7 a year, or a whooping 4.38% of my investment. Bloody hell. Am I reading this right??

    I know that PCN is leveraged, but it's leveraged at 38.04%, not at 100%. Anyway, even if PCN goes belly up, I wouldn't lose more than 100% of my investment, so why do they take a "Maintenance margin impact", and why they charge me money? I asked the question about the "Maintenance margin impact", and they replied as for the second screenshot below. So they haven't made a mistake. It's just the way they operate, but it's very weird indeed!

    I bought the same CEF with BOCHK, and I don't recall any the "Maintenance margin impact", and the charges. But maybe because I was living in HK, and this is (again) some kind of European requirement? Does IB operate in the same manner as Saxo??

    Thank you very much!

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  2. #2

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    I think you should not deal with that product on this platform before you understand it properly..

    I know that PCN is leveraged, but it's leveraged at 38.04%, not at 100%. Anyway, even if PCN goes belly up, I wouldn't lose more than 100% of my investment.
    1) PCN as CEF has leverage built in and that leverage has nothing to do with margin or whatever investor is using to buy the unit of CEF..
    2) What you bought with BOCHK was CEF.
    3) From the screendump, what you are trying to buy is a derivative product based on PCN CEF which is different from buying direct CEF..

    So Better understand CFD structure and its margin maintenance etc in Saxo or as @freeier and @Sith explained in your previous thread, available products in EU market in general..
    shri and HSY like this.

  3. #3

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    Quote Originally Posted by Philips:
    I think what happens is that Saxo lends me money to buy this position (even though I have much more cash than I am trying to buy PCN for)
    Just to be sure, you have cash available in USD (not in HKD or some other currency). I made the mistake before of purchasing a USD stock, having plenty of HKD available in my account, but if I dont transfer HKD to USD then the default is to purchase the stock using a margin loan and paying the margin rates. Had to transfer HKD to USD within my account before I stopped paying margin interest rates. This is with IB, dont know if Saxo has same concept.

  4. #4

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    Quote Originally Posted by bdw:
    Just to be sure, you have cash available in USD (not in HKD or some other currency). I made the mistake before of purchasing a USD stock, having plenty of HKD available in my account, but if I dont transfer HKD to USD then the default is to purchase the stock using a margin loan and paying the margin rates. Had to transfer HKD to USD within my account before I stopped paying margin interest rates. This is with IB, dont know if Saxo has same concept.
    Yes, I have plenty of cash available in USD.
    Saxo has the same problem as you mention, but I have a lot of USD, and I am buying with my USD account.

  5. #5

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    I think what's happened is because it is CFDs for PCNcef (not actual shares of PCNcef) that you bought and CFDs are margin traded → there will be a financing charge on your position regardless even if you have more than enough actual cash in your Saxo account.

    Found this on their site - so I guess per day interest is USD SOFR + 3.5% on 9,842/360 - works out roughly to your interest/day $.

    It's margin traded so you can definitely lose all and more than 100% of your investment. They will close out/sell off your position if you don't have enough in your account to maintain the margin requirement.

    https://www.home.saxo/rates-and-cond...ds-other-costs

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  6. #6

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    If I have money sitting in the account and can fund their CFD position, then whats the basis being charged SOFR+3.5% if the deposits are just receiving SOFR ? So you lose 3.5% of spread...

    But it has been this way for the CFD chaps. Need to dig in deep into the numbers to know what one is paying for.. unfortunately the attraction of 'leverage' is blinding most as to the risk and the cost...


  7. #7

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    Quote Originally Posted by HSY:
    I think what's happened is because it is CFDs for PCNcef (not actual shares of PCNcef) that you bought and CFDs are margin traded → there will be a financing charge on your position regardless even if you have more than enough actual cash in your Saxo account.

    Found this on their site - so I guess per day interest is USD SOFR + 3.5% on 9,842/360 - works out roughly to your interest/day $.

    It's margin traded so you can definitely lose all and more than 100% of your investment. They will close out/sell off your position if you don't have enough in your account to maintain the margin requirement.

    https://www.home.saxo/rates-and-cond...ds-other-costs
    Thank you. So the European regulators don't want me to buy PCN directly, but they allow me to buy CFDs for PCN? This is really weird!

  8. #8

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    Quote Originally Posted by Philips:
    Thank you. So the European regulators don't want me to buy PCN directly, but they allow me to buy CFDs for PCN? This is really weird!
    Yep that's what I mentioned in the other thread that people want to buy certain funds (like SPY or VOO) now have to go the Swaps route, which makes their rules doing exactly the opposite of what it is meant for.
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  9. #9

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    Regulator cares what is listed in their exchange.. that is their problem.. whether they allow people to buy it from their exchange..
    the kind of agreement you reach with your broker (i.e. CFD) is none of their concerns... as long as that does not impact their income.

    Philips likes this.