Hi, I've got 2 investing accounts in GBP in UK, one with IB and another outside. The one outside just allows you to keep the funds in GBP (although you can invest in US stocks) so I wanted for example to invest 10K GBP in US stocks from the first account (which will just get that amount, convert it to USD and invest in US stocks) and hedge the currency risk of that exposure with IB. For that, I think I should buy GBP.USD so that if my investment in the US stocks weaken due to GBP.USD going up, then I'll make part of the loss back from the forex GBP.USD purchase. The issue I noticed today with IB was that even though my account is in GBP, when I purchased GBP.USD what they did was to borrow me the amount in USD, so that now I've got my GBP account intact and I think I'm going to start paying daily interest rates on the loan of ~13K USD that they've borrowed me. Do you know if there's a way so that all future hedges don't inccur this loan and the GBP.USD purchase is done from my GBP funds instead?
You have bought US stocks on margin and will be charged usd interest so sell the pounds for dollars by hitting the bid of gbpusd. You will have paid the margin loan off and be long us stocks in usd and flat gbp. If the dollar continues higher against the pound then you will make money on the currency. If you think the dollar is going down and the pound up then go back on margin by lifting the offer of gbpusd. Calculate the amount to be lifted.
The investment of US stocks was done outside IB, in a broker which doesn't allow any kind of borrowing, they get the 10K GBP funds, convert it in ~13K USD and buy US stocks with that, so in IB I wanted to hedge that exposure. At the moment, I bought GBP.USD in IB but my GBP funds were not touched, they created a negative loan in USD instead, for which I assume I'll start paying interest payments. PS: I forgot to mention that the investment in the US stocks was from a different account on the 1st post, sorry. Edited now.
Yes, I'm using IB as well and that part is covered. I've started using the other one because is the one that the UK goverment offers as a way of future pension, where you don't pay tax on gains, etc... so I wanted to take advantage of that as well.
I am trying to work out how you got short the dollar without increasing the number of pounds. You must have increased the number of pounds by selling dollars short.
I was trying to work out what happened in that area myself just now. I think it might have increased, but I initially thought it didn't as I didn't noticed the change in the GBP currency row whilst I was checking the 'FX Portfolio - Virtual FX Position' area. What I meant by 'not touched' was that they were not reduced to make that purchase. .... Yes, I just double checked with a report from yesterday. When I made the purchase of 10K GBP.USD it increased that amount of my GBP and created -13K negative USD, whereas I was expecting that it was going to take 10K from my GBP funds without creating a loan, and at the same time I wanted to have an opened 'FX Portfolio - Virtual FX Position' to help me track what I've been hedging and adjust in the future...
Yes, I've been using a single account for 4 years and that was fine. But now I've opened the one that the UK government supports to make investments and that one has a few rules, one of them being that it has to be a GBP account and all international purchases have to be converted to the new currency at the time of the investment, so you're now exposed in that one to the currency risk. Having investments in this account though, can save ~30% annual tax in any profit, so I thought it was worth it and trying to learn how to use IB to hedge that now.