Hi I have an IB account based in Euros but all my trades are in Usd. I have some doubts about currency risk when my puts are early assigned. When my shorts puts are early assigned, often, I am obligated to purchase stock. I usually don't have the cash to purchase the stock and the broker sends me a margin call, that I have to solve in the next morning when I will sell the stock. But until I solve the margin deficit the Broker is lending me the money to purcahse the shares. For example, could happen that during the night I could have a current excess liquidity of - 100,000 usd . I assume that money is lended by the broker, and when it happens they compute it in my account as they lend me Euros. In this example 80,000.00 Eur of margin deficience. I suppose they use the current Currency Exchange Rate at the moment of the loan. In this example EurUsd = 1,25 But during the night the exchange rate could change. And the next morning I sell the stock in usd to solve the margin deficit of 100,000 usd but now these 100,000 usd are only 77.000,00 euros. Assuming the EURUSD has risen to 1,30 . So I would lost 3.000 euros. Is that posible? or I am wrong about how it works. Maybe these currency gain and losses are computed in the Cash FX Translation Gain/Loss in the Activty Statement. thanks.
They will lend you in USD. The standard setting with IB is that when you do a foreign currency denominated trade, they always lend you the currency. So in your case. You have Euro's in cash. You do a USD trade (whether assigned or just buy stock), IB lends you the USD. This way, on a cash currency level you have no FX exposure, since the amount of +/+USD in stock is offset by the borrowed amount in -/-USD. So upside is no currency risk (well, technically there is, because the EUR.USD level might change the stock price on it's own). Downside is you will be paying interest over the borrowed amount. So... I'm pretty sure you do will have the margin deficiency in USD, not in EUR. So no currency risk... unless the stock changes, then you will have a currency risk on the difference between +/+ USD stock value and -/- USD Loan
Keep in mind that a US/EUR rate changes of $.05 overnight is very large. It's not something that happens absent a major crisis.......that happened to occur overnight.