Can anyone explain this IB trade?

Discussion in 'Forex' started by trade4ever2day, Nov 27, 2007.

  1. Hello,

    I am trying to learn the IB forex platform but their customer service is very slow, to say the least.

    Yesterday I bought 25000 USD.CAN at 0.9895 and I sold 25000 a bit later at 0.9907. I am showing a 30 CAN balance in my account, which is in USD. Now I will have to convert this back to USD and I do not know how.

    First, this is not how other platforms operate. Funds are converted automatically to base currency. Then I do not understand why my gain is in CAN dollars. I bought USD and then sold USD to cover.

    Your help will be appreciated. Thanks

  2. WharfRat


    I don't know about the platform specific issue you're having, but when you buy/sell the USD amount it leaves your P&L as a residual in the other currency. The 30 CAD is (0.9907 - 0.9895) * 25,000. You can leave your P&L in USD by "freezing" the foreign currency amount on the exit leg. So, instead of selling 25,000 USD you'd buy CAD 24,735.70 (which is the original amount you were exposed to in CAD when you entered the trade: USD 25,000 * 0.9907 USDCAD spot rate). Think of the CAD amount as shares of stock or a number of contracts - whatever you had when you entered the trade is what you can offset on the exit to be left with a USD P&L.

    Hope that helps!
  3. Thanks Wharf, I started another thread in Order Execution section about this.

  4. WharfRat


    Sure thing! I typed the wrong entry price in that calc in that post though, which you probably picked up on (25000 * 0.9895 = 24,737.50, and dyslexia set in as I typed that number as 24,735.70).

  5. Actually, as far as I can tell from the IB demo you can only buy & sell USD in the USD/CAD pair. So IB wouldn't let you buy the CAD against the USD. Can anyone confirm this?

    This is still not a major problem since you can sell 24,969.72 USD to exit the trade above. I think there is a minimum size to trade though, which is 25,000 USD or equivalent, but in theory you can sell the (25,000*0.9895)/0.9907 USD to exit. (Can anyone tell if you can trade the 0.72 or it has to be round numbers?)

    What is not clear to me though, is how IB distinguishes between me wanting to convert money permanently vs. only trading. More clearly: say I want to convert 100,000 USD out of my account balance (say 500,000 USD balance) into EUR permanently, would it be done through IDEALPRO? (IB says yes.) But if so, wouldn't it just sit there as a regular position, with the margin requirements and interest accrued as opposed to the money actually being converted?

  6. Very confusing. I talked to my trading partner and we are going to switch to OANDA. This is ridiculous the way they do things. IB seems a very outdated system and I tell you that their FX trading costs much more than they say it does. Plus their charts are not good.

    The way I seems it works is that when you buy USD/CAN they go out sell your USD for CAN and then they sell you CAN. Someone else has a long position in CAN then and you have the short position, your funds are actually converted to CAN at that rate. You do not buy USD versus CAN on margin like in other platforms. Then, when you close the trade and buy back USD and you are left with a P/L in CAN dollars you must convert back to USD using their IDEAL system for amounts less than 25,000 USD. But who is going to have a profit of more than 25,000 USD in CAN to use IDEALPRO. Then, if you use IDEALPRO it does not convert but that is a position. So you are stuck converting with a system that has wide spread and your cost is very high I tell you.

    You figure out the rest. This is no way to trade FX for retail traders. This is good for commercial hedgers or something. I think it is a bucket shop.
  7. KS96


    All transactions are permanent.

    You only need margin for the negative balances
    in any currency.
  8. KS96


    IDEALPRO *is* expensive though,
    but you got the reasons wrong.

    And, it's CAD, Not CAN.

  9. Thaks. One more question: do you need to satisfy the 10k minimum cash balance for each currency to get interest on it, or just once (all currencies combined)? There has been so much confusion about this on this board and I can't seem to get a straight answer out of IB.