Choosing Base Currency?

Discussion in 'Retail Brokers' started by Nasdaq5048, May 7, 2006.

  1. Hi

    I am new to IB, and i have a problem understanding how to choose base currecy. I just don't understand why people would choose a base currecy other than the highest interest rate currecy (ie mexico). Well, maybe because of the instability of their political condition. People might as well choose the Aussie dollar as their base currecy since it pays a high interest and their country is pretty stable.

    What am i missing here? There is no downside for choosing Aussie even you trade solely the US market. All of your fund is in USD and there is no exchange rate risk. IB just convert your fund into Aussie dollar on paper at the end of the day and pay you a interest rate higher than the USD interest rate.

    I would really appreciate any comments from IB's user.
  2. +1
  3. ddunbar

    ddunbar Guest

    Keep it simple. Your base currency should be in the currency of the country you are a citixzen or permanent resident in for various reasons. Taxes, currency fluctation risk, etc.
  4. Steve_IB

    Steve_IB Interactive Brokers

    The base currency is only used for translation purposes, i.e. your Account Window and Account Statement showing all margin requirements and account values are translated into the base currency. The base currency has no bearing on your interest.
    Interest is paid on your actual cash balance in the particular currency.
  5. def

    def Interactive Brokers

    Steve is correct. You can move your funds into any currency you desire. I'd suggest that your base currency should be the currency of your bank account in which funds are sent into IB.

    one more thing to add (assuming you move all your funds into AUD or other).

    Your downside is currency movement.

    What good is a 7% interest if the currency goes against you by 10%. Of course, if you play the currencies well or get lucky, you could get the double bonus of both going in your favor.
  6. double bonus that's great :D
  7. ja, am with me country base currency--sterlin'n'euro [live in london/italy] 'n' i trade in $ far it has paid off cuz of massive $weakness'n'me acct is up several full percentage just cuz of fluctuation so that me bp is much bigger'n'growin' by da day without countin' me trades; of course due to da fact i trade in $ what i add to me bp depreciates but if me acct waz in $'n'not in sterlin' me absolute bp wud have actually gone to shite...'n'not to count da damage due to ultimate conversion from $ to euro/pound when takin' money out, innit[?]
  8. nonam


    Nasdaq be carefull.Could be a can of worms.Maybe if you base your account in AUS and then trade nasdaq stocks,maybe IB will say you have "borrowed' US dollars and charge you interest?
    I suspect your account should be based in the currency of the markets you intend to trade.:confused:
  9. I guess the base currency doesnt really matter from what all you guys said so far. I actually live in HK and have both HKD and USD in my account. If i want a higher interest rate and/or bearish on the USD, i should just convert the money into foriegn currency through IDEAL to earn a higher interest rate (then i have to pay huge spread compare to IDEAL Pro).

    Here is the question i have: If i want to move my money into foreign currency, will it be cheaper to do it through IDEAL Pro? If i buy say aussie through iIDEAL Pro, i will be paid the intrest difference between USD and AUD, while my HKD and USD still earns interests.

    For example, say i have 100000USD, and i want higher interest rate and am bearish on the dollar.

    Solution 1: Buy 100000USD worth of Aussie (IDEAL).

    Solution 2: Buy 100000USD worth of aussie forex (IDEAL Pro). Pay the $5000USD margin.
    earn interest on $95000 USD
    earn the intrest diffrential between AUD and USD

    Should the 2 solutions end up with the same interest earned? But, solution 2 is easier to get around because IDEAL Pro has a much tighter spread.

    Is there any problem with this logic???
  10. ids

    ids Interactive Brokers

    Why just do not buy 100,000 USD of AUD on IDEAL Pro? The minimum is 25K.
    #10     May 8, 2006