Today I just found out I should be settling my cash balance everyday via IDEAL (and pay the corresponding commissions). I was made aware of this by the helpful forex specialist named Gerald at Interactive Brokers. I called them to find out exactly what the daily statement line item called "Cash FX Translation Gain/Loss" is. Gerald informed me that it is not enough to simply close the open positions, rather, I need to settle out the cash balance of every currency (found in the Market Value section of the Account window) to zero using IDEAL. Am I the only person that is ignorant to this? Do my fellow ETers that trade forex on IB settle their cash balances via IDEAL?
It depends. If it is a positive balance --no big deal you can have multiple currencies in one account. But a negative balance in a currency can be problematic and you would want to close it out. They should have an account feature that does this automatically if checked.
I casually trade spot now and then - not every day - and I usually leave my P&L in the currency I traded. Thus if I lost some JPY, I'll leave the loss there for the time being. Next time I earn some JPY it's evened out. I'f I'm long some extra AUD then it's fine with me. Once in a while I net the various currencies using IDEAL.
According to the IB rep, it is normal for retail traders to be unaware of the need to settle back into the base currency since nearly all retail platforms do this automatically.
It's $2.50 a pop to close out a position with IDEAL, so I just let my gain/loss stay in the foreign currency until the amount becomes large enough to validate the $2.50 fee, otherwise I would be spending an extra $10 a day.
I'm with pp ... you just leave it in the currency it accumulates in until its a large number. Then you can settle it with idealpro (same commission but a better spread). Just the same as trading futures that are denominated in something other than your base currency. No biggy.
Assuming you are always trading with a pair that contains your base currency then you can adjust your trade size so that you are not left with a P&L in the other currency. For example, your base is EUR. You buy 50,000 EUR/USD @1.48. You sell 50,000 EUR/USD at 1.49. This will leave you with a P&L in USD balance of $500 - which can be kept or exchanged using IDEAL... Alternatively..... when you buy 50,000 EUR you are selling $74,000. So when you want to close the position, buy back $74,000. At 1.49 it would cost you EUR49,664 Your non-base US$ remains at 0. Your base EUR increases EUR 336. (On FX Trader Settings you can check the box "Allow numerator sizes", this makes it easier to enter a USD amount when trading EUR/USD)
Thanks guys. Now that I've got a clearer picture - it's really not a big deal and makes complete sense. Like Jerald from IB said, most retail platforms don't even show the settlement process since it is automatically performed. Everyone at IB was very helpful (considering it was my ignorance to the issue) and I appreciated their time to get me back on track.