Foreign Markets with IB

Discussion in 'Interactive Brokers' started by vanilla2, Feb 10, 2004.

  1. There appear to be a few logistical hurdles in trading both US and foreign futures intraday in a USD denominated IB universal account. I'm trying to figure out the best way to do this, and would appeciate any advice from the many whove been down this road. These appear to be my options:

    A. Split up my capital, and open a second IB account in the foreign currency. Pay the currency conversion fee only when funding the account and making infrequent withdrawals. Take on long term exchange rate risk between time of funding and time of withdrawals.

    B. Trade the foreign future in the USD account, and pay conversion fees on every trade (or are they daily?), taking on more overhead, but likewise limiting exposure to major exchange rate fluctuations that could happen over the lifetime of the account.

    Either way, without hedging the exchange risk, it looks like there is some potentially significant exposure there, how do smaller traders protect against this? Also, when making currency conversions, what speads would I be dealing with in addition to fees posted in the commission section of the IB website, and where could I see the precise exchange rates/spreads used, and their price history. I thought it would be like a USDXXX cross rate, but this aparently isnt right. Also, per contract commissions are higher on some foreign markets.

    Am I making this out to be a bigger issue than it is, it seems between foreign exchange risk, associated spreads and fees, higher commissions, and segmented account capital, the overhead and exchange risk could add up and be potentially unpredictable. On the other hand, adding a foreign market with non-overlapping hours presents the opportunity to exchange free time for either more income, less risk or both. Any guidance from others on these concerns?

  2. saxon


    I trade the DAX (settles in EUROs) and the Hang Seng (settles in HKD). As time goes on, you will of course accumulate debit and credit balances in those currencies, which will be listed on your account page.

    If your base currency is USD, simple pick a balance level at which you would want to convert back to your base currency to avoid exchange rate exposure, and buy or sell the foreign currency through IB's IDEAL. The balance levels I use, for example, are 4,000 EURO's and 40,000 HKD (sort of arbitrary).

    I trade currency futures, so I really don't want any more currency exposure in cash. That is probably more of an issue with the EURO than with the HKD since the HKD is "pegged" to the USD. But just to keep things simple, I try to keep relatively low balances in non-base currencies.

  3. You do not need to have foreign currency in your account in order to trade foreign markets. Only your profits (and losses) will be posted to your account in foreign currency.
  4. thanks for the info guys, this clarifies everything. i didn't realize i we can convert at a time of our choosing, or at a pre-selected fixed credit/debit amount which seems like a prudent way to go. Also didnt realize USD margin would suffice for other base currency markets. Sounds like using one account is overall the best option.

    only thing i'm left wondering is if/how you account for multiple currencies in your personal p&l records. one thing i keep is an EOD balance record, which I assume would get pretty mangled in this case with multiple currencies and changing debits/credits. I don't suppose the account page in TWS lists a hypothetical total balance converting outstanding debits and credits to the base currency? guess I could produce that # myself in excel using the appropriate rate.

    Anyone know what conversion rate or symbol IB uses so I can keep an eye on my EUR or HKD conversions? Would it just be the spot currencies, and is there a spread in IBs conversions in addition to commission?

    thanks again, vm
  5. Your daily statement (from IB) will post the transaction summary by each currency with an additional column that also shows the amount in your base currency (e.g., US$) translated at that day's rate (rates will be posted at the bottom of the statement).
  6. def

    def Sponsor

    IB uses the prevailing rates and they are listed on the daily statement (which is broken down by currency as well as totals in the base currency). These rates were from the 9th.

    AUD 0.7762
    EUR 1.2683
    HKD 0.1287
  7. def,

    so, if we daytrade the Hang Seng of Nikkei futures and closed out positions at the end of each day, does IB do the conversation BACK to USD on a daily basis?

    I'm interested in looking into HSI and NK but I like to know the mechanics before getting into them.

  8. def

    def Sponsor

    If you are flat at days end, the only money that will remain in the foreign currency will be your profit or loss including fees.
  9. Let's suppose you trade both the Nikkei and the US eminis. So, will profits from the Nikkie be used to trade the US eminis and vice versa? Or we have to do conversion each time to be usable in IB?

    I just made my first N225 trade. For a mere 1 tick. Which is 10,000 yen.

    So, it's in yen now. Do I have to convert that back to USD in order to use profits to trade the US eminis tomorrow?

    sorry, i'm new to this. just trying to understand the mechanics.

  10. def

    def Sponsor

    it's the total account equity that matters. you do not have to convert each time.
    #10     May 25, 2004