I've been using Interactive Brokers TWS to do currency conversion. Destination chosen is IDEALPRO. Suppose I want to make a leveraged forex transaction. How do I make a leveraged forex trade on TWS? In the destination options, I see "IDEALPRO and FXCONV". Both are for currency conversion as far as I know. What is the difference between executing a currency conversion trade and leveraged forex trade on TWS?
If you just want to do a currency conversion, you need to use the destination "FXCONV" otherwise it would create a virtual position to make it look like as if you did a real FX trade that you haven't closed and you are going to profit/loss marked to market, it's really annoying. If you want to do a real leveraged FX trade, not a currency conversion, then select "IDEALPRO". The difference between the two? The currency conversion, TWS doesn't expect you to close the trade later because you are just converting one currency to another and you don't use margin. When you are doing a FX trade, leveraged or not, you need to close it later.
Thanks. I am getting confused by TWS settings. I can do a currency conversion using "IDEALPRO" as well. In fact, I can do currency conversion using both "IDEALPRO" and "FXCONV" options, though one difference is how the transactions reflect on my portfolio tab. So, I don't really know how using "IDEALPRO" results in a leveraged FX trade. If a user has $1m in his account and he makes a FX trade using "IDEALPRO" with $100k, does it default to currency conversion?
I know it's confusing because currency conversion used to be handled differently from a real FX trade and then IB changed it. Just remember to tick off "FXCONV" for currency conversion only. If you use "IDEALPRO" to do currency conversion, like I said it would create a "virtual position" that will stay in your portfolio forever because TWS expects it to be a FX trade when it's not. It's harmless really but just annoying and confusing to look at.
No it won't default to currency conversion. TWS will sense that it might be a currency conversion and ask you to choose between "FXCONV" and "IDEALPRO" first. If you still selected "IDEALPRO" to do the trade, it will just let you do the trade and you will carry this position forever in your portfolio; you will see it on your "Account" page until you close it just like a leveraged FX position. Now if you really wanted this as a currency conversion, then like I said, it would be a "virtual position" for you because there is nothing for you to close afterwards.
In this situation (USD 1 million account value, USD 100.000 FX transaction) if you choose “IDEALPRO,” will you receice or pay interest on the virtuel FX position (given a positive interest rate for the particular currency)? I assume you will receive interest given there is no leverage? The reason I ask is I believe you will pay CFD interest if you open a similar FX CFD position.
To make leveraged forex trades in IB you need to go to account management and change your account to margin status. It will take upto 24 hours for approval. Once given the permission, any forex trade will dilute your position by 1/33 in the capital i.e. $10K Forex position will approx. use 10K/33 i.e. $330 odd from your account. Rest of the funds will still be available to take other positions in stocks, futures etc. 33 because IB gives 1:33 margin on Forex. This means for roughly $300 you can control $10,000 worth of position in the Forex markets.
If it's virtual position meaning that it's really a currency conversion, then you don't get paid or receive interest but if it's a real FX trade, above a certain threshold, yes you do. As far as I can remember.
On the portfolio tab, how does one know whether it is a virtual FX position or a real FX position? Whether it is virtual or real, as long as one uses destination "IDEALPRO", the fx position is created on the portfolio tab of TWS. It can get confusing to a user.
I'll answer my own question. I think I get it this time. As long as there is sufficient cash for the forex transaction, it will be treated as a currency conversion trade no matter which destination option is chosen. The only difference is that a virtual fx position is created if "IDEALPRO" is chosen. It becomes a real leveraged fx position only when the cash balance becomes negative which means that money has been borrowed from IBKR.