Hi, I have a question about terminology, hope I can get an answer. Let's say I want to buy €100K worth of Adidas, but my balance is USD. Here's the related part on IB's website: What's the difference between them? If I convert my USD balance into EUR, I only pay for the spread (it looks great compared to my local bank's rates, lmao) and it's immediately available to use without waiting for it to settle, right? But what if I create a position collateralized by a non-native currency? Do they charge interest or additional fees in this case? Thanks!
You do not need to convert your dollars. Simply trade Adidas, and your future profit and losses are credited/debited to your account in euros as Adidas stock is euro denominated. So, over time your account will reflect a euro fx position that denotes the aggregate p&l of the position. You can at any time convert that euro denominated p&l back to dollars if you like but you do not have to. Non-native currency collateralized position simply means that your USD in your account functions as collateral for the funding needed to trade Adidas. As they said you can convert your dollars to euros first, which I do not recommend, or you can simply trade Adidas with your USD as collateral. Fx traders in fact do it all the time. My base currency is USD and when I trade EURCHF I use my base currency as collateral. How IB handles the collateralization is actually a good question...maybe someone else can chime in? I can tell you how IB handles everything FX related but I am not sure how they deal when you trade stocks or futures.
OP if u buy Adidas shares deniminated in euro but only have USD on ur IB account, this means u are borrowing eur from.IB and will be charged interests on ur negative euro balance, even though u have a positive usd balance. that is if u hold overnight, if u day trade it will work as Zzzz1 mentioned and u will only pay interests on a negative balance resulting from losing trades. as of buying eur with ur usd, it actually takes a couple of days to settle although ir account balance will show the trade results immediatly, u actually need to look a little further for settled and unsettled cash to see the exact details of ir balance
Okay, but if I buy the stock right away without converting, are the standard conversion rates -the ones that look great- still applicable when I finalize the trade? I ask this because I don't want to wait for settlement and want to be able to use my balance immediately after I sell. Thank you for answering my question.
Agree but the interest, charged applies to currency conversion as well, unless you really request an explicit fx-conversion. Simply buying or selling euros against dollars will utilize the margin account and IB will charge on the rolls overnight (I think cutoff is 5pm NY time). So if converting currencies make sure you explicitly request an fx-conversion. And you are right, it takes 2 days to settle (but have to take into account bank holidays: https://www.interactivebrokers.com/en/index.php?f=709)
That is not how it works. Again you have two options: a) Trade stocks outright in whatever currency, denominated. IB will do the conversion but will charge interest on the currency bought/sold that is not your base currency. You get converted at the same spot rates as shown on the screen. When you sell Adidas IB again converts from euro to USD. But you will have a small remaining balance in euros because the price of Adidas most likely changed between buy and sell or short and cover. That balance you can keep on the book or else convert back to your home currency if it gets significant enough (you will be charged on each conversion as if you trade an fx position) b) you can convert the currency first with an explicit fx-conversion, in that case IB will use your base currency and not your margin account. Downside is that you need to wait for the funds to settle. Else IB will again use your base currency as collateral and charge interest on the foreign currency loaned. As interests globally are very low and IB marks up/down the rates from prime (need to double check whether they ref prime or another rate) you most likely pay interest regardless of whether you borrow or loan the foreign currency, unless you explicitly convert using your base currency and wait for the conversion to settle. For what you want I recommend you let IB do the conversion automatically and for intraday trades (unless the position is held over the FX roll cutoff time) you won't be debited/credited interest on the foreign currency. In this case you are not subject to any fx commission (as far as I am aware of) and you can use your funds any time.
I bought and sold an Australian stock and I'm left with AUD cash balance in my account. How do I get IB to convert the AUD balance back to USD?
In the account window right click on the foreign currency balance and then click on 'convert to base cuerency'