Hi. I am not able to figure this out. I have IB account funded with EUR because I am from Europe. I am trading only US stuff via IB. So for example I am currently long US underlaying and IB is charging me 1.9 % yearly interest rate, because they are loaning me US dollar. I would like to hedge currency exposure cheaper. I found I can also attach FX order to each order. In this case I will pay a 2 USD comission, but what then? Am I going to be charged any other fees or comission for having this FX position open? Or is this 2 USD and a small bid/ask spread the only thing it costs me to hedge this currency exposure. I doubt it ! But 1.9 % a year is a lot to pay for USD loan, specialy with my "conservative strategy" of selling CC on ETF. thanks for help Tomaz
You can do a forex trade just once to exchange your eur to usd, then just have a long usd balance. $2 commission one time.
True, but then I am exposed to currency risk. I will eventually change it back to EUR and I can lose money if EUR is higher.. I found that most brokers charge the difference between EUR and USD rate, but on IB this is not mentioned anywhere. Only on CFD FX trades.
You're by definition exposed to currency risk if you are buying long U.S. equities priced in USD. You're not going to avoid that no matter which broker you use or how they price the currency carry rate.
Hi Sig, I know, but this risk can be hedged. I can at the same time short USD so this cancels out. If I make gains on USD/EUR, I will loose on my short and vice versa. This way I can only gain on lose on the underlying. Now I have double risk. What I gain on underlying can be eaten away by the currency fluctuation or my gains can double because of the currency fluctuation.. But I guess there is not free lunch if you earn in EUR and trade in USD. I can either pay this 2 % a year or I have to be exposed to currency risk which can either help, help a lot, hurt or hurt a lot..
Exactly, if you want to hedge your USD exposure you have to pay the carry on that. You probably would find it helpful to know that IB has ridiculous carry rates, so your cost should be much less if you went with any other forex provider. Your probably best off making the stock trade with IB and the forex hedge with anyone else. The only rub is that you'll have to move money between accounts if there are any major currency moves, which is a minor pain.
I see. I can not for the love of god find what IB charges, which is weird.. They have all the fees and commissions and financing listed, but that I cannot find. Did not know they are so expensive, I though they are cheap. I know margin loan is the cheapest at IB, guess I was wrong about FX.. I guess one way arround this problem is also trading deep ITM options or even better yes futures or SSF. Almost no currency risk there..
@Tomaz26 The way it's setup with IB is that you don't have direct currency risk, since your long USD in stock and short USD in loan to IB. If you buy back the USD loan, you have Risk since you're net long USD. Costs: https://www.interactivebrokers.com/en/index.php?f=1595
@JackRab Yep, I know, but that costs me 2 % per year in loan. That is why I wanted to know if it would be better to hedge via attached FX order. IB allows to attach FX order to every non base currency order. But costs for that are not mentioned anywhere. If that would cost me less than 2 % per year it would be better.
No it's exactly the same... because with the attached fx order you buy back the USD loan with only crossing the spread and paying a small fee... 2 dollars or so, and basically have the currency risk. So it's whether you want the currency risk or not... Or....... trade the future... then there's no 1.9% fee for IB... but it might not suit you because min size is 125k