I am a UK resident and I'd like to deposit funds with a broker in GBP and keep my deposit in GBP (even if trade in securities denominated in other currencies, example USD and EUR). I went on IB's website and I read, the minimum requirement to open an account is: "USD 10,000 (or non-USD equivalent)". They do not say specifically that the account can be opened in GBP 1) Would IB allow a British individual to open an account in GBP? 2) If they do allow me, when I wire the funds in GBP, will they convert the GBP amount into USD? (I'd like to keep the deposit in GBP) 3) If they do allow me to keep the deposit in GBP and if I trade securities denominated in GBP, my profits and losses will also be in GBP (that makes sense and I am sure everyone will agree...). What would happen if I trade securities in USD? I understand my profit and losses will be in USD (of course), but what would happen to my deposit if I trade stocks or ETFs denominated in USD (without using margin/leverage)? Say I have deposited GBP 10,000 in the account (I assumed IB would have let me open the account in GBP) and I buy a stock/ETF denominated in USD for, say USD 3,000 (that's worth about GBP 2,000 equivalent). What will my account balance look like? Will the deposit show GBP 10,000? Or are IB going to split my balances as GBP 8,000 on one hand, and USD 3,000 worth of stocks/ETF on the other hand? I am asking because different brokers have different policies. For example, the futures broker Rosenthal Collins Group would leave the deposit in GBP whatever the currency traded. But the future broker Velocity would partially convert the deposit in USD to cover the investment made in USD and therefore show a split in the balances per currency. Thanks for your help
When you open an account at IB, you declare a base currency. GBP is one of the currencies allowed. You can conduct trades in any currency, but reports will be made in the base currency. http://ibkb.interactivebrokers.com/node/57 http://www.interactivebrokers.co.uk/en/main.php
Hi RWK and thanks for the prompt reply. The 1st link you sent is great. How did you find this page, I could not see it on IB's website. From that link, I understand the deposit will remain in the base currency I choose, ie in GBP, whatever the currency I trade, that is exactly what I was looking for. Regarding the 2nd link you sent, does it refer to my questions, what did you want to show me? Thanks very much
If you buy USD securites they will charge you margin on your base currency position if you hold it overnight. Alternatively you can simply use IDEAL to buy USD's to cover the USD position or convert your entire account to USD and convert it back at a later date.
Hi CdnTrader, I am planning to buy and hold ETFs In USD for several years (very long term). Say I deposited GBP 10,000 in the account and I buy USD 3,000 worth of ETF. As I hold overnight, how will the margin be shown (as GBP 2,000)? With regards to Ideal, I am not sure how that works, but I don't want to convert my deposit at any time because if I convert GBP 10,000 in USD now, I will get around USD 15,000 (using a GBP/USD FX rate of 1.5). If I convert back the USD 15,000 in a few years when the fx rate is at , say 2.2, my USD 15,000 will become 15000/2.2 = GBP 6,800 only and I get screwed. So this alternative is not suitable for me. You said :"you can simply use IDEAL to buy USD's to cover the USD position ". I am not sure I understood your statement because you said they will charge the margin in the base currency, so I understand everything in my account including deposit and investment will be in GBP. The only thing in USD will be my profit or loss? Not quite sure I got this right, please correct me if I am wrong, thanks
It is fairly straight forward: IB will lend you the money for your USD denominated securities as long as you have sufficient margin (which can be in a different currency). However, keep in mind that if you intend to hold this position overnight, IB will charge interest on the loan. (And at a higher percentage than what you will earn on your credit balance - for current rates, see IB website) This is why a previous poster advised you to convert the amount you need for the USD securities from GBP into USD (The interest will add up over time!) Hope this clarifies your concerns...
The second link is IB's website for UK residents. You should be using that site, not the main site, for information. As Cdntrader stated, when you buy something denominated in non-base currency, you have a choice between borrowing the currency required (and presumably paying interest) or converting currency via IDEAL. I haven't traded foreign issues via IB, but borrowing the currency sounds much easier. Keep in mind that if you trade anything (such as ETFs) that are denominated in any currency other than GBP, you will have currency exchange risk. I'm not saying you shouldn't do that, but you should be aware of the risks. IB has a webinar coming up covering this. I'm not sure if it is open to non-customers. https://interactivebrokers.webex.com/interactivebrokers/onstage/g.php?t=a&d=719966411
Hi H2O and thanks for the clarification. I understand what you said about the loan and the interest I would have to pay based on a USD 3,000 investment in the example. As you said, overtime, the interest will add up and could have a very significant impact on the performance of my investment. On the other hand, if I convert GBP 2,000 into USD 3,000 now using an FX rate of 1.5, I will get screwed in a few years time if the FX rate goes up when I need to convert the USD back into GBP. Are there only 2 possible choices? 1) Keep the whole deposit in GBP and pay interest on the loan invested in USD. In the long run, it is very bad. 2) Convert my account from GBP to USD now and get screwed in a few years time if the FX rate has gone up and convert the account back into GBP. This is very bad too. I am very confused, in both cases, I get screwed. Any other possibilty? I am thinking I could convert 10,000 GBP into USD now and to avoid the FX risk I could at the same time, buy GBP and sell USD through a spot forex broker, but I would need additional funds in order for me to do that. It does not seem ideal.
I would not recommend IB if you simply want to buy and hold for years. They will charge you monthly data fees if you do not trade.
fair point. Would you know a cheap broker that allows deposits in GBP. The ones I know are American ones and do not allow GBP deposits. There are brokers here in the UK but they charge £10 commission