Keeping a euros based account with IB

Discussion in 'Retail Brokers' started by brooklyn, Jan 11, 2010.

  1. brooklyn



    I'm planning on opening an account with IB. I trade US stocks, but as I'm from Europe and the dollar is unreliable, I'm planning to have euros in my account and then trade in US dollars.
    Maybe somebody has this kind of experience with IB? How expensive would it be to exchange currencies every time I make a trade? Are there any additional charges?

  2. borg


    What you will be charged will change every day as the so called benchmark rate (BM) of each currency will change every day.

    Currently the BM of USD is 0.110 % and that of the Euro is 0.347 %.

    So if you have Euros and buy US stock, your Euro balance remains the same while the Dollar balance gets negative.

    You will get no interest for the first 8'000 Euros and an interest of (BM - 0.25%) = 0.197 % for the rest.

    You will be charged for your negative US Dollar balance by an interest of (BM + 1.5%) = 1.610% for the first 100'000 and by only (BM + 0.5%) = 0.61% for the next 900'000 Dollars.

    If you have short positions it is a bit more complicated. Refer to Fees - Interest and Financing on the main IB web page.

    Whenever you sell your US stock, you should hedge your Profit/Loss in US currency to Euros, in order to remain entirely in the Euro. You can do this daily, weekly or monthly, depending on your trading frequency.
  3. brooklyn


    thanks for your reply, this all looks too complicated to me, I'm probably just going to keep all my capital in US dollars and pray it doesn't become toilet paper
  4. moarla


    you dont have to do nothing, only change the gain or loss in euro at the end of day...
  5. LeeD


    Just to add to what borg already explained...

    When your account is in EUR and you buy stocks priced in USD, IB will not convert the required amount of EUR into USD (you can do such conversion later manually if you want to). Instead, IB will lend you the required amount of USD using the EUR balance as a collateral. Hence, all the interest calculations.

    There will be no charge for currency conversion (as no currency is in fact converted) but, as borg calculated, you will be charged 1.61% annualised on whatever dollar amount is invested into stocks.

    Also if you don't pay $10 per month in commission, this minimal amount will be charged in the respective month as "inactivity fee".

    One of the advantages of opening account with IB is you can use the account to do currency conversion, which is much cheaper than with a bank. Banks tend to charge in the range of 2.5% bid offer spread (so, you are charged 1.25% on one-way conversion) + 1% to 1.5% commission, which makes 2.25% to 2.75% of the amount converted.
  6. brooklyn


    Thanks for addition LeeD, really helpful. So let's say I have 8000e and 3 day trades and suppose I day trade with all my capital, that's $10k*3 day trades= have used $30k for a week, am I right? So how do I calculate that 1.61%? They're not going to charge me 1.61% for $1440000/year (meaning $10k/day trade):)
  7. You are charged the 1.61% only on your overnight balances. If a day trade, then you haven't borrowed anything.
  8. ITR2744


    I have a CHF based account with IB as I am from Switzerland. From time to time I convert the gains (trading 6E and 6J) to CHF. No problem here...
  9. brooklyn


    thanks for your help guys, starting to get everything. But still how do they calculate 1.61% if let's say I hold overnight? And if I open my account in euros, can I later change my account capital to dollars and keep it that way?
  10. They look at your settled cash balance each night in each currency. If a negative value, you are charged interest for the night on that currency (or 3 nights if it's a weekend). I'm not sure of the exact formula but basically for a small USD balance, take the balance x 1.61% / 360 days. For $50,000, this would be about $2.24 per night. They'll also pay you interest on positive balances if applicable.

    I'm not sure if you can convert your account to another base currency or if you need to open a new account.
    #10     Jan 14, 2010