Questions re: IB from Canadian perspective

Discussion in 'Interactive Brokers' started by Chagi, Oct 1, 2005.

  1. Chagi


    I've been keeping an eye on IB Canada for a bit now as a potential brokerage to open an account with (my current brokerage is very pricey), and I have a couple of questions regarding currency issues.

    I know that IB offers a "Universal Account" where you can trade various types of derivatives and securities, and that you also select a base currency for the account. My question is - if I want to trade both CND and US products, is it possible to split up the account in some manner?

    Aside from currency exchange risk, I understand that it's preferable to denominate a brokerage account in the same currency as the products that you are trading (e.g. $CND if trading Canadian stocks, $USD if trading US stocks), else you end up with fairly significant costs from the constant currency conversions. So if I choose $CND as my base currency for an IB account, and trade some $USD products, is there a way to work around this, or do you end up running two accounts, one with base currency of $CND and other with base currency of $USD?

    Thanks in advance for any answers, I'm trying to understand how a trader would best handle trading in products with multiple currencies when using IB.
  2. jseto


    I have been trading with IB Canada for over 2 yrs now. Just fund your Universal account with Cdn $. You can trade US products (stocks, futures etc) and profits/losses will be in USD on a separate section in your statement. Products denominated in EUR will have profits/losses in EUR. If you end up with a deficit in the foreign account, you get charged a minimal amount of interest at the end of the month. You will also accrue interest if you are positive. There is no need to buy other currencies unless the monthly interest charges bother you. You can buy some USD but there is no advantage as you assume foreign exchange risk.
    Here are some examples:

    ex. a deficit of $100 USD will get you charged about 40 cents interest in a month. One charge per month despite whatever number of transactions you did to earn the deficit.

    ex. You earn a profit of $1000 USD in your trades. To get the money out you would sell USD for CAD (your base currency) and then you could withdraw it.

    ex. You have a $1000 USD deficit due to losing trades. To cover it, you would buy $1000 USD and it would be paid from your base currency.

    ex. After several years you decide to close your trading account. If you had a USD deficit, a debit transaction would automatically occur in your base currency (CAD) to cover your obligation and then your remaining balance would be remitted to you.

    Hope this info helps.
  3. Chagi


    Okay, so when you trade $USD products with a $CND base currency account you are just borrowing $USD for the duration of the trade, as opposed to converting currencies back and forth each time you trade?

    For example, if I have a $CND denominated account with my current broker, and purchase US securities, some of my $CND is converted to $USD, which is then used for the purchase. When I sell the securities, the $USD is converted back into $CND, so I get nailed in both directions.
  4. jseto


    Visualize it more as a line of credit denominated in USD. I don't know if they calculate the interest on a daily basis but I only see 1 interest charge per month. And as I said, if the balance is positive, you will earn interest in USD.

    There is no currency conversion for each securities transaction.
  5. alanm


    Any time you carry a debit balance overnight in any currency, you accrue debit interest at the current daily rate for that currency.

    Any time you carry a free credit balance overnight in any currency, you accrue credit interest at the current daily rate for that currency (which is 0 if the balance is less than $10K for USD, other amounts for other currencies).

    During the first week or so of each month, they charge you the total of the accrued debit interest and pay you the total of the accrued credit interest for the previous month.