Some Questions regarding Fx and IB...

Hello, i am a long time equity trader, short time fx trader
I would really appreciate answers to my noobish questions, thanx in advance.. Anyways:

Just opened an account with IB and I have some really important questions....

As a test, I went long on jpdy/ usd 25,000...
I sold at a few pips loss, and I was suprised to see i had -249 YEN in my account... I phoned IB but I am still unsure of why the hell this happened. Now i have to sell it and pay extra commission. The interest from this amount is basically nothing so I will clearly not sell it. Its just a damn annoyance.

Do all FX pairs work like this? What if I had a gain of 500,000 yen? Would it be put into my account in yen?

What If I went long on EUR/USD and profited 200 EUR, would I get a holding of 200 EURo's in my account? If Why don't they just convert it back to US?

Can someone clear this up for me?

Also I dont understand how interest works... Sometimes I get interest charged against me, but sometimes we get interest in our favour? How does this work?


thanks

 

I am with I B for about six months and although their spread is good, trying to figure out your account is tricky to say the least.
One thing I did learn is that if you want to convert small or uneven amounts, you must do it on ideal , not ideal pro.
If you find out how to avoid the problem, please let me know.
The interest depends on the interest rates in the Country of the currency you are trading, and is credited or debited overnight.
i.e if you are long usd/jpy you will be credited interest,and vice versa
regards

 

YES.

 

gosh ... so thats why my IB acct has 41 yen in it !

or is that 41/100 of a yen ?

 

Here are 3 examples to clarify things.
Example 1 :
(1) Sold USD100,000 @ 121.92 USD/JPY
(2) Bought USD100,000 @ 121.88 USD/JPY

(1) means you sold USD100,000 and bought JPY121.92x100,000
(2) means you bought USD100,000 and sold JPY121.88x100,000

So, the balance sheet is:
USD 0
JPY 4,000 (4 Pips)

Well, yes the gain of JPY 4,000 has then to be converted in USD.
(1) means also you pay interest on USD100,000 and receive interest on JPY12,920,000.

Example 2:
(3) Bought GBP100,000 @ 1.9511 GBP/USD
(4) Sold GBP100,000 @ 1.9513 GBP/USD

(3) means you bought GBP100,000 and sold USD1.9511x100,000
(4) means you sold GBP100,000 and bought USD1.9513x100,000

So, the balance sheet is
GBP 0
USD 20 (2 Pips)
In this case no need to convert.
(3) means you receive interest on GBP100,000 and pay interest on USD195,110.

Say, you don’t want to convert using IDEAL:
Example 1 revisited :
Sold USD100,000 @ 121.92 USD/JPY
Bought USD100,00x(121.92/121.88) @ 121.88 USD/JPY

So, the balance sheet is:
USD 32.82 (and we verify that 4,000/121.88=32.82)
JPY 0

Using this scheme, you just can try to buy/sell FX spot rate for 0 or 1 Pip just to cancel out the balance sheet in the foreign currency.

 

THanks for the replies.

With IB the minimum I can buy is 25,000. (i want to use IdealPro)

RIght now the GDP.USD is at 1.9050

If I went long GDP with 25,000 would I actually be purchasing 25000x1.9050 : $$47,625??

 

It's $25,000 or USD equivalent.

Regarding your question, everything is there:http://www.interactivebrokers.com/en/trading/pdfhighlights/PDF-Forex.php?ib_entity=llc

Please note that if you buy/sell FX for different amounts in IDEALPRO you can hedge funds in the foreign currency but an open position will remain on this specific FX spot rate which might be undesirable.