Suppose a IBKR client margin account is entirely in USD. He wants to buy Nikkei futures in JPY. Would it be better for him to convert to some JPY in cash to maintain the necessary margin for the Nikkei futures or remain entirely in USD? What happens if he chooses to remain in USD? Will it result in negative JPY balance and he needs to pay interest for it? I like IBKR universal account for its convenience but its flexibility raises more questions sometimes. Can IB representatives on this forum help to answer?
Yes to negative balance. Yes to interest. Is this better than converting? It depends on future FX movements, relative interest rates, and the spread charged. Personally, if it was me, I'd do the conversion. GAT [Not an IB rep. Do they exist on here? If you want an answer from IB, probably contacting the help desk would be better]
Thanks for your answer. Since interest is charged, it seems much better to do the conversion. I agree with you. Nobody knows about future FX movements for sure, but interest will be charged for sure.
I'm not sure about this. Converting money from e.g. USD to JPY will cost you a commission. Vice versa, having a negative JPY cash balance will cost you (currently) 1.5% interest per year (see here: https://www.interactivebrokers.com/en/index.php?f=1595). It is up to you to calculate when the interest charged becomes higher than the commission fee paid on the currency exchange.
I remember doing this calculation recently, and the commissions are so tiny that except for a very small amount of money held over a very short period of time it's always worth converting. GAT