Hi, I am considering opening an account with IB. I will be trading option, spread-base strategies mainly on US equities and indexes. I will be having 30-60% market exposure, the rest will be in cash (not considering exposure to bonds however maybe I should). I am European so from this point of view would be probably good to open an account in EUR base currency. But when trading US market I will have to pay an interest charges for borrowing dollars. I contacted IB to figure out the interest rate and they advised using this calculator:https://www.interactivebrokers.com/en/index.php?f=1595 However, I am not that smart to figure it out. Let say I have 100 000 EUR and I will be having 30 000 EUR invested for three months. How much I will have to pay for the interest. If any of you guys or IB staff could help I would be very glad… (the account could be bigger than 100 K) I read this interested thread: https://www.elitetrader.com/et/threads/negative-interest-rate-interactive-brokers.339133/;and learn that there is a negative interest rate charge when holding cash in EUR currency base account. Where one can figure out the rates for various currencies considering various balances? Considering all this looks like open an account in USD would be probably a better idea .. ? Thank you very much
Base currency is simply used to calculate FX profit/loss. It does not have any effect on your underlying balances. You underlying balance should reflect the currency in which you do the majority of your trading so you do not lose on FX conversion every time you trade. You can hedge FX.
Opening a EUR account, and on day one translating all your deposit into USD will be exactly the same as opening a USD account and funding it with dollars. AFAIK you can't transfer money in or out of the account in a non base currency, so you should use the currency you live the rest of your life in. GAT
thank you, I see, I will not be doing conversions every time I trade. I will simply place the trade and IB will lend me USD (in case the base currency is EUR) but I will have to pay interest as I will be borrowing dollars, won't I?
Thank you Rob, so when having a EUR account with dollars for trading US market, I though I will have to pay interest for borrowing USD however you say that it is the same think as having USD account with dollars. You probably mean I can trade any instrument in any currency no matter which based currency is the account in. But when it comes to interest rate having EUR account with dollars it costs me while USD account with dollars there is no interest as far as I know. Is this correct?
No, it doesn't matter. Consider the following possibilities: (assuming you don't have a multi-currency current account, and fund the account in the base currency) 1) You have a USD account, fund with USD, and buy a USD instrument. No interest payable (assuming you aren't using leverage or short selling). 2) You have a EUR account, fund with EUR, and buy a USD instrument. So you are borrowing money in USD, paying a USD interest rate, and have a EUR deposit (which in theory will earn interest, but in reality none or even negative). This is dumb. 3) You have a EUR account, fund with EUR. Just before you trade you sell EUR and buy USD. You buy a USD instrument. You aren't paying interest to borrow USD (nor do you earn EUR interest, but that is irrelevant). This is good, and apart from the conversion is equivalent to (1). You can avoid the interest rate by exchanging money before you trade. Really this takes one second, and the rate is very competitive so it's usually the better option. GAT
If you want a foreign currency account with a debit card switchable between currencies that you can send/receive money to IB than try Citibank. The big four in the U.K. will not give you a foreign currency debit card.