Steve - thanks.
I’ve used IB for years and never had any real issue over this but, as I am now likely to invest significantly larger amounts with them via P123 Trade, this might be a sensible time to convert base currency to USD particularly as GBP is presently strengthening against the USD.
For stocks in a different currency, as long as you have a margin account, IB does not do conversions on each trade like other robbery brokers like Saxo. If you have GBP and buy CSCO, it would create a debt in USD while you hold the position, and charge you interest, while you “earn” interest in GBP (if rates were higher) and when you close the position, you would automatically return the temporary loan, and have a net credit or debit of USDs in your account based on the result of the trade. If you dont want to have the GBPUSD risk, it is better to either do trades like this, and then convert the P&Ls every once in a while, as that would be your only currency risk, or you could convert the account to USD as you said, and then open an FX futures position to hedge GBPUSD.
Out of curiosity, how does that affect your margin capability when you borrow USD? It is also not good for tax-sheltered accounts.
Steve
Iavanti
Thanks for the explanation - I’ve often wondered exactly how IB dealt with currencies and also how the small debits/credits in USD arose - but as I said it’s never really been an issue and if something isn’t causing a problem I’m negligently lazy …!
I also have a UK SIPP pension fund with IB that has to be in a cash account - margin is not permitted. I intend to invest that via P123 Trade. Do you know how cash accounts are treated or could you point me in the direction of where, in IB’s impenetrable material, I can find it?
I’m a simple lawyer and stock market / options investor and not too good with concepts like opening FX futures positions to hedge GBP/USD. Sounds like a good idea but where might I find a simple explanation?
Once again, thanks very much for your kind assistance.
Steve
Stittsville I’m not sure, I would assume very little if at all, since you will not be having a lot of FX risk as you will be buying an asset in the currency you are borrowing. The margin impact will come from the asset you buy, and the risk parameters that IB have assigned to it.
stevej, I didn’t know you could have SIPPs at IB, that is good to know since I also live in the UK too. Thanks! With regards to the FX hedging, since you would not be able to use margin for stock, perhaps you could do the following
- you could convert the balance of currency in the account to USD, that way you will not pay interest as you will not be borrowing USD and keeping GBP where you would be earning absolutely nothing.
2)Buyl the equivalent amount of GBP that you converted in GBPUSD futures. These come in multipliers of 62500 and 100000 GBP, so depending on your account size you will use the appropriate amount. You can use normal FX spot trades to do this if your account is smaller or you have a diferential, i.e. if you account is 80k. I am not sure if you can have FX spot trades (which are margined) in your SIPP account, if you can’t then perhaps you would need a second account to do the hedging separately for the first account.
Also, it is up to you if you think all the work involved in the hedging is necessary or you are fine having USD exposure instead of GBP.
I hope this helps!
I have got a IB Euro account. I have bought USD and use them to buy the US stocks. When I sell the US stocks, then I get USD.
My account shows all the stock positions, the USD holdings and the EUR holdings.
No interest paid or received.
Tobias - what you are describing is similar to what happens in my Canadian cash account. For me, every US stock trade has to be washed i.e. they fix the exchange rate so that the buy and sell exchange rate cancel out. With TD Waterhouse (my broker) this makes a complete mess of the account statements. Sometimes errors occur. Hopefully, it is much cleaner with IB.
Steve
Iavanti - this will take you to the IB SIPP page https://www.interactivebrokers.com/en/?f=1212&ib_entity=uk
At the top left of the page is a link (https://www.interactivebrokers.com/en/?f=%2Fen%2Faccounts%2Findividuals%2FsippAdministrators.php) to a list of approved administrators. Least expensive is Candpsipp although others are similar. Some are outrageously expensive.
Thanks again for the assistance.