IBKR behaves weirdly when converting currency and immediately buying with a cash account

I’ve been using IBKR for many years without any issue, but yesterday something really weird happened. I transferred 2k CHF in the morning, which were quickly available. Still in the morning, I converted them to USD, to get about 2220$. Before that I had about 50 CHF and 350$ on my account (thanks to some dividends). Therefore I was at 30 chf and ~2550$ at that point.

In the late afternoon I bought 22 VT at 110.825$ each, so around 2440$ with the fees. Order filled immediately, so far so good. But a few seconds later, I get two emails in a row notifying me of ~2k USD.CHF bought and sold, roughly at the time I bought VT. Why??!

I can see this in my transaction history:

And I got this notification that I don’t understand from IBKR:

Any idea what happened here? What have I done wrong? I’ve been a customer for 3 years and have almost 100k invested, I’m pretty sure I did things the same way as usual. Seems I lost money in the process…

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I guess it has to do with your original conversion not being settled yet. This takes a day.

IB also introduced instant auto-conversion. And probably did that, with your original CHF and rolled back the not-settled cash.

Something like that.

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Might be related with the switch to T+1 in the US. Before the settlement would line up, now not necessarily (afaik).

If your initial FX transaction was on T+2 (e.g. european markets), then settlement wasn’t lined up. I wonder if then IB doesn’t undo it and then do it again but on T+1 (US markets).

Might be worth asking support about it.

I think it has to do with something stupid:
Your USD have not settled, so basically, you did not have enough USDs to buy VT. It therefore bought USDs from your still present as not settled CHF, but then somehow the system realized that your CHF was negativ and change USD to CHF. Not sure, if this is right, but I recommend the following:
For values below 6666 USD use the automatic Fx conversion. Don’t do a FX conversion, just buy VT. It will change your CHF to USD automatically, with a price of 0.03%.
For higher values, do an Fx change (price 2$ plus 0.002%) first, wait 2 days for settlement, and then buy VT.

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Weird, I usually buy stock the same day as I convert currencies. Also the USD were properly showing in my portfolio cash balance…

But the US just switched to T+1 (this week), that’s the difference with previous years.

If you buy in the morning it will definitely be on European markets (so T+2).

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I still can’t find written anywhere about this additional cost. Do you have a link?

Commissions Spot Currencies | Interactive Brokers U.K. Limited
Scroll down to the second last bullet point.

Ok thx. But somewhere else I’ve also seen that exchange < 25k are considered “odd lots”, which means they might be suboptimal.
At the end of the day it sounds like a micro-optimisation, maybe even bad considering that USD is losing against chf.

https://gdcdyn.interactivebrokers.com/Universal/servlet/Registration_v2.formSampleView?formdb=4338

Orders to convert currency valued at less than $25,000 are considered “odd lots” and
may execute farther from the current Interbank spread than larger orders. The
conversion rate set by IBKR for automatic conversions may be adjusted from the rate
that otherwise would apply to compensate for differences between the agreed
settlement cycle for the trade and the standard settlement cycle for that currency pair.

Do you have a margin account? When I buy USD stocks, I often end up with negative USD which I then correct later. I never had any automatic conversions.

What is IMPACT?
I quickly checked, as last time, I tried with autofx. I don’t even see, that IBKR charged me the 0.03%.
image

No, just a basic account. I have a super simple flow: transfer chf, convert to USD, buy VT.

But next time I’ll try @fittim 's advice and skip the second step to let ibkr do it for me.

I also never see it, but assumed they put the 0.03 on top of the exchange rate. your graph shows 09:39 and 09:39:09. could be that in this minute it changed by 0.03% (or 0.0003 USD) and you just miss it? Only explanation I would have.

A bit annoying, but also kind of nice that we have to dig deep to find the fees because they are so low now :smiley:

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Meanwhile swiss brokers: Low fees? what is that? Something to eat?

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I experienced exactly the same situation as you.

Yesterday morning, I deposited 1000 CHF into my IBKR account and converted Swiss francs to dollars around 5 PM. Around 8 PM, I placed my buy orders for VT and noticed that IBKR sold USD.CHF and repurchased USD.CHF to execute my transaction (even though I had already converted my Swiss francs to dollars).

I haven’t checked yet if this incurred any additional fees, but I was surprised to receive these order notifications without having requested them. Maybe it has something to do with automatic conversion. I will check this further.

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Looks like the best choice for cash account holders is to not convert currencies manually, but to rely on the automatic conversion.

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Or not to execute any market orders. This morning, when logging into IBKR, I received the following message in notification:

This is to inform you that Interactive Brokers executed a currency conversion in your account xxxxx either because a negative cash position is not allowed in this account type or the negative cash position was cause by a recurring investment trade. In order to protect our clients and the firm, it is IBKR’s policy to cover negative cash positions in non-compliant portfolios, as specified in the IBKR Customer Agreement and on the IBKR website. If you wish to avoid automatic currency conversions in the future, you may perform your own conversions on any of IBKR’s trading platforms found here.
Instructions for converting currency (FX Orders) on IBKR platforms can be found here.
Interactive Brokers

In any case, the buying and selling times for USD.CHF are indicated as “LQD” and have not generated any additional fees. Nevertheless, I will contact support to request an explanation, as my account was previously funded in dollars.

I am pretty sure it has nothing to do with the market order per se. But it is true, IB doesn’t like when people send market orders and keeps sending warnings afterwards.

The auto FX is of course a market order.

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LQD is by the way “Liquidation”. With a cash account you can’t have negative positions, so your balance in the other currency is liquidated to cover it.

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