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

Indeed I noticed that while I planned on keeping 30CHF on my account, after this weird event, they were gone and turned into USD. So now I’m sitting on 150$ and something like 0.5 CHF in my cash balance. Really weird.

By the way what’s a better alternative to market orders, if this is really an issue? I admit I don’t really understand that part, I just convert currencies, then calculate how many VT I can buy, set the amount and chose a price somewhere in the middle of bid/ask and that’s it. Not sure how to do it differently?

Limit order is the way to go (I would say).
But I have to admit I use market order when buying VT because I send money at the end of the month and place manually the order to purchase VT. So I “frequently” (=monthly) do it with market order.

Me neither, but it has to be with market order and/or cash account only. I had the USD at disposition for the purchase order so I don’t understand what happen and why I received this weird notification from IBKR. Nevertheless, I’ll contact support to clarify this point (just a matter of information more than a problem per se).

Was the cash settled? (T+2 for fx)

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I got the same with a Limit order on VT (and only CHF on the account). I contacted them and asked whether this is a problem or intended behavior. The answer from support was not helpful, they explained me how manual Fx takes a day to settle. But since they didnt tell me there is an actual problem with my procedure (and I asked specifically), I guess its fine.

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Nope, I did the conversion and the purchase the same day. This notification never appears before. Strange, but I think that is the cause and the answer to my “issue”.

Lesson learned : convert USD.CHF at least 2 business days before placing an order.

Thanks guys for the explanation :smile:!

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Now that AutoFX is available, why would one want to convert manually and pay 2 CHF of fees, instead of letting AutoFX do it for (almost) free?

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It’s $2 for the conversion or 0.03% of the amount for AutoFX. The more favourable solution therefore depends on how much you transfer.
Obviously having to wait for two days for the conversion to settle, changes things a bit. This was new to me and tbh I’m not sure it was like that before.

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It was, but maybe you did not realize. If you have a cash account and trade before settlement, that’s called free riding. This is not entirely legal and your punishment is an account “restriction”. You are basically blocked from free riding for 90 days. See here: https://www.investor.gov/introduction-investing/investing-basics/glossary/freeriding#:~:text=If%20an%20investor%20buys%20and,cash%20account%20for%2090%20days.
It could be that you did not realize at all that your account was restricted, because you either waited long enough with your next trade or your fx settled before you traded.

Isn’t free riding about selling something for which the purchase hasn’t settled yet, and that happens for frequent/day traders?

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I am a bit confused. I use recurring investments and never cared about the auto conversion. I just checked and I also received the warning “This is to inform you that Interactive Brokers executed a currency conversion in your account…”. But I don’t see any fees ($2 or 0.03%) from the FX conversions.

Maybe you are right. I will dig into it a bit. But from the behaviour of my account, I derived it must have been this. I invested every 3 months and every second time, I had to wait for the cash to be settled after the fx. Fx is also a trade.

Yeah free riding is fine, as long as you don’t sell again before it settles.

The issue is the move to T+1 in US, this prevents free riding. Your FX transaction settles now one day later compared to stock, while before they would line up (both T+2 allowing to do both transactions at the same time).

That was a known issue of the T+1 change, making trading currency + US stock much harder for everyone (not just retail)

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Just to be sure I understand fully, does that mean that if in the span of a few minutes, I convert CHF to USD, then buy VT, actually I’ve never owned USD in the first place because it takes two days to be effective ? And then when buying VT, since this one only takes one day to be effective, it’s like I’m trying to buy it with a currency I don’t have (yet) ?

If my understanding is correct, how would that be any different with using AutoFX (letting IBKR convert automatically) ? Will IBKR “cover for it” for the day between fx and stock settlement, maybe by “freezing” the CHF balance until then ?

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Yeah I assume settlement works differently on autofx.

Yes, FX settlement is not instant, it’s T+2 and US stocks and ETFs are T+1. Maybe that’s the explanation. The ETF needs to be paid with USD that you only get the next day.

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The auto-FX charges 0.03%, while a manual conversion is $2 or 0.002%, whichever is higher. So for trades below $6,666, the autoFX s cheaper. But for trades higher than that, manual FX is cheaper. And for very large trades, autoFX can become very significantly more onerous…

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So what is now in your opinion the way to go with the June dividends arriving (in USD)?
Convert the wired CHF to USD and invest them together with USD dividends after T+2?

I’ll wait my next paycheck and automatic wire to IBKR.
I’ll then convert dividend + saving into usd, wait cash settlement and buy VT.

Did you try since the switch to T+1 for US stocks?

Hi

I’m a pretty absolute beginner but I experienced the same behavior on my 1st transaction for VT.

FYI everything that is assumed here is right. See below the answers (in french) I got from the support after opening a ticket about that
You may notice that you can see the right and accurate dates/times for transactions and settlements in your daily logs.

Bonjour Mr. XXX,
Merci de nous avoir contactés.
La fonction Auto Fx a été lancée lancé le mois dernier. Par conséquent, afin de faire correspondre la date de règlement de la transaction sur les instruments, le système a dû convertir automatiquement les devises non réglées.
Votre compte est un compte cash et IBKR a déployé sa fonctionnalité AutoFX pour les comptes cash, car les transactions boursières seront bientôt réglées en T+1 un jour au lieu du règlement des transactions boursières en T+2 deux jours. Lorsqu’un client achète des actifs qui se négocient dans des devises autres que celle que possède le compte cash, IBKR s’engage dans une conversion « spot » (FXSETTLE) au nom du client pour aplanir le solde de trésorerie négatif.
Un compte peut montrer un cash positif, cependant cela ne veut pas dire que le cash est réglée. Le règlement d’une conversion de devise ce fait en 2 jours. Par exemple, vous avez fait une conversion de devise sur USD.CHF le 2024-06-20 et le règlement de cette transaction se fera le 2024-06-24. D’une autre part la transaction sur VT fait le 2024-06-20 sera réglés le 2024-06-21. Par conséquent, IBKR s’engage dans une conversion « spot » (FXSETTLE) au nom du client pour correspondre la date de règlement des transactions sur VT.
Veuillez noter que conformément à la nouvelle fonctionnalité AutoFX, IBKR n’exigera plus que les clients possédant un compte cash a avoir des espèces dans la devise de négociation des actions qu’ils achètent afin de passer leur ordre d’actions. Les clients peuvent disposer du montant d’espèces nécessaire dans n’importe quelle devise prise en charge par IBKR et IBKR coordonnera la transaction de change nécessaire pour le montant requis pour régler la transaction en votre nom.
Cordialement,
YYY
IBKR Trade Desk
XXX 2024/06/25 10:34:53
Merci YYY pour votre réponse
Du coup la conversion peut se faire automatiquement ? Quel est le coup de cette transaction de change automatique ?
Il semble d’après le relevé que je vous ai transmis qu’elle n’ait rien couté
Est-ce bien le cas ?
Cordialement
IBCS 2024/06/25 11:56:41
Bonjour Mr. XXX,
Oui, la conversion peut se faire automatiquement. Vous n’avez pas besoin de convertir avant de soumettre un order sur un instrument.
Il n’y a pas de commission d’un minimum de 2.00 USD pour l’AutoFX mais IBKR inclura jusqu’à 3 pips dans le spread lors de la conversion de devise.

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