Interactive Brokers: Changes in currency conversion for Cash accounts in April 2024

Investing / Brokers
42

I bought 100 stocks VT by selling deep-in-the-money option and converting Euros to USD. As usual, the option was exercised the following night, but then IBKR did weird things converting remaining Euros in the account into Dollars. I suspect their auto-conversion kicked-in: for cache accounts they do currency conversion themselves if there is no enough settled amount of USD

But what puzzles me, as settlement for stocks like VT is now 1 day and for FX operations it is 2 days, it means that for 1 day I’ll be short of dollars anyway. How is it possible in a cache account? I am afraid they would do rare things like liquidating my VT holdings to cover for that. Anyone has experience with that? Like if you buy VT having only Euros or Franks in your account, does it work OK?

43

In past , sometimes I transferred CHF, convert to USD and then buy VT in few mins. It has worked

Same is true for CHF —> EUR —> WEBG

But I also see weird things sometimes. I just ignored it :slight_smile:

44

I plan to sell a put for VT again this week, with sufficient cash balance to cover the purchase (lucky you the Swiss, you don’t need the options route). And will leave the cash in Euros. Hope that IBKR will autoFX and not liquidate VT.

I don’t want to convert currencies a few day in advance, as it exposes me to the exchange rate risk (VT and the Euro move in tandem).

45

I don’t quite understand. What does it mean „options route“?

Don’t you transfer Euros to IB and then buy VT straightaway?
Is it because VT is not offered to you directly ?

46

In the EU, we can not buy US structured products, like ETFs and mutual funds. The EU requires some information in key investor documents that US companies are forbidden to provide, like scenarios for expected return. I can not buy VT on IBKR.

But I can trade derivatives (options). And liquid US ETFs have option trade. By selling a deep in the money put option, I am guaranteed that the counterparty excersizes it, and I get 100 stocks of VT.

I just sercumvent the EU PRIIPS prohibition.

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47

Wow
That’s something :slight_smile:

1 Like
48

Nothing special, TBH. It is a standard way for the Dutch to invest in US ETFs. I do it in a simple way, some people do it more asvanced (and save ± 3 euro on a trade).

I am just a bit uncomfortable with the strange currency conversion things on IBKR


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49

Here’s another bit of info, as I just observed how 9000 euro get exchanged to CHF. Any amount less than 20k is treated as an “odd lot”, which means a spread does apply on the manual currency conversion. I have set a sell limit of 0.94 for my 9000 euro, and the sale occurred when the rate was 0.94007, which means the currency conversion cost was 2.63.

Now I wonder if there is anything to add to the 0.03% of the automatic currency conversion


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50

Can somebody explain why we have to wait 2 days (and not only 1) after manual currency conversion?

Before change

  • Currency conversion: T+2
  • US stock market: T+2
    → Settlement on the same day if the orders were placed on the same day.

After change

  • Currency conversion: T+2
  • US stock market: T+1
    → Settlement shifted by one day, if the stock order was placed two days after the currency conversion.

Why isn’t it sufficient to wait one day after currency conversion? Then, the settlement would be on the same day as before.

2 Likes
51

Because banks and financial institutions benefit from the short-term float by investing the cash before settlement 
?

There’s also some risk management aspects, but they’re probably mostly historical and T+1 is probably technically feasable (pure guessing on my behalf here, I don’t understand the FX exchange mechanisms under the hood as well as for equity or bond trading).

Not sure what you mean here. Settlement is x business days (T+x) after the order has been placed. Your broker UI might say that equity has been bought or that cash has arrived, but it has not and the security or cash won’t be on “your” book until the settlement date.

See this post for a short summary of the mechanics of equity or bonds being traded.