Interactive Brokers - lost 3.4%, dont' repeat my mistake!

Hi all,

I just realized that I lost ~3.4% of my investment in form interest payment to IB. Here’s how:

In short:

  • I opened an account in late 2018 - I chose margin, however, I didn’t intend to use it
  • I wired my investment in CHF to IB
  • I then bought ETFs in USD and EUR for the rough amount of the CHF, assuming that my CHF were used for these purchases.

What really happened:

  • IB treated my purchases in USD and EUR as loans, and charged me interest on it

  • In addition, I paid interest on my (idle) CHF (negative interest)

  • The total interest paid to IB came to around 3.4%

  • I checked the total value of my portfolio monthly, but didn’t go into details. Since it was still growing, no alarm bells rang.

  • The cash section did show positive CHF and negative USD and EUR, but because I hardly understand anything on IB, I thought that was some kind of IB-way of showing what I’ve spent and didn’t bother to investigate

  • Only now, when I looked at 2019 as a whole for tax purpose did I find out how much I’ve paid in interest.

Feeling like a massive fool - hope this will prevent others from doing the same mistake.

Given how little I understand IB despite a few attempts to dig deeper, I’m re-considering my overall investment strategy at the moment, and thinking of moving everything onto my exisiting Swissquote account (much more user-friendly), and accept the downsides of that.

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Better solution than going back to SQ: just switch from margin to cash account. Contact the support, they’ll do it.

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I had the same problem: wired some cash for investing it. But somehow I traded on margin. I was always confused why the margin amount rose, haha.

I contacted the support to downgrade my margin account to a cash account. You have to open a ticket:
Client Portal -> Menu -> Messages -> Create -> New ticket

My intention is to use IB only with my equity. If I like to short some positions, I will use my free Degiro back up account (trading account). But honestly: since there is a wide range of (leveraged) inverse ETF, I don’t short anymore.

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Where can you check if you have an cash or margin account? Just to be sure :slight_smile:. Im Still pretty sure i don’t have an margin account…but still :smiley:

You just spent 3.4% on an expensive lesson of how to properly use IBKR. Are you that dumb to just throw it away and start learning the gotchas of swissquote?

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I found it. Under Account Settings > Account Type > You can check it. You can even change it there i you want

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Thanks for that - glad to read that it also happened to somebody else, although I hope it didn’t take you a year to figure it out! :wink:

Thanks a lot for the instructions how to downgrade - will do that asap!

Thanks for the thread. I will now try to upgrade to margin.

It’s a lot easier that way. I buy VTI on margin and exchange CHF into USD afterwards, so that I know the exact amount and never have to hold USD.

Oh come on dude!!! What’s your problem?

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I see where you’re coming from, but here’s how I see it:

I just spent 3.4% on an expensive lesson on how to use one single feature of IBKR - but that’s far from learning how to use IBKR (in its entity). My problem is that ‘I don’t know what I don’t know’, i.e. how many similar lessons there are at IBKR waiting for me. I find it incredibly hard to get a good understanding of how IBKR works (so maybe I am just that dumb), and my goal is to passively invest so that I can spend my time doing other things (true to MMM’s advise).
In relation to IB, I found and find Swissquote very intuitive (I already have an account there as I’m spreading my investments across traders, geogaphies and currencies - meaning I’m using SQ for Swiss ETFs).

But as I said - I get your point. Still re-considering therefore, no decisions made yet :slight_smile:

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Thanks for checking - at the moment I’m in the negative, so I can only choose Margin or Portfolio margin. But hope that on Monday (once my transfer has arrived), I can switch to Cash.

OK so you forgot to make the CHF-to-USD FX trade. I should tell you, when I opened my account, @hedgehog advertised the margin account as the superior option, but I went with cash, just to be sure I don’t mess it up. I guess I didn’t want to make your mistake (ouch, by the way!).

What’s wrong with holding USD? You are aware that you receive USD dividends every quarter? Also if you’re under 100k, you will be charged 10 USD per month. Plenty of reasons to keep some USD. I made USD by base currency and I try never to keep CHF. I make a SELL FX trade to exactly sell all my CHF and then I use this to buy ETF with the USD that I have.

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Well my base currency is CHF, so the monthly fees are also charged in CHF. How do you manage your tax declaration when everything is listed in USD value?

I enter every trade in the ZH web tool and it makes the conversions to CHF for me. But I don’t know if my tax declaration is OK, since they still didn’t get back to me for my 2017 declaration…

Lol we’ll have to see.

I made my 1st tax declaration this year with shares in general. I hope I didn’t mess it up.

At least try the IB client portal instead of TWS before u leave. It’s a world of difference & makes SQ etc look complicated :wink:

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You convert the numbers using the exchanges rates provided by the federal tax administration.
Shouldn’t you do that anyway, in principle, instead of using IBKRs “proprietary” rates?

In terms of hidden or unexpected costs, I think inadvertently tapping into margin is the number one danger - especially by forgetting to exchange currencies. I once got “burned” by a partial execution on some marketplace, though to be honest that was probably a very “liquid” instrument. Also, LSE quotes in penny sterling rather than pounds, though I’m not sure you can always enter prices in GBX on IBKR’s interface.

But I think that’s it for the (potential) hiccups have been the “three” hiccups I’ve head, and they’ve only cost me cost me two or three dozens of minutes and/or dollars (I’m on a non-margin account).

All in all, I think IBKR isn’t that daunting to deal with, if you’re doing buy-and-hold:

  1. Stay on a cash account
  2. Figure out how to convert funds (i.e., how to enter the order properly)
  3. Check your numbers, limits and order sizes on ordering
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I use the phone app. You can do everything there if you just want to buy a couple of ETFS or Stocks. Even to change from CHF to USD or other currencies it is queid easy…The Portal i only use to check my Repports or withdraw or send some money.
I was really confused at the beginning when i saw Interactive Brokers for the first time. But with the time and confiden you get used to it. If i forget something ,i always check the post from Mr. RIP “IB 101”.

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Thanks for the response - that’s very helpful.

Definitely leaning towards staying on IB after the responses on this thread.

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Thanks! Yes, once I realized my mistake I tried to simply exchange my CHF into USD and EUR on the portal - the CHF to USD transaction was more or less intuitive, but I really struggled with CHF to EUR (which I thought must be pretty straight forward).

I gave up that night, thinking this can impossibly that difficult, and decided to get a good nights’ sleep. The next day I used the app - and that was indeed very easy and intuitive!

And thanks for the suggestion re ‘IB 101’ - will check it out!

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