IB question buying ETFs in a different currency

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Topic Author
andrew99999
Posts: 759
Joined: Fri Jul 13, 2018 8:14 pm

IB question buying ETFs in a different currency

Post by andrew99999 »

My IB account is in one currency and I will be getting an allocation to an ETF in another.
Can someone who knows tell me if I need to do anything regarding currency conversion when buying/selling or is it automated with nothing needed on my part?
Thanks in advance.
krasnall
Posts: 22
Joined: Wed Sep 16, 2020 10:37 am

Re: IB question buying ETFs in a different currency

Post by krasnall »

Assuming you have a margin account: the ETF will be bought with borrowed funds. Your cash in base currency will be used to secure the loan. You will pay interest on borrowed funds, but your result on this trade will be based only on profit/loss of the ETF (it will work like a currency hedged ETF).

If you want to convert your cash to the ETF's currency, you can do it before or after the trade (Converting Currency Balances). It's best done in TWS desktop software. In my experience currency conversion in the mobile app or client portal might not give you the best exchange rate. If you want to convert the currency before the trade, make sure you route the order to FXCONV, not IDEALPRO. Let me know if you need more help.
glorat
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Re: IB question buying ETFs in a different currency

Post by glorat »

Even if I had a margin account (which I don't) I probably wouldn't use it for automatic FX. I don't need the complexity of the FX position.

My regular investment in IB involves me doing a manual FX conversion every time. I find it easiest to do on the phone app, which executes a simple market order. The poster just above me is correct that this won't give the best possible rates but when bid/ask spreads are <0.5bps and the commission is typically 2 USD, the potential minuscule savings beyond using the convenience of the mobile app is simply not worth my time.

p.s. The desktop IB app is horribly complicated but highly featured, whereas the phone app is quite nice but lacks all the algos and features.
krasnall
Posts: 22
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Re: IB question buying ETFs in a different currency

Post by krasnall »

You are absolutely right about the complexity of TWS desktop compared to the mobile app. I just meant that in my experience the spread in TWS is always close to zero, while the mobile app sometimes gives me the rate which is around 1% worse then spot market, and sometimes is just a regular bid/ask price without significant spread. So I would suggest to always compare the market rate with the rate offered in the "Convert currency" window before sending the order, especially when dealing with large amounts.
DJN
Posts: 762
Joined: Mon Nov 20, 2017 12:30 am

Re: IB question buying ETFs in a different currency

Post by DJN »

Hi,
its actually really easy, and IB have good currency exchange rates.
Just open the trade facility and seek to convert from one currency to another and they will give you a price and then just buy up to whatever cash limit you have, you just need to know the shorthand for the currency and it will pop up in the trade window, e.g. GBP etc.
I wouldn't use a margin.
See here for details: https://www.interactivebrokers.co.uk/li ... =111454768
DJN
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.
glorat
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Re: IB question buying ETFs in a different currency

Post by glorat »

krasnall wrote: Sat Oct 03, 2020 9:38 am the mobile app sometimes gives me the rate which is around 1% worse then spot market, and sometimes is just a regular bid/ask price without significant spread.
Now you're scaring me because I haven't compared mobile and TWS this since the first time I did it. Really?? 1% is worth my time.

FWIW, I'm only going between major currencies... HKD, GBP, USD.
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whodidntante
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Re: IB question buying ETFs in a different currency

Post by whodidntante »

I like TWS and I don't understand the near 100% negative comments the bogleheads make about it. I administered some large Unix systems earlier in my career so maybe I'm the one who is warped, but TWS is reasonable for what it does. What may be a more significant hurdle is IB's roots as a broker to professionals and institutions, and TWS can seem like Star Trek if you're used to Vanguard. But you can do so much more with TWS/IB, including OP's use case.
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whodidntante
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Re: IB question buying ETFs in a different currency

Post by whodidntante »

I have not bought an ETF in another currency due to the protectionist US tax laws that make it a non-starter for me, but I can tell you what I expect to happen. If you don't have the currency you spend, you'll go on margin for it. Borrowing money in a currency creates a short position on that currency, so it will have a currency hedging effect. If you convert to the currency you can avoid the currency short and avoid margin interest, but you also avoid hedging.
Topic Author
andrew99999
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Re: IB question buying ETFs in a different currency

Post by andrew99999 »

whodidntante wrote: Sun Oct 04, 2020 8:45 am I like TWS and I don't understand the near 100% negative comments the bogleheads make about it. I administered some large Unix systems earlier in my career so maybe I'm the one who is warped, but TWS is reasonable for what it does. What may be a more significant hurdle is IB's roots as a broker to professionals and institutions, and TWS can seem like Star Trek if you're used to Vanguard. But you can do so much more with TWS/IB, including OP's use case.
My needs are very very basic.
• Buy a single parcel every month
• In retirement sell (every month or three)
• Convert currency for buying ETFs in another currency

If the desktop version is just as good I would prefer to use that which has basically no learning curve and has everything I need.

Having said that, while waiting for fund transfer, I just took a look at the fee for the $140 AUD ($100 USD) I have in cash there and it showed me a $3.40 AUD ($2.75 USD) fee which is a thousand times more than the 0.2 basis points in their page mentioning the fees. There was a minimum of $2 USD but also weird that it is still over that. Maybe it will be different when I have a proper amount.
Topic Author
andrew99999
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Joined: Fri Jul 13, 2018 8:14 pm

Re: IB question buying ETFs in a different currency

Post by andrew99999 »

Thanks to all.

Follow up question - looking to buy IGLO which is a global government bond (unhedged), and it shows it as priced in USD. Can I assume that the purchase should be using USD even though it is on the LSE?
vsquid
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Re: IB question buying ETFs in a different currency

Post by vsquid »

andrew99999 wrote: Sun Oct 04, 2020 10:19 pm Thanks to all.

Follow up question - looking to buy IGLO which is a global government bond (unhedged), and it shows it as priced in USD. Can I assume that the purchase should be using USD even though it is on the LSE?
Yes. As IGLO, it is traded in USD even though it is listed in London. You can find the other tickers for other currencies on that ishares product page as well. The product is unhedged so it does not matter which version you get from gains point of view. (It’s base currency is USD but that is for bookkeeping purposes only. Positions are unhedged).
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