FX conversion with Interactive Brokers

Converting currencies, especially from SGD to USD to purchase overseas securities on Interactive Brokers can be confusing many new users to the platform. In this article, we will show you how easy it is to convert between any two currencies.

Converting currencies with Interactive Brokers

Every account on IB has a base currency. This base currency determines the currency of translation your statements, and also the commissions, research and trading fees are charged in your base currency.

When buying securities or stocks from another overseas exchange like the NASDAQ, NYSE, LSE or TSE, the securities are listed in another currency like the USD, EUR or JPY. To trade that particular security, you need to first convert your base currency to the listed currency of the security.

IDEALPRO vs FXCONV

There are two main venues to convert currencies on Interactive Brokers – namely IDEALPRO and FXCONV.

IDEALPRO is IB’s venue to conduct a foreign exchange (FX) trade and it is quite similar to a stock trade. There is an order book assembling quotes from the largest international forex banks as well as other IB clients and market makers. IB does not mark up on the quotes, but instead charges a commission of around 0.1 to 0.2 basis points of the trade value, subjected to a minimum of US$2 per trade.

A virtual FX position will be created for tracking and you can find IDEALPRO on their WebTrader interface.

FXCONV is the alternative method to convert currencies on IB.  It generally costs slighly less, and has a more immediate execution. You can find FXCONV on their Trader Workstation (TWS) platform.

Both IDEALPRO and FXCONV does the exact same thing, which converts your currency balances from one to another like a cash transaction. However, IDEALPRO creates a virtual FX position and transaction record in your account to later monitor FX gains and losses, which is my preferred way of conducting forex.

Converting your SGD (or base currency) to USD

The first step to any forex conversion is to identify the relevant currency exchange pair. For example, to exchange SGD to USD, the currency pair you’re interested in is the USD.SGD pair.

The second step is to identify if it’s a buy or sell transaction of the currency pair. In the above example, to convert SGD to USD, you’d want to buy USD and sell SGD. Hence, you’d BUY the USD.SGD pair on the exchange.

In most forex markets, the USD is generally considered the transaction currency for quoting purposes, i.e. quotes are expressed as a unit of 1 USD per the other currency quoted in the pair (e.g., USD.CAD, USD.JPY, USD.CHF).

The primary exceptions to this rule are the GBP, the EUR and the AUD which are quoted as GBP.USD, EUR.USD and AUD.USD, respectively. These quoting conventions are industry standard and orders cannot be submitted to IB’s IDEALPRO venue in an inverted format (e.g. USD.EUR).

Therefore, the summary to the above is that you search for the USD.SGD pair, and select BUY.

Limit vs Market Order

The difference between the two dives a little into trading and order execution, but I’ll try to keep things simple.

In layman terms, a limit order is when you want the exchange to execute the trade at the price you desire, or better. In the above scenario if you select a BUY limit order of 1.35 USD.SGD, then the exchange will only execute the trade if you can get USD at 1.35 SGD or better (e.g. 1.34).

A market order is when you want the exchange to execute the trade at the best available price immediately – something like Amazon’s one-click checkout. The exchange looks for the lowest selling or ask price currently available and matches it to your order.

Now, if you ask me, honestly, the difference between a limit order and market order is insignificant for small amounts of currency exchange. That’s because currency markets are usually very liquid, and the execution price difference between the two is likely to be very small (a couple of cents). So – select market if you want an instant transaction, or limit with a buy price you wish to execute your currency exchange at.

Setting the Quantity

A tricky part about IB conversion is that you’d need to figure out how much to convert and do a little bit of mental sum in your head. Let’s say you wish to buy 10 shares of VWRD at US$85. How much SGD do you need to convert?

First, identify the trade value of the transaction in the foreign currency. In this case, 10 shares of VWRD at US$85 is US$850.

Then add a US$5 commission to the trade value – this step is to determine the total amount of USD I need to have converted inclusive of exchange fees (~US$2) and trading fees (~US$1.93) if you’re on tiered pricing.

Next, check the prevailing bid/ask price for the currency pair either IB or Google. Let’s say the prevailing USD.SGD exchange rate is 1.385.

This means I need (850+5)*1.385 = approximately S$1184 to exchange for US$850 (net of fees) to buy 10 shares of VWRD. I ensure that my account is funded with at least S$1184 (especially if I am on a cash account).

In the quantity box, I enter 855 – this amount will also cover US$3 of exchange commissions and US$2 of buy fees later.

Exchange currencies on WebTrader

IB’s WebTrader platform allows you to execute trades and exchange currencies from your browser.

Under the Order Management panel at the bottom of the Account screen, select the Forex tab.

Select the Action – Buy or Sell.

In the Quantity box, enter the quantity to exchange for as explained above.

In the Symbol box, type the currency pair and search for the IDEALPRO market. For the SGD-USD exchange pair, look for USD CASH IDEALPRO SGD USD.SGD.

Under Order Type, select LMT for Limit Order.

Under TIF (Time in Force), select DAY for the trade to be valid only for the day.

When you’re done, click the Preview Order button and then Submit Order, ignoring the warnings about odd lot orders below the US$25,000 minimum.

In the WebTrader platform, you can execute foreign currency exchanges conveniently without the TWS desktop application

Once the order is filled, check the Trades tab to check your execution price and commissions. Your new foreign currency balances will be updated in the Market Value panel under Cash Bal.

New in-app FX conversion tool

In August 2019, IB launched a new in-app FX conversion tool on IBKR Mobile (iOS / Android) to help investors simplify managing their currency balances. This tool can also help close a currency balance directly from either the account or portfolio screen.

Under Cash Balances on the portfolio screen you can click on the desired currency and hit Convert or Close Balance (for non-base currencies). That’s a faster way to convert currencies – although you sacrifice the more advanced options of converting currencies such as order type and TIF.

That’s it! I hope you found this post useful. If you haven’t heard of IB, you can check out my intro post here.

Sign up with Interactive Brokers here.

FAQ:

Virtual FX portfolio – what is it and how can I avoid it?

The virtual FX portfolio shows your positions and P&L for currency pair trades via IDEALPRO – reflected as the sum of all trades executed in the FX market plus conversions to convert non-base funds into your base currency.

As these are just virtual portfolios, they do not represent the real-time currency balances in your account. To check the actual balances, look for the the Total Cash field of the Market Value section.

To avoid having virtual FX positions, FXCONV should be used instead of IDEALPRO in the order line.

Why would I want to keep a virtual FX position ever?

It helps you to keep track of your average USD purchase cost. This is useful to identify whether you are currently exchanging money above or below your average cost.

FX conversion is complicated and fees add up very quickly, should I set my account’s base currency in SGD or USD?

I encourage you to set it to SGD as IB has one of the lowest spreads when doing FX conversions compared to banks or financial intermediaries. That means that you get to exchange currency at a very good rate with low commissions.

However, if you have already plenty of assets in USD, or you have a lot of USD already on hand, then setting the account base currency to USD can sometimes be beneficial too. For me, I set SGD as my account’s base currency.

I am on a margin account, and I decided to buy the stock before converting my currencies – do I need to pay any additional fees on the margin?

There is no interest if the borrowing is paid back within a day (i.e. FX immediately after).

If I want to convert my USD cash back to SGD instead, how can I do it?

Simply do the reverse of the post above – you sell USD.SGD with the value you want to convert back in the value box. For example, for converting US$10,000 back to SGD – you enter SELL 10,000 USD.SGD.

I have US$100K on another broker which I want to transfer to IB to buy stocks. What’s the best way to do it?

You can either (1) transfer USD from your broker to your bank’s multi-currency account, then transfer USD to IB or (2) convert from USD to SGD on your broker’s end, transfer SGD to your bank, transfer SGD from your bank to IB’s local bank account via FAST and convert the SGD back to USD.

Depending on the costs involved and whether your broker supports free USD withdrawals, method (2) might be overall more cost effective.

Does FX commissions count towards my monthly activity fee?

Yes.

Why do I see a negative balance on my cash in my account after buying a stock?

If you buy your USD denominated counters without sufficient USD, it will show a negative balance on your USD. You need to buy USD.SGD via a FX trade to flatten the balances.

 

Derrick is a digital native, finance geek and avid photographer. He loves spontaneity but is a control freak at the same time.

4 comments On FX conversion with Interactive Brokers

  • Errr shld be (850 + 5) X 1.385, not (850+5)/1.385

    You’d need much more than SGD617 to get USD855 😛

  • Hi Derrick,

    Thank you very much for this brilliant post.
    I am Dirk from Germany, use IB since 2 year sand may be you could answer my following Question(s).

    After my total excange from € to USD i have real US Dollars in my account.
    Similar like a money excange in a bank, when i gave Euro´s and get $ bucks back. Is that right?

    So Interactiv Brokers enables me to use this single account like a multi currency account. Where it is possible to have my money simultaneously in several, different currencies?

    And after a currency reform (for instance in Germany) or an €-crash i could be happy, that I´ll be not affected so hard, because I´m “invested” in USD, NOK, AUD, CHF, HKD… or what else.

    It would be great for me, if you responses, but probably also helpful for everybody, who reads this.

    kind regards
    an all the best for you
    Dirk

    • Hey Dirk, yes you’re right IB serves like a multi-currency and you can hold multiple different currencies under the same IB account. I believe there are only 22 trading currencies available so be sure to check if the currency you want is available

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