Questions about IB's "base currency" and currency exchange

[Teruki 21]

Hi,
I'm getting ready to go live and I just opened up an IB Canada account (I live in Canada).
I'm confused about the process of trading US stocks in USD.
My case is CAD and USD but I think it is the same with anyone who live outside the US and trade US stocks and hopefully you can answer my questions here.
Thank you.

I'm confused about "base currency" you have to set. What are the difference between setting it to the USD and CAD (or any other currency for that matter)?
I will fund my account with CAD, but I assume I will have to exchange it to USD to trade US stocks, is it right?
Is the "base currency" just the matter of reporting in the set currency for tax purposes ?
In other words, if I set it to CAD as my base currency, I can trade the US stocks after I exchange it to USD but on paper everything is stated on CAD?

Is there any reason I would want to set it to USD that I'm not aware of or the process I am not correctly understanding?

Thank you. 

[Abiel 475]

Please read this forum thread: 

 

 

[Teruki 21]

4 hours ago, Abiel said:

Please read this forum thread: 

 

 

Thank you Abiel for your reply.
I read the thread, and I more or less understand the process but am still not 100% clear.
Could you (or anyone) clear things up for me?
Thank you.

(1) According to the thread, to avoid exchange issues, what I can do is to fund my IB account with USD from the get go. For that, I would need an USD account with a Canadian bank and it has to be transferable to another institution (i.e. IB Canada).

(2) My original thought was I deposit CAD to my IB Canada account and exchange everything to USD within IB. But if I understand what was discussed in the thread correctly, IB does not let us have USD in the account unless USD was deposited directly into the account. Is my understanding correct? 

(3) All this has nothing to do with the base currency, which is just about which currency they use when they make a report, is it right?

I thought things were much simpler with so many Canadians trading US stocks with IB. Some of the moderators are doing so too (Andrew, Brian, Peter....).I wonder they are all depositing USD directly or having exchange issues like discussed in the other thread. If any IB Canada user read this thread, could you please help me here and tell me what/how you do? Abiel, thank you again and if you could confirm my questions above it would be appreciated too.      

Thank you very much.

[Abiel 475]

Hi Teruki, as I am not familiar with this this matter my suggestion is to contact IB if you don’t get trustworthy answers  here. 

[Teruki 21]

Thank you Abiel. I will send an inquiry to IB. Meanwhile I think I will open a new thread under the broker category with a more specific title and questions (i.e. what IB Canada users are doing - I think the title and questions are not really fitting after I read the thread)  because I would like to know users' perspective and experience as well. I don't mean it to be like a double post and I will put a link here as soon as/if I open that thread and also after I get the answers from IB. 
Thank you. 

(edit) I just opened a thread bellow and also asked IB about this by their ticket system.

 

Edited September 27, 2020 by Teruki

[Teruki 21]

I didn't get the reply from the IB (with the ticket system) but I was able to chat with them today. According to them, you could just convert CAD to USD at once and you don't have to borrow USD every time as the OP of the linked thread says.  The base currency is for reporting purposes only. So you don't really have to deposit USD. I don't really know what the problem with the OP (of the other thread) was. Maybe I misread his question and the discussion but for my purposes it seems like I can just deposit CAD and then convert everything to USD.   

[SeaDub 2]

Thanks to the contributors on this thread. This is something I'm watching for when the time comes to go live.
I came across an answer on the IB Canada FAQ about making a forex trade to convert it. "Do you automatically convert funds when I buy a US stock?" It speaks more to IB's platforms.
Looking at DAS, it looks like you need to ensure you have the forex feed to trade it.  https://dastrader.com/docs/how-do-i-trade-forex/  which my BBT Simulation account does not have so don't know for you.
I'll have to see if my bank has the same USD to USD in Canada issue that Stephane ran into with RBC.

[Teruki 21]

2 hours ago, ChrisW said:

Thanks to the contributors on this thread. This is something I'm watching for when the time comes to go live.
I came across an answer on the IB Canada FAQ about making a forex trade to convert it. "Do you automatically convert funds when I buy a US stock?" It speaks more to IB's platforms.
Looking at DAS, it looks like you need to ensure you have the forex feed to trade it.  https://dastrader.com/docs/how-do-i-trade-forex/  which my BBT Simulation account does not have so don't know for you.
I'll have to see if my bank has the same USD to USD in Canada issue that Stephane ran into with RBC.

Hi Chris,
Thank you for the links.
I'm a bit confused but can't we convert all the CAD to USD first using the IB platform and then trade with DAS?
I mean, we can trade stocks using DAS but we don't have to convert currency using DAS, right?

[SeaDub 2]

Teruki, you're probably right. That makes sense to me. I don't yet have an IB account so don't have first-hand experience. This is just what I found as I was thinking about which broker I would go to when the time comes to go live. If it all works out, can you post an update so I can keep it mind for then?

[Teruki 21]

35 minutes ago, ChrisW said:

Teruki, you're probably right. That makes sense to me. I don't yet have an IB account so don't have first-hand experience. This is just what I found as I was thinking about which broker I would go to when the time comes to go live. If it all works out, can you post an update so I can keep it mind for then?

Sure, of course! 🙂

[Teruki 21]

I chatted with an IB representative who was very helpful.

In short, it seems like there is nothing to worried about when it comes to the exchange rate. I don't think you have to convert everything to USD either.
Here is an example. If I have $1,000 CAD and $0 USD and I want to buy a $100 stock, then I am borrowing $100USD from IB. At this point, I have -$100 balance in USD. If I have a winning trade and now I sell the stock at $120, then I have a $20 profit. My USD account balance now will be $20. If I lose and sell the stock at $80, then now I have -$20 balance in USD. For -$20, I will have to pay some interest to IB or you can convert the amount from your CAD balance. As you can see, there is no place for the exchange rate to come in because I would be simply trading in borrowed USD, not CAD that is converted to USD. 

However, the exchange rate changes every day and when it comes to the total balance shown in USD it changes every day even if you don't trade at all. With the $1,000 CAD scenario, if the USD/CAD  exchange rate is 0.8, then your balance in USD is $800, but if the rate drops to 0.78, then the balance will be $780. You would still have $1,000 Canadian. If the CAD value drops significantly, then the total value of your balance in USD drops significantly too and even if you win some trades (in USD), you may have less USD equivalent (as your base currency) at the end of the day than when you started trading in the morning. (I think it is what happened to the OP of the linked thread.) But I believe you would still have $1,000 CAD in your account.   

I opened this thread so I solved my own questions but I hope it helps other international traders. 
 

Edited October 20, 2020 by Teruki