Currency Trading via IDEAL:
The following document is intended to assist users of the IDEAL currency trading
platform to execute trades in specified amounts and to control the trade results by
assigning commissions to the desired currency.
Overview:
As stated in the website, the commission charge for currency trades is assessed in
the “trading currency”, or “payment currency”. This rule follows a generic stock
model where prices are expressed in money value per share (e.g. $/share). In the
generic case, the numerator expresses the payment currency and, by extension,
the commission currency.
The TWS Description column shows the currency quote with both numerator and
denominator. The numerator expresses the trading or payment currency; the
denominator describes the asset class being traded.
To flatten out a non-base currency position (i.e. trade to zero balance):
Although you can achieve a desired currency position by entering either of the two
currencies as the underlying and the other as a payment currency, it may be
difficult to get to an exact zero balance due to the following:
o TWS only supports trade quantities in integers. It is not possible to convert
25.82 USD; one must trade either 25 USD or 26 USD. However, IB will
interpret a trade that brings the resultant balance in a currency to less than 1
currency unit as an attempt to zero out the balance.
o application of commission charges
If one’s objective is to flatten out (achieve a zero balance for) a particular currency
(for example, a non-base currency), it is easier to do so by entering the non-base
currency as the underlying. The base currency will then be viewed as the trading
currency and the account will then be charged commission in base currency. This
will simplify the calculation of the trade quantity by avoiding the need to incorporate
commissions in the trade quantity.
Additionally, one should calculate the trade quantity such that, at the expected
execution price, the resultant position on the close-out currency will be less than 1
currency unit. At trade time, the TWS will show the fractional position. However,
in the clearing process, the trade price will be adjusted to produce a zero balance
in the currency. The assumption is that the trader’s intent is to have a zero
position.
Example: assume
base currency = USD
non-base currency position = EUR
In the sample TWS screenshot below, the first contract line shows the payment
currency in EUR (where USD is entered into the TWS in the Underlying column)
and thus, the commissions are charged in EUR.
The second contract line is an example of the payment currency in USD (where
EUR is entered into the TWS in the Underlying column) and, thus, the
commissions are charged in USD.
Note that in both cases, the trading/payment currency is given in the numerator: for
example, USD/EUR implies a USD commission whereas EUR/USD implies an
EUR commission.
In the first entry, the underlying is USD. The bid/offer represents EUR/USD, as
shown in the Description column. The bid/offer of 0.9285 - 0.9295 implies the
following: Bid implies: 0.9285 EUR per 1 USD. Offer implies: 0.9295 EUR per 1
USD. If you sell (hit) the bid, you will be selling 1 USD and receiving 0.9285 EUR.
If you sell at the offer, you will be selling 1 USD and receiving 0.9295 EUR. Either
way, you will be selling the underlying (USD) and buying the EUR, and the
commission will be in the numerator currency (EUR)
In the second entry, the underlying is EUR. The bid/offer represents USD/EUR.
The bid/offer of 1.0762 – 1.0764 implies the following: Bid implies: 1.0762 USD
per 1 EUR. Offer implies: 1.0764 USD per 1 EUR. If you sell the bid, you will be
selling 1 EUR and receiving 1.0762 USD. If you sell at the offer, you will selling 1
EUR and receiving 1.0764 USD. Either way, if you sell this product, you will be
selling the underlying (EUR) and buying the USD, and the commission will be in
the numerator currency (USD).
NOTE: When placing a currency order via IDEAL, only whole currency units are
accepted. Fractional currency amounts are not possible.
EXAMPLE 1: Customer wants to flatten out a non-base (EUR) currency position of
short 3.853 EUR and wants to be charged his commission in his base currency
(USD):
(1)
(2)
(3)
(4)
type in EUR as the Underlying
highlight Cash
click on USD
round existing EUR position to determine quantity of EUR to buy to
flatten position.
(5) Enter the order to buy 4 EUR by clicking on the offer.
(6) The remaining fractional amount of .147 EUR (-3.853 EUR + 4 EUR =
+.147 EUR) will remain on the Account Balance until the following day,
at which point the balance will be zero, assuming no additional activity.
(7) A commission charge of $2.95 will be charged to the account.
Note that although a fractional amount remains in your Non-Base Currency Account Balance
after the execution, the balance in your non-base currency will be zero at the start of the next
trading day.
EXAMPLE 2: Customer wants to buy CHF and Sell EUR via IDEAL and wants to
be charged CHF commission.
(1) type in EUR as the underlying
(2) highlight Cash
(3) click on CHF
(4) enter order using whole currency units and no decimals
The order is entered as above, regardless of whether the account’s base currency
is part of the currency trade. The commission for the trade will be in CHF.
If you chose instead to type in USD as the underlying, you would need to:
(1) Sell quantity of USD (and buy the corresponding EUR) that is equal to
3.853 EUR divided by .9285 EUR/USD = 4.15 or 4 USD. However,
note that if you sell 4 USD in this manner, you will be charged
commission of 3.00 EUR. Thus, the resulting EUR position after this
trade will be:
- 3.853 EUR (Original Position)
+ 3.71 EUR (obtained by selling 4 USD at .9285 EUR/USD
- 3.00 EUR (Commission)
-
3.143 EUR (Ending Position)