Margin for Trading Example

Assume base currency is USD for the  below example

1.  Determine the base-currency equivalent of net liq values in the account

            NetLiq    USD Equivalent

EUR:     -14,362.69     -19,712.723

KRW:   6,692,613.37        5032.04

USD:      15,073.07      15,073.07

Using exchange rates as follows

EUR USD 0.72860

KRW USD 1330.00000

2.  Determine the haircut rates for each currency pair

HairCut Rates

USD             EUR             .025

USD             KRW             .10

EUR             KRW             .10

3.  Determine the largest negative currency balance

4.  Sort the haircut rates from smallest to largest

EUR USD  0.025

EUR KRW  0.10

5.  Starting with the positive net liq base-currency equivalent with the lowest haircut rate, calculate the margin requirement on that portion which may be used to off-set the negative net liq value

Consume 15,073.07 USD equivalent against the EUR

Margin1 = (15,073.07) x 0.025 = 376.82

6.  Repeat step (5) until all negative net liq values have been covered

Remaining negative net liq

-19,712.723 + 15,073.07 = -4,639.65

Consume remaining negative net liq with 4,639.65 USD equivalent of KRW

Margin2 = (4,639.65) x 0.10 = 463.97

Remaining negative net liq

-4,639.65 + 4,639.65 = 0.00

Total margin requirement = Margin1 + Margin2 = 376.82 + 463.97 = 840.79

The particular currency which is necessary to purchase and settle any given product is determined by the listing exchange, not IBKR. If, for example, you enter into a transaction to purchase a security which is denominated in a currency that you do not hold and assuming that you have a margin account and sufficient margin excess, IBKR will create a loan for those funds. Note that this is necessary as IBKR is obligated to settle that trade with the clearinghouse solely in the designated currency of denomination. If you do not wish to have such a loan created and incur its associated interest costs, you would need to either first deposit funds into your account in the required currency form and amount or convert existing funds in your account using either our IdealPro (for amounts in excess of USD 25,000 or equivalent) or odd lot (for amounts below USD 25,000 or equivalent) venues, both available through the TWS.

Also note that once you close out a security position which is denominated in a given currency, the proceeds will remain in that currency regardless of whether it is the Base Currency you've selected for your account. Accordingly, such proceeds will be subject to exchange rate risk relative to your Base Currency until such time you either perform a currency conversion or use those proceeds for another similarly denominated product.

When account holders enter into transactions with instruments which are denominated in a non-Base Currency, the resultant profit or loss along with any interest charges (in the event of a margin loan) will remain in the currency in which the product was denominated until such time the account holder acts to close the currency position(s). This responsibility rests with the account holder as closing the position requires acceptance of a conversion price which is likely to be subject to continuous fluctuation similar to any other financial instrument.

There are limited instances in which IBKR will act to close a non-Base Currency position, including the following:

1. In situations where a margin deficiency exists and the position is closed in an effort to restore margin compliance; and

2. If the non-Base Currency balance is deemed to be nominal. Nominal balances are defined as those below USD 5.00, or equivalent.  Such balances are regularly swept once settlement has been completed into the Base Currency as long as no other unsettled activity remains. Note that balances which are accrued but not yet posted, such as interest debits and credits, are not subject to being swept while in an accrual state.

3. If the account equity is deemed to be nominal.  Here, if the account balance is below USD 80.00, or equivalent, the balance consists solely of cash and there has been no trade activity over the prior 10 business days, all non-Base Currency balances will be unwound and converted into the Base Currency. Note that this logic does not apply to accounts managed by a financial advisor or carried on behalf of an introducing broker.

4. If the account has selected the Close Account option in Client Portal.  Here, all non-Base Currency balances not greater than 1,000 USD equivalents will be automatically converted into the Base Currency.

IBKR does provide an expedited process to assist account holders who wish to close all non-Base Currency positions collectively. To use this process, start by clicking on the Account button at the top of the TWS, which opens up a window displaying account balances including cash positions in all denominations. In the section titled 'Market Value - Real FX Balance" right click on any row to from the drop down menu to select the option titled 'Close All Non-Base Currency Positions'. Upon clicking that link, the account holder will be guided through a series of steps which will create a market order to close any non-Base Currency positions.

NOTE: Commissions are charged on FOREX conversions initiated by the account holder but not on those initiated by IBKR for the purpose of closing a nominal balance as noted above. IBKR will charge a commission if the position was liquidated in order to restore margin compliance.

An account will be subject to interest charges despite maintaining an overall net long or credit cash balance under the following circumstances: 

1. The account maintains a short or debit balance in a given currency.

For example, an account maintaining a net cash credit balance equivalent to USD 5,000 comprised of a long USD balance of 8,000 and a short EUR balance equivalent to USD 3,000 would be subject to an interest debit based upon the short EUR balance.  There would be no offsetting credit on the long USD balance as it is less than the USD 10,000 Tier I level above which interest is earned.  

Account holders should note that in the event they purchase a security which is denominated in a currency that they do not hold in their account, IBKR will create a loan in that currency in order to settle the trade with the clearinghouse. If one wishes to avoid such loans and their associated interest charges, they would need to either deposit funds denominated in that particular currency or convert existing cash balances via the Ideal Pro (for balances of USD 25,000 or above) or odd lot (for balances less than USD 25,000) venue prior to entering into your trade. 

2. The credit balance is comprised  principally of proceeds from the short sale of securities. 

For example, an account maintaining a net cash credit balance of USD 12,000 which is comprised of a USD debit of 6,000 in the security sub-account (less the market value of any short stock positions) and a short stock market value credit of USD 18,000 would be charged interest on the Tier 1 debit of USD 6,000 and would earn no interest on the short stock credit as it falls below the USD 100,000 Tier I level.

3. The credit balance includes unsettled funds.

IBKR determines interest debits and credits solely based upon settled funds. Just as an account holder is not assessed interest charges on funds borrowed to purchase a security until such time that purchase transaction settles, the account holder will not receive an interest credit, or offset against a debit balance, on funds originating from the sale of a security until such time the transaction has settled (and IBKR has been credited funds by the clearinghouse).