## Currency Margin Calculation (Withdrawals)

Overview:

The following provides an example of how currency margins are calculated when determining the funds available for withdrawal.

Margin for Withdrawal Example

In the following example, assume the base currency for the account is USD and the net asset value positions (the sum of the values of all stock, cash, option, etc positions in each currency) are as follows:

• USD 50,000
• EUR 30,000
• CHF -39,000
• MXN -100,000
1. Determine the net asset value (net liquidation value) for each currency. In this example, this is shown in columns 1 and 2 of the example table.
2. Convert all non-base currency positions to base currency using prevailing market rates between the asset currency and base currency, here, USD. (column 3). This result is shown in column 4.
3. Apply the margin rate for each currency (column 5).
4. Calculate the margin in base currency as the net asset value from each original currency converted to USD multiplied by the margin for that currency (column 4 times column 5). The result is shown in column 6.
5. The total margin requirement is the sum of each currency sourced margin requirement. In our example, the total margin requirement in base currency, USD, is \$2,126. As the total net liquidating value expressed in USD is \$46,476, the available funds is the difference, \$44,350.

 1 2 3 4 5 6 Currency Net Asset Value (local currency) Currency Rate Net Asset Value (converted to base currency, USD) Margin Rate Margin Requirement (in base currency, USD) USD 50,000 1.0000 USD/USD 50,000 0% 0.00 EUR 30,000 1.2000 USD/EUR 36,000 2.5% 900 CHF -39,000 1.3000 CHF/USD -30,000 2.5% 750 MXN -100,000 10.500 MXN/USD -9,524 5% 476 TOTAL US \$ 46,476 US \$2,126 Available Funds US \$ 44,350

## Currency Margin Calculation

Overview:

The following provides an example of how currency margins are calculated.

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

## Why does my Account Window show different currency positions in the Market Value section and FX Portfolio?

Overview:

Within the TWS there are two sections in the Account Window which could show foreign currency information:  The Market Value and FX Portfolio sections.  The differences between the two are explained in this article.

The "Market Value" section of the Account Window, within TWS, is a real-time reflection of the account's currency balances.  Clients can see their balance in any currency at that moment by referring to the Market Value section. If the Market Value section is not reflecting all currency positions you think you hold, look to the right of the words "Market Value" and click on the green plus sign ( + ). This will expand the Market Value section fully. You can see the cash balance being held in each currency, along with the Net Liquidation Value of those same currencies. The Net Liquidation Value will reflect the current cash balance, along with any interest payable/receivable and the value of any securities held in the account which are denominated in that currency.

The "FX Portfolio" section of the Account Window, within TWS, is utilized primarily by clients who actively trade and speculate in the Forex market. They use this FX Portfolio to keep track of all currency crosses they have open at a given time.  When they close these positions, they reset their FX portfolio to zero. The FX portfolio reflects net trades done in a currency pair over a given period of time. If a client does not reset the FX portfolio after each trade, the result is that it does not show an accurate reflection of the account's currency positions/balances. Rather it is a net total of trades done in that currency pair, which could include trades, conversions, etc. It will not be an accurate representation of the account's currency positions or balances.  In order to reset the FX Portfolio, you can right-click on any Forex pair line. A small window appears, and in that window select Adjust Position or Average price. Another small box will appear, and in that box change the position and price to 0 (zero). Click OK, and the FX Portfolio will reset for that particular currency pair.

To reiterate the above point, the Market Value section of your Account Window will show your real-time balances/positions in any currency.

## What happens if I trade a product denominated in a currency which I do not hold in my account?

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.

Glossary terms:

## Will cash balances be converted once the designated Base Currency for the account has been changed?

It is important to note that changing your Base Currency does not serve to convert existing cash balances or change the denomination of a security into any other currency.  Cash balances will remain in their currency of denomination unless converted via IB's IdealPro (for balances of at least USD 25,000 or equivalent) or odd lot (for balances below USD 25,000 or equivalent) Forex venues.  Similarly, the denomination of securities and commodities positions cannot be changed as this is determined by the listing exchange.

Glossary terms:

## How can I close out the nominal FOREX positions in my account?

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.

Glossary terms:

## Does IBKR allow FOREX trading in the KRW?

IBKR does not allow clients to open currency positions denominated in the Korean Won (KRW). The currency is listed on the IdealPro and odd lot venues solely for the purpose of closing KRW positions incurred through the trading of KRW denominated KOPSI 200 Index futures and options listed on the Korean Stock Exchange.

## Understanding interest charges when the net cash balance is a credit

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).

## Can I trade products denominated in a currency other than my Base Currency in an IRA account?

If you have requested an IRA account with margin permissions you may trade products which are denominated in a currency other than that of your designated Base Currency. However, as IRA accounts, by regulation, are not allowed to borrow cash (i.e., have a debit balance in any currency type), you would need to first convert a sufficient amount of your current cash balance into the currency in which the product is denominated prior to entering your order to purchase that product.  This conversion can be transacted on our IdealPro platform if greater than USD 25,000, or equivalent, or the odd lot venue if below USD 25,000.

## Why are there two currencies shown when trading forex, and how do they work?

Overview:

In the international forex cash market (known as the Spot Market) currencies are traded in pairs.  The first currency in each pair is known as the Transaction Currency, while the second currency in the pair is the Settlement Currency.   The quantity bought and sold will apply directly to the Transaction Currency, while the gains and losses from transactions will apply to the Settlement Currency.  When you buy a currency pair you are going long the Transaction Currency while simultaneously shorting the Settlement Currency.  Conversely, when you sell a currency pair you are shorting the Transaction Currency while simultaneously buying the Settlement Currency.  Since the forex market is foreign exchange, each transaction must contain one currency against another.

Background:

We'll work through an example, using EUR.USD as our currency pair, with 100,000 being the quantity.  In this example, EUR is the Transaction Currency.   USD is the Settlement Currency.  Buying 100,000 EUR.USD would mean that you are going long or buying EUR 100,000, while simultaneously shorting/selling 100,000 EUR worth of USD at the present exchange rate which exists in the interbank market.  If you were to close this position by selling 100,000 EUR.USD, then you would close or go "flat" EUR.USD.  However, any profit or loss on this transaction would settle in USD, since it is the Settlement Currency.  Therefore, you be left with a positive or negative balance in USD as a result of this transaction.  The  inverse would be true if the initiating  trade was a sell of EUR.USD.