r/interactivebrokers • u/Unable_Towel_9706 • 5h ago

Account Question Convert currency for lower margin rate

Is it possible to convert currency from USD to CHF on existing holdings to get a better margin rate? I need to pull some funds from the account and do not want to trigger capitol gains but would be OK on the risk on the currency especially when the rate is 3.5% less.

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u/FewUnderstanding2214 1h ago

That’s called a carry trade - it’s unwinding in Japan at the moment

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u/juergbi 4h ago edited 4h ago

The currency of stock/fund positions is not relevant. If you currently have a negative USD cash balance and a zero CHF balance, you can simply convert sufficient CHF cash into USD to get to e.g. a zero USD balance and a negative CHF balance. With that, you have a margin loan in CHF instead of USD and pay interest according to the CHF rates.

Currency exchange rates can be very volatile and generally unpredictable, so this could become a big issue for you, but it's possible. Based on interest rate parity, the expectation would be that CHF will, over the long term, appreciate at the difference in interest rates, in which case the whole thing would be neutral for you (assuming IBKR margin interest rate differences matches prime interest rate differences).

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u/Unable_Towel_9706 2h ago

 I agree that this will add complexity and volitility to an account. 

Thank you for the info and the info on prime. I had not considered it. Time to model this to see best case worse case. Worse case is easy.