Duration: 4:17
Level: Intermediate

This is an important lesson for any investor wishing to understand the difference between converting or creating a currency balance and establishing a contract style position. The video details the two available order routing methods in TWS and what impact each method will have when viewing positions in Account Management.

Study Notes:

Today we’re going to take a look at how TWS displays currency balances and FX trades in the Account window, which we can open right here from the Mosaic Portfolio by clicking the Account button.

Here in the Market Value section we show you your real-time currency balances – and you can see I have several along with USD, which is my base currency. Some values are italicized; this is because I elected to display all balances in my base currency and those in italics are the converted values.

Below it, we have the FX Portfolio section, and if you’re an FX trader and trade currency pairs, you’ll appreciate this specialized view that treats an FX pair like an actual contract, so you can monitor some key metrics like your P&L and average price.

We call these two different currency sections our “Dual FX Display” and especially if you’re an FX trader, it’s important to understand the distinction between these values and how the routing destination you use for currency trades plays a crucial role in keeping the distinction clear.

Let’s assume that I am an FX Trader and I’m going to buy the Aussie which means I’ll buy the Aussie Dollar pair. You’ll see when I create the order that the TWS default routing destination for currency orders is IDEALPRO.

My order fills and as do all currency trades, the real-time balance for both currencies is immediately updated here in the Market Value section – Total Cash field.  Additionally, the result of the trade also displays here in the FX Portfolio in the form of an FX trade, and that’s because the order went to IDEALPRO and we tagged it as an FX pair trade.

Now let’s do something a bit different. Instead of trading a currency pair like an FX trader would, I’m going to convert some of my Dollars to Euro. To do this we’ll buy the Euro Dollar pair.

And this is done similarly to an FX trade, but before we submit, I’m going to change the routing destination – and this is key – to FXCONV. This tells TWS that I’m converting currency, not trading a currency pair, and that it shouldn’t put this transaction into my FX Portfolio.

Let’s look at the Account Information window now that the order has filled. You can see that my EUR balance has increased, but more importantly I don’t have any new FX transactions in my FX Portfolio. Just as I planned.

Now let’s do the same thing, buy the Euro Dollar pair, convert currency, but this time I’ll “accidently” leave the destination as IDEALPRO.

After the order fills, look at our account information again. Same expected updated values in the Total Cash field, but look – now we have a virtual FX Euro Dollar position that I didn’t want – because I left the destination as IDEALPRO.

There is a way to fix this display. Because FX Portfolio represents a ‘virtual’ position, we can simply adjust the size of the position back to what we had originally, or to zero. We’re not buying or selling anything we’re just adjusting the display that we inadvertently messed up by routing a conversion to IDEALPRO instead of to FXCONV.

Notice that up here in the Market Value section, the right-click menu only allows me to close, or change the balances by trading. I can’t make any adjustments here because these are actual currency balances.

Now if you don’t trade FX and have no need to monitor these positions, simply collapse the panel here in the Account Information window, and you’ll hide these pairs in TWS as well.

But if you trade FX and like to monitor these contract positions, the bottom line is to check your destination and if you are converting currency and don’t want it treated as an FX pair trade, be sure to select FXCONV as your destination.

Remember you can practice with this in your TWS paper account.  Thanks for joining us, we’ll see you next time.


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Disclosure: Interactive Brokers

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Interactive Brokers, its affiliates, or its employees.

Disclosure: Order Types / TWS

The order types available through Interactive Brokers LLC’s Trader Workstation are designed to help you limit your loss and/or lock in a profit. Market conditions and other factors may affect execution. In general, orders guarantee a fill or guarantee a price, but not both. In extreme market conditions, an order may either be executed at a different price than anticipated or may not be filled in the marketplace.

Disclosure: Forex

There is a substantial risk of loss in foreign exchange trading. The settlement date of foreign exchange trades can vary due to time zone differences and bank holidays. When trading across foreign exchange markets, this may necessitate borrowing funds to settle foreign exchange trades. The interest rate on borrowed funds must be considered when computing the cost of trades across multiple markets.