Currency Conversion Fee - have I got it right?

[Fib550]

Hi,

I wanted to check if I understand the currency conversion fee properly.

Example, I want to long the GBP USD, my account is in GBP.

Position Size: £10,000 GBP
Rate: 1.27

Purchase of USD:
Amount of USD that would be bought without currency conversion fee: $12700
Amount of USD actually bought after 0.5% currency conversion fee: $12636.50

If the rate stayed the same at 1.27, here is what I would get back in GBP:
USD Value: $12636.50
Amount of GBP that would be bought without currency conversion: £9950
Amount of GBP actually bought after 0.5% currency conversion fee £9900.25

So a round trip of currency conversion fee costs add up to £100, or 1% of the original £10,000 position.

Do I understand this correctly?
 

[Caseynotes]

14 minutes ago, Fib550 said:

Appreciate the reply, really helpful.

Apologies I linked to the wrong IG US site, I am in the UK and my account is in GBP.

This exctract from the UK page where the fx charge is mentioned:

If you are UK based with a GBP account that's better because then you can use the Bitcoin (GBP 1) instead of the Bitcoin ($1) deal ticket so for a 1 contract short when the spread is 36 you sell at £1/point and enter, your account will show a £36 loss (which is the spread or the 'cost of the trade') and you will need to see price go down over 36 points before you start to show a profit.

If you are holding the trade overnight then the interests costs or 'overnight funding' come into play, not sure if they use a conversion fee if it's the GBP not the $ deal ticket, and for shorts you may be paid the interest rather than paying as you would for a long.

Jump on the demo platform and have a play around with the inputs is a good way to learn.

[Caseynotes]

21 hours ago, Fib550 said:

Hi,

I wanted to check if I understand the currency conversion fee properly.

Example, I want to long the GBP USD, my account is in GBP.

Position Size: £10,000 GBP
Rate: 1.27

Purchase of USD:
Amount of USD that would be bought without currency conversion fee: $12700
Amount of USD actually bought after 0.5% currency conversion fee: $12636.50

If the rate stayed the same at 1.27, here is what I would get back in GBP:
USD Value: $12636.50
Amount of GBP that would be bought without currency conversion: £9950
Amount of GBP actually bought after 0.5% currency conversion fee £9900.25

So a round trip of currency conversion fee costs add up to £100, or 1% of the original £10,000 position.

Do I understand this correctly?
 

Hi, no because you are trading fx on a cfd or sb type account so you are not actually trading the underlying currency and won't be taking delivery of the underlying. You are only trading contracts that track the underlying so your position size is the number of contracts you wish to buy at  $10/point ($1 on the mini) so if you buy 1 contract and price rises 1 point you have made $10 profit which is then converted to £ in your account if the position is then closed.

The fee on the trade is the spread difference between the buy price when you bought and the sell price when you sold.

[Fib550]

Thanks for the reply, I'm struggling to understand this. I'll try again with BTC USD, ignoring any spread or change in price from opening and closing the position : 

Price is $8000, I play $1 per point which is equal to a $1 move up or down, the rate is 1.27. 

Isn't my position size $8000?

Currency conversion charge for opening the position :

$8000 X 1.27 = $10,160, 0.5 % currency charge of $50.80/£40

Charge for closing the position

$8000 ÷1.27 = £6299.21, 0.5% currency charge of £31.50

 

[Caseynotes]

1 hour ago, Fib550 said:

Thanks for the reply, I'm struggling to understand this. I'll try again with BTC USD, ignoring any spread or change in price from opening and closing the position : 

Price is $8000, I play $1 per point which is equal to a $1 move up or down, the rate is 1.27. 

Isn't my position size $8000?

Currency conversion charge for opening the position :

$8000 X 1.27 = $10,160, 0.5 % currency charge of $50.80/£40

Charge for closing the position

$8000 ÷1.27 = £6299.21, 0.5% currency charge of £31.50

 

Hi, no again because you are not actually buying a currency so you don't need to do any conversions, you are buying contracts and the only charge for FX cfd or spread betting accounts is the spread. 

So on btcusd (mini) 1 contract is equal to $1 per point, 10 contracts is equal to $10 per point and the spread is 36 points. When you buy 1 contract the cost of the trade (the spread) is immediately taken by the broker so your profit/loss shows minus $36 on open. If you bought 10 contracts your P/L would show minus $360 on the trade open.

Price needs to rise by 36 points before you would begin to show a profit, for each point of price rise beyond 36 your 1 contract trade increases by $1 while your 10 contracts trade increases by $10.

 

[Fib550]

If I am trading BTC USD or the BTC GBP variant on a SB or  CFD there is no currency conversion charge then.

So what does the below screenshot mean then?

https://www.ig.com/us/forex-trading-costs

Thanks in advance.

 

Edited October 20, 2019 by Fib550

[Caseynotes]

44 minutes ago, Fib550 said:

If I am trading BTC USD or the BTC GBP variant on a SB or  CFD there is no currency conversion charge then.

So what does the below screenshot mean then?

https://www.ig.com/us/forex-trading-costs

Thanks in advance.

 

Hi, you've linked a US IG web page, are you US based rather than UK? Yes currency conversion may apply if the trade's base currency is not as per your account but you are not buying any currency you are buying contracts so only the spread will be converted, any overnight funding charges and any profit or loss but not the underlying currency amount.

In your linked page is a link to further info which gives 2 example trades, one in your account currency and the other for another currency, see;

https://www.ig.com/usermanagement/customeragreements?igCompany=igus&agreementType=costs_and_charges&locale=en_US

 

 

 

[Fib550]

Appreciate the reply, really helpful.

Apologies I linked to the wrong IG US site, I am in the UK and my account is in GBP.

This exctract from the UK page where the fx charge is mentioned:

https://www.ig.com/uk/charges

So from your explanation of only the spread, overnight funding and profit/loss being charged the 0.5% fee makes this charge not really something to worry about as it will be so small that it will not really have any efffect on my trades.

I can short the BTC USD as a 1:1 hedge  for my spot bitcoin(opening a short of $1 per point per bitcoin im long in my spot position) and not have to worry about the exchange rate issues with the BTC USD(GBP) variant if I have understood it correctly.

Please let me know if I have got the calculations correct:

BTC USD price $8000
Short 1 contract which equals $1 per point
GBP USD rate 1.27
Spread $38
FX fee per contract $38 * 0.5% = $0.19
Total spread fx fee x 2 (for opening and closing position) $0.38

Profit on position $1000
FX fee on position close $5

Swap charge 0.0556 ($8000 position size x 7 days)  $31.14
FX fee on swap $0.16

Cheers 🙂

Page with details on spread and overnight swap for reference:
https://www.ig.com/uk/help-and-support/spread-betting-and-cfds/fees-and-charges/what-are-igs-cryptocurrencies-cfd-product-details

Edited October 21, 2019 by Fib550

[Fib550]

Thanks very much, glad I finally understand it.
Any IG admins on here that can confirm the fx 0.5% charge is only on the spread, overnight funding and profit?

In regards to the BTC GBP variant, my issue is as follows.

I hold 1 Bitcoin on a crypto exchange and want to hedge it without selling it, hence where IG comes in.
The BTC GBP variant follows BTC USD price exactly, so if I short 1 contract on IG then technically I am shorting more than 1 BTC USD contract as GBP is stronger than USD. So I can short 0.78 contracts which works out to $1 per point which is great and matches my 1 Bitcoin spot position, however when the GBP USD exchange rate changes up or down it will mean I am no longer shorting exactly 1 BTC..... 

I did a test a few days ago whereby I shorted 1 BTC USD (GBP variant) and 1 BTC USD on IG cfd. I chose 0.78 contracts on the GBP variant due to the exchange rate being 1.27 on the day I entered the position, which would match $1 per point. As you can see from the image p/l are not exactly the same due to the exchange rate changing to 1.30 today. As time goes on the rate will fluctuate even further from the inital rate hence not mirroring 1 spot btc usd.

[CharlotteIG]

On 21/10/2019 at 14:00, Fib550 said:

Thanks very much, glad I finally understand it.
Any IG admins on here that can confirm the fx 0.5% charge is only on the spread, overnight funding and profit?

In regards to the BTC GBP variant, my issue is as follows.

I hold 1 Bitcoin on a crypto exchange and want to hedge it without selling it, hence where IG comes in.
The BTC GBP variant follows BTC USD price exactly, so if I short 1 contract on IG then technically I am shorting more than 1 BTC USD contract as GBP is stronger than USD. So I can short 0.78 contracts which works out to $1 per point which is great and matches my 1 Bitcoin spot position, however when the GBP USD exchange rate changes up or down it will mean I am no longer shorting exactly 1 BTC..... 

I did a test a few days ago whereby I shorted 1 BTC USD (GBP variant) and 1 BTC USD on IG cfd. I chose 0.78 contracts on the GBP variant due to the exchange rate being 1.27 on the day I entered the position, which would match $1 per point. As you can see from the image p/l are not exactly the same due to the exchange rate changing to 1.30 today. As time goes on the rate will fluctuate even further from the inital rate hence not mirroring 1 spot btc usd.

Hey @Fib550

I've had a look at your previous chat. If you're trading in a Dollar contract then when your profit/ loss is converted back to sterling we would use our fx rate to convert as well as add a 0.5% fee within that rate. 

 

If you're trading a sterling contract your profit/ loss is in sterling so we will not need to convert it.. Therefore the 0.5% fx fee is not going to be applied to your Sterling positions when you close it. 

[Fib550]

5 hours ago, CharlotteIG said:

Hey @Fib550

I've had a look at your previous chat. If you're trading in a Dollar contract then when your profit/ loss is converted back to sterling we would use our fx rate to convert as well as add a 0.5% fee within that rate. 

 

If you're trading a sterling contract your profit/ loss is in sterling so we will not need to convert it.. Therefore the 0.5% fx fee is not going to be applied to your Sterling positions when you close it. 

Hi,

Can you confirm the amount the currency conversion fee is charged on?
Is it charged on just the spread, profit/loss and overnight swap?

Or is it charged on the total amount of the position, so if I am playing $1 per point and the price is $8000 that would mean a currency conversion charge of $40. And if this sentance is the correct one, then would the $40 be charged twice (for both opening and closing the position), and charged on profit/loss and swap ?

It would be good if you could do an illustration for me with some numbers if possible, I would be shorting BTC at a price of $8000, $1 per point, and holding for 10 days. That would be really helpful!

Many Thanks

[Guest Mark27000]

2 hours ago, Fib550 said:

Hi,

Can you confirm the amount the currency conversion fee is charged on?
Is it charged on just the spread, profit/loss and overnight swap?

Or is it charged on the total amount of the position, so if I am playing $1 per point and the price is $8000 that would mean a currency conversion charge of $40. And if this sentance is the correct one, then would the $40 be charged twice (for both opening and closing the position), and charged on profit/loss and swap ?

It would be good if you could do an illustration for me with some numbers if possible, I would be shorting BTC at a price of $8000, $1 per point, and holding for 10 days. That would be really helpful!

Many Thanks

For the love of god man,read the replies ..your question has been answered like 5 times 

It doesn't matter if you trade 1 dollar or 100 dollars a point or what price bitcoin is when you bought it  or sold it.

You said your account is in sterling so if you buy the dollar version of bitcoin and you.make or lose money e.g. you made $50..That will be converted to uk£ and ig will take a cut of 0.5% for making that conversion 

I assume for any fees its the same 

[Fib550]

9 hours ago, Mark27000 said:

For the love of god man,read the replies ..your question has been answered like 5 times 

It doesn't matter if you trade 1 dollar or 100 dollars a point or what price bitcoin is when you bought it  or sold it.

You said your account is in sterling so if you buy the dollar version of bitcoin and you.make or lose money e.g. you made $50..That will be converted to uk£ and ig will take a cut of 0.5% for making that conversion 

I assume for any fees its the same 

Thanks to Caseynotes it looks cleared up, but it would be good for IG themselves to confirm it. The reason im asking is that I have had conflicting information from IG on live chat whereby they said its charged on the whole amount (not just the profit) both ways

[Guest Mark27000]

6 minutes ago, Fib550 said:

Thanks to Caseynotes it looks cleared up, but it would be good for IG themselves to confirm it. The reason im asking is that I have had conflicting information from IG on live chat whereby they said its charged on the whole amount (not just the profit) both ways

Only looks cleared up does it .....😑

 

 

[Caseynotes]

4 minutes ago, Fib550 said:

Thanks to Caseynotes it looks cleared up, but it would be good for IG themselves to confirm it. The reason im asking is that I have had conflicting information from IG on live chat whereby they said its charged on the whole amount (not just the profit) both ways

no problem, and if you are UK resident you should also consider using a spread bet account rather than a cfd as sb doesn't incur capital gains tax.

https://www.ig.com/uk/spread-betting/spread-betting-vs-cfds

[CharlotteIG]

11 hours ago, Fib550 said:

Hi,

Can you confirm the amount the currency conversion fee is charged on?
Is it charged on just the spread, profit/loss and overnight swap?

Or is it charged on the total amount of the position, so if I am playing $1 per point and the price is $8000 that would mean a currency conversion charge of $40. And if this sentance is the correct one, then would the $40 be charged twice (for both opening and closing the position), and charged on profit/loss and swap ?

It would be good if you could do an illustration for me with some numbers if possible, I would be shorting BTC at a price of $8000, $1 per point, and holding for 10 days. That would be really helpful!

Many Thanks

Hey @Fib550

We can go through an example. So say you were trading Bitcoin ($1) contract. Lets say Bitcoin is at 7954.88/7990.88. When you open the position it will be in a loss of (($1 x (7990.88-7954.88)) = $36.

 

What you have to remember is until you close that position the profit/ loss is not going to be realised.  So say you had a running profit of $100, decide to close it and the rate of GBPUSD is 1.28658/1.28675. We incorporate the 0.5% fee into the FX rate when we close your position. So we divide the Bid by 1.005 and we times the Ask by 1.005. Meaning we would convert the Dollar profit ($100) at a rate of 1.280179/1.2931837. That's how we incorporate our conversion fee. 

 

If you were holding Bitcoin for longer than 10 days you have to be aware that the overnight funding is a percentage. If you're long you currently pay to hold the position. If you're short you will be credited for holding a position. This fee, because you're holding the dollar contract, will be based off the consideration of your trade. When calculated it will then be converted at the FX rate + our 0.5% fee. 

So if you were holding $1 contract, size 1, and the buy price of Bitcoin is 7980 at the time the fee is taken the charge would be (7980 x $1 x 0.0548%) = $4.37debit. This will then be converted to Sterling at the fx rate + our fee. 

 

 

 

[Fib550]

7 minutes ago, Mark27000 said:

 

 

Quote

 

 

Edited October 23, 2019 by Fib550

[Fib550]

Great, thanks for confirming - its clear the its only charged on the profit 🙂
I went on your live chat last week and was told an entierly differant thing hence my mis-understanding but all sorted. Happy trading.

Edited October 24, 2019 by Fib550

[Fib550]

While your here CharlotteIG, do you happen to know if being short Bitcoin on IG has ever incurred an overnight charge, or has it always been 'paid' to be short ?

[CharlotteIG]

12 hours ago, Fib550 said:

While your here CharlotteIG, do you happen to know if being short Bitcoin on IG has ever incurred an overnight charge, or has it always been 'paid' to be short ?

@Fib550 After speaking with our dealing desk they confirmed that there's always been a credit for short positions held. This can be changed  by the desk or our risk analysis team but you will be able to see the changes on the information section on the deal ticket.