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Prime Broker/IB - Foreign Security Forex Basis/Gain-Loss Reporting Issues/Costs


JAllen
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We're currently with IB for our prime broker (I know, not very prime) and are running into foreign security cost basis reporting issues causing our administrator to spend hours each month recalculating the gains and losses with updated forex numbers.  This is virtually cost prohibitive for a small partnership like us.

 

Has anyone run into problems and extra costs for foreign securities with IB and if so, what have you done about them? 

 

And also, I'd appreciate suggestions for mini-primes if you have any.  Currently talking with a couple.  Costs are the biggest decision factor for us, assuming this foreign security issue basis reporting is handled properly.

 

Thanks for your suggestions!

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pof,

 

I am interested in hearing more about IB.

 

What do you mean by foreign security cost basis? Wouldn't your administrator calculate the cost basis in local currency based on your trade confirm and translate that back into CAD/USD or whatever your base currecy is using independently sourced F/X rates anyway? Or do I misunderstand?

 

Otherwise, what kind of financing rates in CAD/USD are you able to get through IB? Is it Libor based or prime, or...? What spread off Libor/prime?

What sort of commission rate do you pay on North American stocks/warrants?

What do you pay on non-North American stocks/warrants?

What sort of fixed income markets can you access through IB?

What are the spreads like on a typical bond trade?

 

Is there a minimum annual cost for IB prime which is offset by commission/interest expense?

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Two issues with IB:  1) They calculate your FX mark-to-market gain/loss in the cash report each month, no need to recalculate anything, and 2) if you hold foreign securities, once they are sold take the IB sales price minus the IB realized gain equals your cost basis (i.e. IB does the FX calculation for you).

 

Side note: The IB brokerage statement is not the easiest to read and may be why your admin is having difficulty.

 

Cheers

JEast

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") if you hold foreign securities, once they are sold take the IB sales price minus the IB realized gain equals your cost basis (i.e. IB does the FX calculation for you"

 

Are you sure this is true?

 

Purchase Price : $40/share * forex = adjusted cost basis (ACB)

Sale Price: $50/share * forex = adjusted sale price

Realized Gain = adjusted sale price - adjusted cost basis

 

If you use F/X mark to market data can you associate that with individual lots, unless you sell your entire stake?

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IB tracks all securities as individual lots with cost basis at the time of purchase.  Therefore, it is just best from an admin perspective to take sales minus realized gain/loss to equal cost basis since they are individual lots.  My 2¢ as this frees up admin work.

 

Cheers

JEast

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The cost basis is in the base currency. Unless they changed it, all they do is use the forex on the date of the report, not the date of the purchase of the stock to calculate cost basis.

 

For what it's worth, what I do is use Excel. I use a VLOOKUP and download forex data, then I download the statement data and use the function to convert every open lot basis to the desired currency and the sale price as well since IB statements have the date code for the transaction it can be matched up with the forex for that day, the difference is the actual gain in the desired currency. Takes about 30 minutes to do per year.

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The cost basis is in the base currency. Unless they changed it, all they do is use the forex on the date of the report, not the date of the purchase of the stock to calculate cost basis.

 

For what it's worth, what I do is use Excel. I use a VLOOKUP and download forex data, then I download the statement data and use the function to convert every open lot basis to the desired currency and the sale price as well since IB statements have the date code for the transaction it can be matched up with the forex for that day, the difference is the actual gain in the desired currency. Takes about 30 minutes to do per year.

 

That's the issue: that IB uses the end of month forex rate instead of the purchase date rate.  My admin is having to recalculate the purchase date forex rate for each lot. 

 

Does anyone know if purchasing the forex outright and then purchasing the foreign securities with the currency instead of using margin would solve this problem?  I'm going to ask them too.

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As mentioned previously, a quick download of the historical data will solve the issue (mostly as usually you can only download open/close/midpoint prices).  A potential good place for the data to be downloaded is below, then the VLOOKUP function in Excel will correct your cost basis to whatever base currency you need.

 

http://www.oanda.com/currency/historical-rates/

 

Cheers

JEast

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This was a nightmare for me as well for me with ibkr. I tried to work with a well known inst. portfolio fund manager software package for nine months but due to ongoing issues abandoned the effort. I ended up writing a script in perl to do it. It was a huge amount of work as the underlying forex transactions in non base currency is divorced from the actual instrument you trade ( option,stock,future) in the nonbase currency market. I feel your pain. It took me years to solve it and I had to refine 4 years or returns when finally I got it working correctly.

 

I had lots of trades so could not use the spreadsheet method scorpion mentioned.  You have to track a FIFO queue (or weighted average amount) of each non base currency to do it correctly for tax purposes.

 

Consider using a contract programmer to take the ibkr exchange rates and trade data from activity flex statements.

 

Good luck it's a big job if you trade lots of nonbase currencies and instruments. Ibkr was no help either when I tried to work with them on it.

 

Spin

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