Trading Account Currencies
The currency of your trading account can significantly impact your overall performance and profitability. Here, we explain why the currency of your trading account matters and help you find brokers that support the best account currency for you.
Best Brokers For Different Account Currencies
Understanding Account Currencies
The trading account currency is the primary currency in which your trading account is denominated. It is the standard for all account balances, profits, and losses.
When you open a trading account, you select this base currency, which becomes the reference for managing deposits, withdrawals, and overall account activities.
While the base currency you choose technically doesn’t affect your ability to trade instruments (due to the margin-based nature of many accounts), selecting a base currency that aligns with your home currency offers practical benefits, such as minimizing conversion fees and exchange rate risks.
Depending on the broker, some may offer additional base currencies beyond the prominent and home currencies. The availability of these options will vary depending on the broker and its target markets.
As an example, below you can see the choice of base currencies that were available to me when configuring a trading account with IC Markets.
There are several reasons why you need to choose the right account base currency for your trading activities:
Conversion Fees
The primary advantage of using a base currency that aligns with your home currency is avoiding conversion fees when you deposit or withdraw funds to your bank account.
When your base currency differs from the deposit or withdrawal currency, banks often charge a conversion spread, typically 2-3%.
For example, a deposit of $10,000 USD into a trading account with a different currency, could translate to a loss of $200-$300. Similar fees might apply for withdrawals.
Additionally, some banks will charge separate transaction fees for sending or receiving funds, which can be another $20 or so eating into profits.
These conversion fees can be a significant hidden cost for day traders and represent a primary revenue source for financial institutions.
You can eliminate these unnecessary expenses by choosing a base currency that matches your home currency, for example a CAD account if you’re based in Canada.
If you do have different currencies on your bank account and trading account, it can be worth checking out where a currency conversion would cost the least. Your bank may have lower conversion fees than your trading broker, or vice versa.
Multi-Currency Accounts
If your preferred broker doesn’t offer your home currency as a base option, consider exploring payment methods with lower conversion fees.
Some brokers may offer multi-currency accounts – increasingly including cryptocurrencies – allowing you to hold and manage funds in multiple currencies, providing flexibility, and potentially reducing conversion fees. This feature is handy for international traders or those with diverse financial activities.
Exchange Rate Risk
When your trading account is in a different currency than the assets you’re trading, you’re exposed to the risk of currency fluctuations.
Suppose I have a US dollar-denominated account but trade European stocks. I’m exposed to the USD/EUR exchange rate volatility, which can impact my overall returns.
The value of my stocks will not only go up or down depending on the stock market itself but also on the exchange rate of the stock’s currency to my trading account’s currency.
If the EUR suddenly drops 10% against the USD, the value of my stocks will do the same if sold and converted back to USD.
Margin
Day trading allows you to leverage your capital, but to maintain an open position (a trade you still need to close), you’ll need to have a minimum amount of money in your account. This minimum amount is called the ‘margin requirement’.
The base currency of your account can affect the amount of margin required, and having these numbers in a currency you understand can help mitigate risk.
For example, in forex day trading, your available funds represent the portion of your account equity not currently tied up in maintaining open positions.
This available balance is your ‘free money’ within the account. You can use it to open new trades, transfer funds to other accounts, or withdraw them altogether.
Reporting & Taxes
Your trading account’s choice of base currency can significantly impact your reporting and taxes.
Opting for a base currency that matches your local currency simplifies your accounting processes, as you won’t need to convert your trading profits and losses from one currency to another. This makes tracking and reporting your financial performance easier and ensures consistency in your records.
Regarding tax reporting, most countries require you to report income and capital gains in the local currency. Suppose your trading account is denominated in a different currency. In that case, you’ll need to convert your trading results into your local currency for tax purposes, which can add complexity to your tax calculations.
Exchange rate fluctuations can also affect the amount of taxable income you report.
For instance, if my profit from a foreign currency and the exchange rate changes, my reported taxable income may be lower when I convert it to my local currency.
Bottom Line
While often overlooked, choosing the ‘right’ base currency for your trading activities can not only ensure a smooth trading experience but also save you from unnecessary fees.
We’ve pinpointed brokers offering various trading account currencies, from popular options like USD, EUR and GBP to more niche options like THB, QAR and HUF. Use our respective lists at the top of this guide to find the right trading account currency for you.