Account currency and the quiet markup on every cross

[Fairman]

Account currency and the quiet markup on every cross

A USD account trading EURGBP earns profit in pounds, then converts to dollars at the broker's own rate. That rate often carries a small markup.

On a large account the markup disappears into the noise. On a small account trading hundreds of times a month, a tenth of a pip on each conversion becomes real money, and the statement only shows the final figure.

Quick check: take a closed trade, calculate the profit by hand using the mid market rate at the time of closing, and compare it with the platform's number. The gap is the conversion cost.

Matching the account currency to the main pairs reduces the problem. Mostly trading USD pairs on a dollar account keeps conversion almost entirely out of the picture.

There is a second wrinkle. Some brokers convert at the rate at the time of the trade, others at the rate at the time of closing. In fast markets those two numbers can differ by a noticeable amount.

Worth asking support exactly which rule applies. The answer is rarely in the marketing material, and the difference compounds over a large number of trades.

Here is a simple scenario. A trader running a EUR account trades GBPJPY, with profit calculated in yen and converted to euros at the broker's rate. Over a month, 400 trades each pay a conversion spread of a few hundredths of a percent. It sounds like nothing. Compared with a monthly profit that is itself only a few hundred euros, it can be a visible slice.

Brokers rarely publish the conversion rate they use, so the only real check is the hand calculation. Doing it on five or six trades gives a decent estimate of the typical markup.

Does the account currency match the pairs traded most?

[Fairman]

When the account is in one currency and you trade a pair quoted in another, profits and losses need to be converted. For example, trading EUR/GBP on a USD account means profits are in GBP, converted to USD. Some brokers convert at the mid rate, others apply a markup. I checked my statements and found the conversion rate on one broker was about 0.5 percent worse than the market mid. On small profits, it's negligible. On larger ones, or many trades, it adds up. Statements usually show the rate used.

[Amanhasnoname]

I did the hand calculation the post suggests and it was more revealing than I expected. I took twelve closed trades on EURGBP and GBPJPY on a USD account and compared my statement profit with the figure I got from the mid market rate at the closing time. On average, the platform was about 0.7 percent lower than my own figure, and in two cases, on volatile closes, the gap was nearer 1.5 percent.

On a single trade it was a couple of dollars, but with 300 trades a month it was close to a full day of my average profit. The broker's support told me they use the rate at the moment of closing plus a conversion spread, but would not tell me the size of it.

What I did was move most of my trading to USD pairs and keep the crosses to a small share. My statement gap fell a lot, and the remaining difference was easy to live with.