Foreign currencies: Understanding gains & losses

What does the foreign currency P&L show?

The category „Foreign currencies" in the performance report shows realized gains or losses, solely from exchange rate changes on your Cash foreign currency position are created.
A result always arises when a Open foreign currency position (long or short) is closed in whole or in part. The benchmark is always the valuation in EUR.

Important:

• This is about not price gains or currency fluctuations from shares or ETFs in foreign currency - these appear in the respective securities category (e.g. „Shares", „ETF").
• The foreign currency category only considers pure currency trades in the cash balance (e.g. USD, CHF, GBP).

When does a foreign currency trade arise?

Opening a currency trade

A currency trade is opened as soon as the Cash balance of a non-EUR currency from 0 moved away - in both directions:

• Long opening: You buy the foreign currency.
  • Example 1: EUR → USD exchanged, your USD balance goes from 0 to +10,000 USD.
  • Example 2: You sell US shares → This gives you USD.
• Short opening: They „borrow" the foreign currency, e.g. by buying US shares on margin without first holding USD.
  • Example: Purchase of US equities, USD balance goes from 0 to -10,000 USD.

Closing a currency trade

A foreign currency trade (or part of it) is closed when the same balance is Moves towards 0 - whether complete or only partial and for whatever reason:

• Conversion from USD to EUR
• Purchase of securities in this currency (consumes a long balance)
• Sale of securities or dividends in this currency (reduces a short balance)

Between the time of opening and closing, the Realized currency gain or loss. Simplified, it is calculated as follows:

• The amount of foreign currency concluded in each case is Opening price and to the Closing rate in EUR (e.g. USD amount divided by the exchange rate „1 EUR = x USD").
• The difference between these two EUR amounts is the Foreign currency income statement.

The result is presented in the performance report in EUR shown.

Easy-to-understand example throughout

The following example shows you how Share P&L, Dividend P&L and Foreign currency income statement work together.
The account base currency is EUR, the foreign currency is USD.

Overview of all steps

Action	Exchange rate (EUR/USD)	EUR balance	USD balance	US equities	P&L FX (EUR)	Income statement shares (EUR)	P&L Div. (EUR)
A) Deposit EUR 10,000	-	10.000,00	0,00	0	0,00	0,00	0,00
B) Exchange 10,000 EUR → 11,000 USD	1,10	0,00	11.000,00	0	0,00	0,00	0,00
C) Purchase of 150 US shares at USD 100 each	1,15	0,00	-4.000,00	150	-434,78	0,00	0,00
D) Dividend USD 2,000	1,20	0,00	-2.000,00	150	+72,46	0,00	+1.666,67
E) Sale of 150 shares at USD 120 each	1,20	0,00	16.000,00	0	+72,46	+1.956,52	0,00
F) Exchange 16,000 USD → EUR	1,25	12.800,00	0,00	0	-533,33	0,00	0,00

In the end, you have a total of EUR 10,000 from your stake +2,800 EUR profit achieved, distributed over:

• +1,956.52 EUR in the „Shares" category,
• +1,666.67 EUR in the „Dividends" category,
• EUR -823.19 in the „Foreign currencies" category.

This profit shown in the performance report also corresponds to exactly your surplus of EUR, which is why we are talking about the performance report correctly represents your economic reality.

The details are as follows:

A) Deposit EUR 10,000

• You pay EUR 10,000 into your account. There is no foreign currency or equity position yet.
• Balances thereafter:
  • EUR: 10.000
  • USD: 0
  • US equities: 0
• The result is No realized P&L (neither shares, dividends nor foreign currencies).

B) Exchange 10,000 EUR for 11,000 USD (exchange rate 1 EUR = 1.10 USD)

• You exchange the entire EUR 10,000 in USD.
• At a price of 1 EUR = 1.10 USD you will receive:
  • 10,000 EUR × 1.10 = 11,000 USD.
• Balances thereafter:
  • EUR: 0
  • USD: +11,000 (long position in USD)
  • US equities: 0
• This creates a Currency exchange opened (long USD 11,000), but nothing closed yet.
• The cost value of the USD 11,000 is exactly EUR 10,000 (the amount you have exchanged).
• P&L foreign currencies / shares / dividends = EUR 0.

C) Purchase of 150 US shares at USD 100 each (exchange rate 1 EUR = USD 1.15)

• You buy 150 US shares each 100 USD, total 15,000 USD.
• Your USD balance changes from +11,000 to -4,000 USD:
  • new USD balance = 11,000 USD - 15,000 USD = -4,000 USD.
• This means that the previous long position of +11,000 USD completely closed and a new short position of -4,000 USD opened.

Foreign currency P&L (closing of the +11,000 USD):

• The USD 11,000 had a value of EUR 10,000 (exchange rate 1 EUR = 1.10 USD).
• When buying shares in step C, the same USD 11,000 is bought at the price of 1 EUR = 1.15 USD and its value is then
  • 11,000 USD ÷ 1.15 ≈ EUR 9,565.22.
• The realized foreign currency P&L results from the difference between these EUR values:
  • P&L_FX ≈ EUR 9,565.22 - EUR 10,000 ≈ EUR -434.78.
• Diese EUR -434.78 appear in the performance report in the category „Foreign currencies".

Building up the equity position:

• The 15,000 USD are valued in EUR at the rate of 1 EUR = 1.15 USD:
  • 15,000 USD ÷ 1.15 ≈ 1.15 EUR 13,043.48.
• Diese EUR 13,043.48 form the Cost basis for the 150 US shares.
• Balances thereafter:
  • EUR: 0
  • USD: -4,000 (short)
  • US shares: 150 shares.

D) Dividend payment USD 2,000 (exchange rate 1 EUR = USD 1.20)

• You will receive a Dividend of USD 2,000 on US equities.
• The USD balance rises from -4,000 to -2,000 USD:
  • new USD balance = -4,000 USD + 2,000 USD = -2,000 USD.
• At the same time, part of the short USD position (USD 2,000) will be closed.

Dividend P&L:

• At a price of 1 EUR = 1.20 USD applies:
  • P&L_dividends = USD 2,000 ÷ 1.20 ≈ 1.20 EUR 1,666.67.
• Diese EUR 1,666.67 appear in the category „Dividends".

Foreign currency P&L (closing of USD 2,000 short):

• The USD 2,000 short position is set up in step C at the price 1 EUR = 1.15 USD entstanden.
  • Value at that time: USD 2,000 ÷ 1.15 ≈ EUR 1,739.13.
• When closing in step D, the rate 1 EUR = 1.20 USD; the value of the USD 2,000 is then:
  • 2,000 USD ÷ 1.20 ≈ 1.20 EUR 1,666.67.
• With a short position, a profit is made if the EUR value of the debt falls.
  • P&L_FX ≈ EUR 1,739.13 - EUR 1,666.67 ≈ +72,46 EUR.
• Diese +72,46 EUR are assigned to the category „Foreign currencies" attributed.
• Balances thereafter:
  • EUR: 0
  • USD: -2,000 (short)
  • US shares: 150 shares.

E) Sale of the 150 US shares at USD 120 (exchange rate 1 EUR = USD 1.20)

• You sell the 150 US shares at 120 USD, total 18,000 USD.
• The USD balance rises from -2,000 to +16,000 USD:
  • new USD balance = -2,000 USD + 18,000 USD = +16,000 USD.
• This initially closes the short position of USD 2,000, with the remainder (USD 16,000) opening a new long position.

Foreign currency P&L (closing of the remaining USD 2,000 short):

• For the remaining USD 2,000 short, the same logic applies as in step D (same opening price 1.15 and same closing price 1.20).
• This again results in a foreign currency gain of around +72,46 EUR.
• After step E, a total of EUR +72.46 Foreign currency income statement realized; the remainder of the FX position (now long USD 16,000) is still open.

Share P&L:

• Sales proceeds in USD: 150 × 120 = 18,000 USD.
• Valued at the rate 1 EUR = 1.20 USD:
  • Sales proceeds_in_EUR = 18,000 USD ÷ 1.20 = EUR 15,000.
• Cost basis from step C: approx. EUR 13,043.48.
• Realized share gain:
  • P&L_Shares ≈ EUR 15,000 - EUR 13,043.48 ≈ EUR 1,956.52.
• Diese EUR 1,956.52 will be published in the category „Shares" shown.
• Balances thereafter:
  • EUR: 0
  • USD: +16,000 (long)
  • US equities: 0.

Establishment of the new long foreign currency position:

• After the short position has been closed, a Long position of USD 16,000.
• This is valued at a rate of EUR 1 = USD 1.20:
  • 16,000 USD ÷ 1.20 ≈ 1.20 EUR 13,333.33.
• This amount represents the new Cost basis of the long foreign currency position, which determines the foreign currency P&L shown in the next step (F) when it is converted back into EUR.

F) Exchange all remaining USD back into EUR (exchange rate 1 EUR = 1.25 USD)

• Finally, swap all the 16,000 USD back in EUR.
• At a price of 1 EUR = 1.25 USD corresponds to this:
  • Inflow_in_EUR = 16,000 USD ÷ 1.25 = EUR 12,800.
• The USD balance goes to 0, the currency trade is completely closed.

Foreign currency income statement from the last step:

• The USD 16,000 long position had a value of approx. EUR 13,333.33.
• When exchanging back in step F (exchange rate 1 EUR = 1.25 USD) you will receive EUR 12,800.
• The realized foreign currency loss thus amounts to
  • P&L_FX ≈ EUR 12,800 - EUR 13,333.33 ≈ EUR -533.33.
• This EUR -533.33-effect reduces the total FX gain previously built up.

Overall result across all steps

• Foreign currencies: EUR -823.19
• Shares: +1,956.52 EUR
• Dividends: +1,666.67 EUR
• Total: EUR +2,800.00.

This makes visible how Share price, Dividends and Exchange rates separately in the respective categories of the performance report.

Typical customer questions about foreign currencies

„I have never actively traded currencies. Why do I still see foreign currency gains/losses?"

• Even if you have never exchanged EUR/USD directly automatic currency trades, as soon as your Cash balance in a foreign currency deviates from 0.
• This happens, for example, with:
  • Dividends in USD,
  • Sales of securities in USD with subsequent holding of the USD balance,
  • Purchases/sales in other foreign currencies.

„What is the difference between foreign currency P&L and equity P&L in foreign currency?"

• Foreign currency income statement: applies exclusively to the Cash balance in foreign currency and its change due to exchange rates.
• Equity/ETF P&LThis includes both the price movement of the security and the exchange rate change between the purchase and sale date - all in the respective security category.

„Why can't I reconcile the figures directly with the IB account statement?"

• The account statement works in many areas with the Trading currencies and a different system of presentation.
• The performance report, on the other hand, represents a Euro-based, economic view which is roughly based on tax categories.
• The figures can therefore be deviate significantly, although both representations are based on the same transactions.

Note on tax classification

The presentation of foreign currency gains in the performance report is a Non-binding, economic interpretation your account transactions.
It is roughly based on tax regulations, but represents No tax or legal advice and does not replace a tax assessment notice.

Whether and in what form foreign currency gains/losses are to be taken into account in your tax return depends on your individual situation and the applicable legal situation from.
Please discuss the specific tax treatment with your own tax consultant.