This is not investment advice. The information provided is for educational and informational purposes only and does not constitute a recommendation to buy or sell any financial product.
The base currency of a trading account is the currency the account is denominated in. The account statement, the cash balance, the margin requirement, and the realised and unrealised P&L are all reported in the base currency. The choice is a small decision with several downstream effects, and the right choice depends on the trader's home currency, the assets the trader holds, and the broker's fee schedule.
What the base currency affects
The base currency affects three things directly. The first is the conversion cost on funding. A trader who funds a USD-denominated account in EUR pays the broker's EUR-USD conversion rate on the way in, and the broker's USD-EUR rate on the way out. The two conversions are usually priced with a spread, and the spread is a real cost on the funding.
The second is the conversion cost on assets held in other currencies. A trader with a USD-denominated account who holds a UK stock quoted in GBp will see a GBP-USD conversion on every dividend and on the sale proceeds. The conversion is done at the broker's prevailing rate, and the spread is a real drag on returns, especially for income traders.
The third is the tax reporting. A trader with a EUR-denominated account who trades US stocks reports the trades in EUR for tax purposes, and the conversion is done at the broker's reported rate. The tax authority may use a different rate (the daily ECB rate, for example), and the difference between the broker's rate and the tax authority's rate can produce a small gain or loss in the tax filing. The trader is responsible for reconciling the difference.
The common base currencies
Most brokers offer a small set of base currencies. The most common are USD, EUR, GBP, AUD, CAD, CHF, JPY, and SGD. Some brokers offer more exotic currencies, especially in emerging markets, but the menu is usually limited to the major currencies. The trader picks the base currency at account opening, and changing it later usually requires a new account.
The base currency is a per-account setting, not a per-trade setting. A trader with multiple accounts can hold accounts in different base currencies, but a single account has a single base currency. The cost of holding multiple accounts is the duplication of paperwork and the minimum deposit at each broker, not a real ongoing expense.
The right base currency for most traders
For most traders, the right base currency is the currency the trader funds in and the currency the trader spends in. A trader who is paid in EUR, spends in EUR, and reports taxes in EUR should have a EUR-denominated account. The cost of funding in EUR and the cost of reporting in EUR are both zero, and the only conversions are on the assets held in other currencies.
A trader who trades US stocks and holds them for the long term can consider a USD-denominated account. The funding is in EUR, the conversion to USD is done once, and the assets are held in USD with no further conversion until the trader sells and repatriates the proceeds. The cost of the initial conversion is amortised over the hold period, and the ongoing drag is small.
A trader who trades multiple markets and currencies usually has a single base currency and accepts the cost of conversion on the assets held in other currencies. The alternative is multiple accounts in multiple base currencies, which is operationally more complex and rarely worth the savings on conversion.
When to use a non-standard base currency
A non-standard base currency is appropriate when the trader's primary funding source is in a currency the broker supports but the trader's tax reporting is in another. A trader who is paid in CHF and reports taxes in EUR can use a CHF-denominated account and convert to EUR at year-end, or can use a EUR-denominated account and accept the conversion on funding. The choice depends on which conversion is cheaper and which is easier to reconcile at tax time.
A non-standard base currency is also appropriate when the trader is hedging currency exposure. A trader with a EUR-denominated portfolio who wants to hedge EUR-USD can hold a USD-denominated account with a short USD position, and the account's P&L in USD offsets the EUR-denominated portfolio's USD exposure. The hedge is a real cost, but it is a clean hedge.
How brokers set the conversion rate
Brokers set the conversion rate in different ways. Some brokers use the interbank mid-rate plus a fixed spread. Some brokers use a different rate, and the spread is larger. The conversion rate is published on the broker's website, often in the fee schedule, and the trader can compare the broker's spread to the interbank rate to see the real cost.
A useful test is to fund a small amount in a non-base currency, convert to the base currency, and back, and to compare the result to the interbank rate. The difference is the broker's spread, and the spread is the cost of using the broker's conversion. A broker with a 0.5% spread is twice as expensive as a broker with a 0.25% spread, and the difference compounds over time.
Related resources
Where to start
If you are opening a new account, the base currency is one of the first decisions. Our broker comparison lists the available base currencies and the conversion spread at each broker, which together tell you what the cost of funding in your currency and holding assets in other currencies looks like before you open the account.