When you invest in a product denominated in a currency other than what you are holding in your Margin account, it is not necessarily required to convert currencies to place the order.
- If you enter the order to open the foreign product position and do not make a currency conversion, you will open a margin loan in the currency of denomination of the product. On the margin loan you accrue debit interest, as per our website. This margin loan might hedge the Forex risk linked to the foreign currency position, since you will be long the asset and short the foreign cash balance at the same time. You might consider the interest accrued on the margin loan as the cost of the Forex hedge.
- Alternatively, you can convert currency before or after you purchase the foreign currency denominated asset. In this case you will not pay any debit interest but you also will not hedge the Forex risk of the positions vs your base currency. See the currency conversion procedure for trading products in non-base currency in the IBKR Knowledge Base.
In the end, it is a trading decision and you are responsible to manage the risk on your account. The webinar "Mechanics of an Overseas Trade" explains the pro's and con's of each scenario.