FIFO madness with IBKR (free money???)
Trading example:
1) Say I short 100 shares of ABC at an entry price of 10 dollars on Monday
2) Price goes to 15 dollars on Tuesday (unrealised PnL = -500)
3) I short 100 shares of ABC at 15 dollars on Tuesday
4) I am now short 200 shares of ABC with an Average entry price of 12.50
5) Price of ABC drops to 12.50 on Wednesday. My PnL is now zero, I'm at break even.
6) I buy back (i.e. cover) 100 shares at a price 12.50, my realized PnL = 0 since I'm at break even.
7) I am now short only 100 shares of ABC at entry price 12.50 since I covered half my 200 share position at break even.
8) Here is the strange part: I leave the position open until Thursday and imagine the price does not change, it is still 12:50 on Thursday morning. Between Wednesday at market close Thursday morning IBKR has CHANGED my average entry price to 15 dollars per share! Due FIFO accounting (which is IBKR decault) the broker has assumed the 100 shares a covered on Wednesday were the ones I shorted on Monday.
9) On Thursday morning my unrealized PnL is 250. Say I cover the remaining 100 shares at a price of 12.50 I realise a gain of 250 dollars.
This makes no sense to me ...
If I had closed the entire position on Wednesday at a price of 12.50 then my realized pnl would be zero. By waiting one more day for IBKR to re-calculate my average I am able to make 250 dollars profit... What is going on here?
Is it that the gain of 250 is illusory and won't be applied to my actual account gains or is it that the break even trade in point (6) above will actually register as a 250 dollar loss? Or (best option) is IBKR allowing me to cover half my position at break even in point (6) but then realise gain in point (9) at the exact same price as in point (6) for waiting 24 hours?