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Buying Foreign Shares Denominated in Other Currencies


nkp007
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I am a fan of Pulse Seismic (Canadian seismic data company) and in February purchased a large position (10% of my portfolio) via my Interactive Brokers account.

 

Since the stock is traded in Canadian Dollars (and my base currency is US Dollars), IB automatically took a Canadian Dollar loan out to cover the position when I purchased the Pulse shares. I figured this made sense and kept it this way up until today when something clicked in my head and I decided to close out the loan by converting a bunch of my cash position into Canadian dollars. IB was charging me 2% a year on the loan which ate up a substantial amount of the dividends the company was paying.

 

I figured there was a good reason for the loan being the default option, but I'm not so sure what it is.

 

For those of you that buy shares of companies denominated in other currencies, do you purchase the currency first and then the shares, or do you take part in this whacky loan game?

 

I plan to hold Pulse for a long, long time so the idea of paying a 2% every year made no sense to me.

 

 

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I have CAN$ and a US$ accounts. I'm located in Canada, so my starting currency is CAN$. I move money between accounts via dual listed stocks (trade on both CAN and US exchanges).  To move $ from my CAN$ account to my US$ account: I would buy say CNR on the TSX in CAN$ account, transfer the shares to US$ account then sell CNR (CNI) on the NYSE. Ideally you would want to use a stock with lots of volume and have the transactions take place as simultaneously as possible. Basically saves you any conversion fees.

 

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I have CAN$ and a US$ accounts. I'm located in Canada, so my starting currency is CAN$. I move money between accounts via dual listed stocks (trade on both CAN and US exchanges).  To move $ from my CAN$ account to my US$ account: I would buy say CNR on the TSX in CAN$ account, transfer the shares to US$ account then sell CNR (CNI) on the NYSE. Ideally you would want to use a stock with lots of volume and have the transactions take place as simultaneously as possible. Basically saves you any conversion fees.

 

I believe there is a name for this strategy but don't recall the name off hand.

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I'm with Qtrade.  Last time I checked the conversion fee was about 1%.  So  for $10,000 or more, using dually's is worthwhile for me.

 

Yeah I was facing the same dilemna last year. I was with Questrade and I had something like 30K that I wanted to convert to USD. 1% of 30K met 300$ or put differently, 2.5 years of IB monthly fees. So I switched to IB.

 

BeerBaron

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I'm with Qtrade.  Last time I checked the conversion fee was about 1%.  So  for $10,000 or more, using dually's is worthwhile for me.

 

Yeah I was facing the same dilemna last year. I was with Questrade and I had something like 30K that I wanted to convert to USD. 1% of 30K met 300$ or put differently, 2.5 years of IB monthly fees. So I switched to IB.

 

BeerBaron

 

How do you like IB?  I have been with qtrade 5 yrs and have been satisfied. I doubt their platform is the best but the customer service is great.  I have never had to wait if I call them...the calls go straight to the rep every time. ...can't complain.

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I definitely convert first.  Awhile ago I started using etrade under the impression that the service at IB would be bad.  After a year at etrade it became apparent that any service at IB couldn't possible be worse (read: etrade customer service is absolutely horrendous and they have annoying system glitches). IB is far superior IMHO.

 

 

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My IB commission was $2.50 to convert the currency, so the fee isn't an issue. I'll definitely be exchanging into foreign currency before I make my next foreign investment. No more loans for me.

 

Note that you don't need to do this--when you're in the trader workstation, and you bring up your account summary, right click on your temporary loan after you purchase.  Then you can select to close the currency transaction (I forget the exact menu option).  This way you buy exactly the amount of foreign currency you need, and it's honestly less work.

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I really like IB, though I don't pay for any of their services aside from commissions. I pay $10/month or commissions which ever is higher; I make 2-3 trades a month. Commissions are usually a $1 for common stock a 70 cents for an options contract.  Quotes are something like $10 a month and I honestly don't need them. Investors were around and made money a long time before level II quotes updated every tenth of a second where available at all times.

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