How to save money when changing currencies


If you use your bank to change currencies or send money abroad, there’s a good chance that you’re getting ripped-off on the exchange rate. Financial institutions often stick a large margin on foreign exchange (forex) rates when dealing with retail clients, figuring that it’s a way to make extra profits without most clients realising what’s going on.

The size of the mark-up varies, but with some banks it can be a premium of 4% or more – sometimes including a fixed fee on top. Given that the bid/ask spread in the interbank currency market (where big institutions trade) is almost non-existent for major currencies, these kinds of margins are clearly excessive.

The good news is that there is often a way to cut them significantly. Instead of using your bank to change currencies, you can use a currency broker (sometimes known as a foreign exchange transfer specialist) or a peer-to-peer currency transfer website. These firms offer far more competitive exchange rates and can often bring the cost down to 1% or less. Continue reading »

The hidden cost of FX charges


Investors often scrutinise a stockbroker’s trading commissions very closely, but don’t think hard about other costs. That’s a huge mistake. You can end up paying a great deal more than trading fees when you’re investing in foreign shares.

One of the biggest yet best-hidden costs are foreign exchange conversion costs. By that, I mean how much it costs you to buy foreign currency when your stockbroker settles a foreign share trade. Or what your bank charges to convert money and wire it to your overseas brokerage account.

In theory, these costs should be very low. Currency markets are highly liquid. The bid/ask spread in the interbank currency market is almost non-existent for major currencies. But financial institutions often stick a large margin on this when dealing with retail clients, figuring that most people don’t know what’s going on.

So it’s useful to know that FX costs can sometimes be cut dramatically by bypassing your stockbroker. Let’s take a look at how you might be able to get a fairer rate.

Continue reading »

How to sell foreign stocks


I have shares in ANZ Bank in Australia. I now live in the UK. What’s the easiest way for me to sell these shares?

Problems like this are by far the most common query I get from readers of this site. Many investors who have moved between countries or held shares in a company that was taken over by a foreign firm end up with small shareholdings in stocks listed in another country and aren’t sure how to get rid of them.

It sounds like it should be an easy question to answer, but it’s usually more awkward than you’d expect. The solution will depend on which country the shares are listed in, where the seller is resident and exactly how the shares are held.

This means it’s generally not possible to suggest a specific broker or outline the exact process, because details will vary from reader to reader. However, the basic principles will usually be the same, so this article will explain the steps you’ll need to follow to sell your overseas shares. Continue reading »

What is a CREST Depository Interest (CDI)?


A CREST Depository Interest (CDI) is a UK security that represents a stock traded on an exchange outside the UK. They offer a straightforward, cost-effective way to trade in a number of overseas stocks and are the main means of foreign dealing provided by a number of UK international stock brokers.

In many ways, CDIs resemble American depository receipts (ADRs) and global depository receipts (GDRs). The underlying legal structure and process is very different, but little of this will directly affect the investor.

To understand CDIs, you first need to know a little about CREST, the UK and Ireland central securities depository (CSD) and settlement system. Briefly, CREST is responsible for recording the ownership of dematerialised securities – those that do not have paper certificates – and transferring title between the buyer and seller when stocks are traded.

CREST also distributes dividends, implements corporate actions such as rights issues and carries out many other important function. In short, it’s the centre of the paperless trade processing system that has replaced certificates. Continue reading »

What is a CREST personal account?


CREST is the central securities depository and settlement system for the UK and Ireland. It is responsible for recording the existence of demateralised shares (ie those that are recorded solely in electronic form – as most are these days – and do not have paper certificates) and transferring ownership between buyers and sellers when stocks are traded though a stock broker.

Most UK shareholders have their stocks held ‘in nominee’, which means that their holdings are pooled together with holdings from other clients of their stock broker. The legal owner of these shares is recorded through CREST as being their stock broker’s nominee company (which is a non-trading entity set up to hold client assets). The shareholder is the beneficial owner – meaning that they have rights over the shares – but they do not appear on the shareholders register.

However, it is possible for individuals to have their own CREST personal member account and have shares recorded in their name on the register. For this to happen, they need to be sponsored for CREST membership by a stock broker.

Individual CREST membership is not a particularly complex or costly process, but for maximum efficiency most stock brokers prefer to have all their clients hold shares in nominee, so relatively few firms offer CREST sponsorship and even fewer actively promote it. For a list of brokers that do, see the CREST personal account comparison table. Continue reading »

Apr 162012

The tables in this post have been updated with new fees and brokers in the Best ISAs for foreign stocks – October 2012 update.

[Updated 23/04/2012 to include the ISA available from Saxo Bank on its Modern Wealth Management platform]

As we saw previously, the mark-up that many stock brokers put on currency conversions can be a very significant extra cost when trading international shares. And while you can’t ignore these hidden fees at any time, they become an especially  awkward problem for UK investors who want to buy foreign stocks within an individual savings account (ISA) tax wrapper.

While the ISA rules allow a reasonably large number of overseas stocks, they do not allow you to hold any foreign currency – so you need to go through the conversion between sterling and foreign currency every time you trade. As a result, excessively high FX commissions can become costly even more quickly than usual.

So what are the most cost-effective ISAs for dealing in foreign stocks? The table below shows the charges for the main UK execution-only brokers that offer ISAs and allow foreign stocks in them. (Some major firms – eg Interactive Brokers – don’t offer an ISA at all, while others – eg Barclays Stockbrokers – currently only allow UK shares to be held in one.) Continue reading »

Apr 092012

When you’re trading international stocks, it’s not only the charge for buying the shares that matter. The charge for buying the foreign currency the shares are quoted in can also be very significant.

At some stock brokers, this FX commission can be higher than the commission on stocks. And many brokers try to make their rates look better by hiding it deep in the small print or even not mentioning it at all.

This is particularly a problem in the UK, although investors everywhere should watch out for it. For example, take TD Direct Investing (formerly TD Waterhouse UK). It charges a standard rate of £12.50 per trade for international stocks. On an investment of £1,000, that’s a commission of 1.25%. But TD Direct will also charge up to 2% over the interbank rate for converting your currency – almost twice the headline stock commission.

To be fair to TD Direct, it displays its currency charges more clearly than many rivals. But while they may be transparent, they’re certainly not trivial. Charges like that will mount up pretty quickly, especially if you’re an active trader. So minimising your FX commissions is an important part of keeping your costs down and improving returns. Continue reading »

Holding shares through Direct Registration in the US


Ever since physical paper certificates largely gave way to electronic stock holding, most US investors’ shares have technically not been held in their own name. Instead – as explained in the guide to brokerage account safety – shares today are usually registered ‘in nominee’ or ‘in street name’.

This means that the legal owner and the name that appears on the register of shareholders is a nominee company and not the individual buying the shares. The buyer remains the beneficial owner with rights over the shares.

However, in many cases it is possible to hold US shares electronically in your own name – a process known as direct registration. This carries two advantages that may make it useful for some investors Continue reading »

How safe are stock broker nominee accounts?


When you’re choosing a stock broker, cost is not the only consideration. You should also think about how safe your investments will be from fraud or loss.

Many investors don’t understand exactly how their shares are held and what the risks to their account are if the worst happens. So this article explains a few key points about how brokerage accounts works and what happens in the event of fraud or loss.

In particular, we’ll look at why nominee accounts and segregation can’t protect you from all risks, plus the main things you can do to protect yourself from the chance of a stock broker collapse. Continue reading »

Dec 312011

One regular question about the UK online stockbrokers list and UK international stockbrokers list is whether any UK stockbrokers will open accounts for non-residents.

Generally, many of the UK stockbrokers are not very helpful on this score, due to a combination of money laundering regulations and a tendency to regard overseas clients as a hassle. (The same problem is true for non-residents wanting to open an UK bank account.)

There are a handful of UK stockbrokers that indicate they will deal with non-residents, but investors report different levels of success opening and using accounts. It may depend on whether you are a UK citizen but non-resident, whether you are neither a citizen nor a resident, whether you are resident in the European Union (EU) or European Economic Area (EEA), whether you have a UK bank account and even who you speak to at the company.

The following firms have been reported to open online trading accounts for at least some non-residents and are probably worth investigating first: Continue reading »