Key Post Buying shares in a foreign currency

dub_nerd

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I haven't done this before, but am thinking of doing it, and found some questions/answers on other threads. I thought I'd collect some of them together here in case other people can use and/or add to them.

It seems there are two main options:
  1. Keep your share trading account in euro, and convert when buying and selling shares in other currencies.
  2. Maintain separate trading accounts in multiple currencies.
There are various pros and cons to each approach.

Single share trading account in euro.

Pros:
  • Simpler administration
  • Currency conversion happens whenever you buy/sell shares. You don't have to worry about accounting separately for FX when calculating tax.
Cons:
  • You are stuck with whatever FX charges and commissions are levied by your broker.
  • You cannot avail of more favourable rates available elsewhere
  • You cannot exchange currency at a time when the rates are more favourable, independent of when you buy/sell shares.
Maintain separate trading accounts in multiple currencies.

Pros:
  • You choose when foreign exchange is done, and can choose a favourable time.
  • You may be able to choose a cheaper exchange service than your broker provides, such as CurrencyFair / Transfermate.

Cons:
  • Your broker may only accept transfers from an account in your name. They may not accept transfers from your euro bank account via a cheaper exchange service such as Transfermate. You will end up needing euro and foreign currency bank accounts in your name, as well as multiple share trading accounts, and may incur fees.
  • More complex administration of multiple accounts
  • You will have to account for foreign exchange for tax purposes, separately to your share trading.
  • You may not have that much choice about when to exchange, since money left sitting in your trading account (or most banks' foreign currency accounts) will earn little or no interest.
Currency conversion costs

From other threads, it seems that brokers may vary wildly, from charging several percent commission on each conversion in any direction, to practically zero. If you are buying shares in other currencies, this can be a significant consideration. My own share account is with Saxobank in the UK. If I am understanding it correctly, they use the "mid-spread FX spot rate" +/- 0.5% commission. So there is a 1% total hit for buying and selling, plus any currency movement in the meantime. This seems reasonable compared to the alternatives (interested in others' opinion on this).

If you go for the "separate accounts" option, see the thread below on best ways to convert currency.

Other threads

A selection of related threads. Unfortunately some are just questions without answers.
 
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dub_nerd

An excellent bit of work. I have made it a Key Post.

I have often wondered about this myself.

I bought BP shares in sterling through Campbell O'Connor and they offered me the option of settling in sterling or euro. I can't remember what I did, but I think that today, I would buy in sterling and purchase the sterling through one of the currency exchange companies.

The issue is less important for a long-term buy and hold person such as myself. Currency transaction costs will have a very small effect on the overall return.

However, it's very important for people who trade a lot.

Would this be worth adding to the links?

The best way to transfer large amounts in euro to and from other currencies

Another issue - What do to with dividends in a foreign currency? For simplicity, I take my dividends in new shares, so I don't have to worry about lodging sterling cheques.
 
dub_nerd

Another issue - What do to with dividends in a foreign currency? For simplicity, I take my dividends in new shares, so I don't have to worry about lodging sterling cheques.

Simplicity is it now? :)

When you sell, will you have the buy price for every share taken as dividend (probably, on your tax return records of the 20+ years) or a separate spreadsheet and don't forget to allow for share splits (for every 6 shares you get 4 new shares and cash amount) over the years, Eircom-Vodaphone is a good case study for reference.
 
I have the same issue with Irish shares, and it has not been a problem. As it happens, I do keep an Excel spreadsheet for the companies which issue dividends instead of shares.

Brendan
 
"which issue dividends instead of shares." other way around me thinks!

I have had some problems with splits, etc., reconciling my VOD shares for my returns after last years sale. CGT side is OK but the splits and the fact that I took all Divs as shares seems very complicated.
 
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