The Cost Of FX On Your Trades!

The Cost Of FX On Your Trades!

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If you are from Canada and are trading from a CAD based account and are constantly buying US stocks  – you need to consider the cost of FX on your trades !!

At any brokerage you can open a CAD and a US based trading account. If you trade US stocks you should ideally convert a portion of your money to US dollars. This way you avoid the cost of FX on your trades. The impact of FX can be extremely expensive on trades! Fintechs take note – a great place to disrupt.

Example:

Bought 800 shares of Snapchat ( SNAP) at US $12.50 .

Gross Transaction amount USD 10000
Commission   9.99
Premium on USD Funds converted at 29.95   2997.99
Total Cost    CAD 13007.98

 

Nov 21st 2017  US/CAD exchange rate is 1.2774.

Sold 800 shares of Snapchat (SNAP) at US $12.90

Gross Transaction amount USD 10324
Commission   9.99
Premium on USD Funds converted at 25.04   2619.759
Total Proceeds CAD 12933.77

 

Nov 24th 2017 US/CAD exchange rate 1.2714

On a trade where the profit should have been 3.04% after transaction cost – there was a loss of .57% due to FX conversion cost!! In the case above the FX movement was unfavorable for the trader – however a large percentage of the loss of profit came from the spread financial institutions charge on FX conversion.

To avoid such a loss of profit, structure trading accounts to minimize FX conversions! In Canada it is relatively easy to open accounts denominated in US currency – simply requires a call to your financial institution.

 

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