Buying Stocks In Another Currency
Q: I have an account with a popular online 'discount' brokerage here in Canada. All of my funds are in $CAD, but I'd like to buy some U.S. stocks. Is it better to exchange the currency before depositing it into my account or just buy U.S.$ denominated stocks from my account and accept the exchange rate they give me for my $CAD funds. I am weary of getting a bad exchange rate deal, and can't find good information about the costs. Any advice on the pros/cons of different approaches is appreciated!
A: I looked into this a while ago. I use TD waterhouse and I ended up just using their exchange service because it was very competitive. When you get US$ at the bank counter you get nailed for a couple of percent each way (US$ to CAD$ or the other way). That's why I have a US$ account to hold my vacation money. For larger amounts from your broker you can get much better rates depending on the amount you exchange (0.25 to 0.50 %). You can set-up a FOREX (foreign exchange) account with any number of companies. It's a little bit of a hassle but may be worth it if you want to do a lot of transactions. Basically you end up getting wire transfers between the FOREX and the bank and broker accounts. My experience was that the FOREX may have only saved me a few dollars so I just took the brokers rate. Do some research and get some quotes before you make a decision. My opinion ... the CAD$ is undervalued right now .... I think it will get stronger as things recover over the next few years ... so I personally have been keeping my investments in CAD$. In the future I will exchange some to US$ but not until I think the CAD$ is fair or overvalued. I'm not an expert so you need to make your own choices. You can easily get US equity exposure with ETF's traded on the TSX. If you want a specifc stock not on the TSX then you have to do the exchange. If you buy US equities in your RRSP, learn how to wash a trade and hold US$ cash in a US Money Market (US$) Fund (ie TDB166). So you can hold US$ after you sell before buying a differnt US$ stock. http://www.canadiancapitalist.com/2007/08/07/how-to-wash-your-trade