Currently looking at the FX impact in INVEST. My account is in Euro but this is a GBP stock.
I’m guessing it has something to do with the weakening pound?
So for those of you with euro accounts but have some GBP stocks, what would you do? Do people wait for the pound to get stronger? Or just keep on buying and ignore it. This is a long term hold so short term FX fluctuations shouldn’t bother me. But since this is the first time I’ve seen it eat into my gains like this I’d like to know if there are any “tips and tricks” to think about when buying stocks in different currencies.
What would be interesting is if on selling you could choose in this case to keep the return in a segregated ÂŁ account on selling. That way you could convert back to euro when it was favourable or use it to buy pound stocks without any FX impact.
Guess I just have to wait for that feature. In the meantime hopefully the euro collapses into something like the zimbabwe dollar. Would be great for my profits.
But if the Euro collapses, the UK stocks will be more expensive to buy, unless if you will never buy UK stocks anymore.
In short, don,t think about the exchange rate, nothing you can do about it.
5 years in and your account FX will be so averaged that it stops becoming an issue in realistic terms. you will have bought at both highs and lows and your average would barely twitch in comparison to the cumulative grip of your account history.
there’s always a risk it never recovers to the best rates for you, but also plenty it only gets stronger as well, depending in which side of the pond you are will determine whether it rising or falling will be a good/bad thing.
can only hope that on the day you decide to sell, the rate is in your favour compared to your average, or at least not brutally against you.
You would have the exact same performance if you had your stock in EUR.
A stock doesn’t perform differently in different currencies.
You can think about it as follow:
Buy in GBP and you’ll have your gains in EUR + FX Impact
Buy in EUR and you’ll have your gains in EUR only but the amount would be different and you would quickly realize that the difference is equal to the FX impact.
Don’t worry you’re not losing anything Well maybe a tiny bit in exchange rate commissions with T212 (but it’s really really small).
The only strategy I came up with to reduce the FX impact on Isa & Invest is to hedge your portofolio with a CFD position.
Let’s say you’re in the UK and your account is in £.
You buy Amazon worth £1000 in $. If you’re afraid the dollar will continue to depreciate you can open GBP/USD position on CFD - i.e £1000 on buy. It will cost you £3.33.
This way if the ÂŁ goes up you will lose money in your ISA Amazon position, but you will be making the same amount on the CFD position.
Needless to say that if the ÂŁ goes down compared to the dollar you will have a postive FX impact on ISA and an equal loss on the CFD position.
Basically this way you can remove the FX impact, both positive and negative.
Hope this helps!
As mentioned above a CFD to hedge FX risk is a possibility. While I can see the use of multi currency accounts for this purpose I’d find it more useful for t212 to offer the option to automatically open a corresponding CFD to cancel the FX risk if your take a position in currency other than your account currency. And then close it out automatically when you close (or shrink the position). Saves us the hassle of managing these hedges across all positions and currencies and t212 would earn some comms from CFDs - win win!
Well maybe a tiny bit in exchange rate commissions with T212 (but it’s really really small).
