Closed my ISA - thoughts?

[Vio]

I appreciate your input - thank you!

@Zergui

The tax consideration is very consequent, especially when you consider the timing of the sell / FX sell to be important (which means you will have realized capital gains often, instead of a buy-and-hold for life in which case the FX timing is meaningless).

In the UK (at least), I’d pay tax on the overall net gains in a tax year, not on each individual trades.

So I could close 1,000 trades a day or only 1 trade a year - I’d pay the same tax.

@Zergui

That active trading style means you will get the most impact from the taxes implications - as well as the FX ones.

Sometimes if trades go against me soon after opening them, I close them on the first day or very soon - depending on price development.

So if I have to pay for entry and exit these add up - whereas in my new account - there’s no such penalty and I can enter much more trades without having to factor this in.

@Zergui

Realistically though, one must also consider that the tax bill is guaranteed, the FX bill is not and could go either way. You could expect that half the time, it would be added gains even.

I’d have to disagree. Currency fluctuations aren’t 50/50 - where half the time you gain, the other half you lose.

You could very well get a long-term trend that lowers your returns for a decent amount of time regardless of which opportunities you invest in.

Again, it’s an additional factor that affects your P/L and you don’t truly get to choose when it helps or it hurts.

I’d say taxes are more predictable and malleable. There’s capital gains tax allowance, you can offset losses, you can delay or bring forward when you close positions. Whereas with the FX impact, you’re kind of stuck - maybe you can hedge your way “out of it” but it adds another layer of complexity that I don’t like. Again, having to do something, instead of choosing if and when.

@Zergui

If you expect that you’ll sell all your trades when FX is at its worst, then yes, the tax is lesser.

So that’s what I’m saying - I’m opting out of this dance altogether. I don’t have to keep tabs on the 2 currencies in my everyday life. I can just make it a point to focus on the rate when I wish to deposit and withdraw - much simpler, imo.

[Zergui]

Good assessment, reasonably thought through. You were looking to exchange thoughts on the topic, hope this conversation was helpful!

[Vio]

Absolutely - thank you for taking the time.

[Heyinvest]

Regardless, I wish to have a better understanding of returns uncumbered by FX conversions and taxed by HMRC - to then decide which avenue’s best.

Are you doing this in your invest account or ISA?

Just last month I paid over £500 in FX fees alone.

How many trades does it take to get this just out of curiosity? Is it hundreds?

[Heyinvest]

Over the past month and a half, I have had to give away over 50% of my profits to FX charges… Audacious

How does it hit your profits so much? is it just buying and selling or dividends also?

[Heyinvest]

@Vio

All I’m saying is that my new, non-ISA account is in USD, therefore eradicating FX impact altogether. Not saying T212 needs to do this, if they would and could without costing users (and themselves) it’d obviously be amazing. But again, don’t see this happening any time soon.

Can I ask who you got that account with? Also are you still paying the fx fee to initially convert pounds to dollars and then the same when you convert back?

[Vio]

@Heyinvest

Are you doing this in your invest account or ISA?

Hi Heyinvest! Nope, I have a separate broker / platform.

@Heyinvest

How many trades does it take to get this just out of curiosity? Is it hundreds?

I wish I could tell you but as expected not only does T212 doesn’t help at all with figuring this out - it makes it even harder to find out (it breaks up single trades into 20 parts).

Looking at my monthly statement - it seems to fit 14 trades per page - I have 27 pages of trades for that month = 378 individual trades.

But in reality it’s much closer to 100 or even below I think. It’s again T212 splitting one order into 10 / 15 / 20 parts - and the monthly summary shows each of those parts as 1 individual trades. So yeah…

@Heyinvest

How does it hit your profits so much? is it just buying and selling or dividends also?

Nothing to do with dividends. Essentially if the USDGBP rate stayed identical from the time I purchased until the time I sold - this loss would not happen.

So let’s give an example - numbers will not reflect a realistic rate, more to prove a point - simple numbers will be used.

If on the day that I buy shares £1,000 gets me / converts to exactly $1,000 - I’m able to buy $1k worth of shares.
Let’s say I close at exactly the same share price.
If the USD/GBP rate stayed the same and my $1k shares did not love nor gain value, this will return me £1k back.
But this 99.9% of the time doesn’t happen.

Again with simple numbers:
Most of the time instead of getting back £1,000 - you get £850 - other times £900 - other times £950.
So even if you don’t lose money on the company itself - converting back to GBP from USD will lose you money (depending on the rate) - so you easily get way less back by £100, £200, £300 etc. just because of the rate (again - simple numbers not accurate).

So stock price goes nowhere - you exit at break even - and let’s say you only get back £950 instead of the £1,000 you put in - that’s a loss of £50 for than one trade just because of the USDGBP rate. Now these losses add up like crazy.

And again - this isn’t the FEE paid to convert the currency back into GBP - this is how much the USD value is currently worth in GBP (less than when you bought).

There are more factors that affect your final P/L but just this factor alone gets you losing out loooooooooads in a short time.

[Vio]

@Heyinvest

Can I ask who you got that account with?

Of course. I’ve answered separately in case T212 remove this comment - so the other answers still remain visible.

I now use Charles Schwab.

@Heyinvest

Also are you still paying the fx fee to initially convert pounds to dollars and then the same when you convert back?

No. when I deposit my GBP they convert it free of charge.
They give you the exact equivalent of the amount you deposited.
Schwab give you a breakdown of all fees, times, when, for what reason, and so you see when they deduct and why, and how much, etc. - very, very transparent and useful.

I only get charged $15 when I choose to withdraw.

So again: no charge or loss on deposit - $15 per withdrawal.

---

So if you withdraw $100 - you need to pay $15.
But also if you withdraw $500,000 - you only pay $15.

So I think it’s really good.