ETF currency choice

Hey everyone,
I want to invest into Vanguard FTSE All-World ETF (Acc) but since I use CZK, I don’t really know which available currency to choose (USD, EUR or GBP - although I think GBP makes the least sense in my case so I’ll leave that out).
The fund currency is USD so I thought that the best choice would be USD (VWRA). I want to be a long-term investor though and I thought “What if my country ever adopts the euro”. (We are members of the EU but use our own currency.)
Now I don’t know which currency to choose:

  1. Should I kind of “future-proof” myself and start buying the EUR version (VWCE) right away or buy in USD for now and then switch to the EUR version (and accept the “hassle” of having two identical ETFs simultaneously) if we adopt the euro (and I believe that would still take a lot of years if it ever happens)? I obviously want to think up the most cost-efficient way to do it so as few fees/exchanges etc. as possible overall.

  2. If I buy the EUR version now, does that mean the money would go CZK -> EUR -> USD whereas the USD version would only be CZK -> USD?

  3. VWRA is listed on London Stock Exchange and VWCE is listed on Deutsche Börse Xetra. Are these stock exchanges equal or is one of them considered „better“ than the other (e.g. volume…)?

Thanks a lot!

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Hello!

I went through the exact same dilemma (RO long-term) and in the end I chose VWCE at Xetra (especially when it became fractional). As I understand the only thing that you would be exposed it’s the currency changes when you make this choice (which can be good or bad for you).

For 2. the money will directly go CZK -> EUR since VWCE is in EUR (even though the ETF is USD based - it’s just for underlying securities trade-in). For the last question not sure how to answer, maybe someone here can also help.

Here is a very good article on JustETFs on this subject which helped me.

Cheers and good luck on your financial journey!

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With countries in eurozone or in EU. It makes more sense to stick with Euro as more or less every currency is pegged aka volatility is low vs Eur.

Definitely safe pick is Euro.

On other hand it doesn’t hurt to have diversification.
In case I was going pure ETF, esp if they are acc. Meaning no dividend payouts. I would try to have at least some % in USD.

If it was dividend ETFs then I would probably stick to 1 currency until(if) T212 implemented multicurrency accounts.

I don’t think it matters which you choose since T212 does not impose any fx fees. If you buy 100 shares of VWCE or VWRA the cost to you will be exactly the same. Whenever you sell those shares the proceeds you receive will be exactly the same. They are the same fund with the same ISIN. It would make a difference if T212 charged a fee to convert from one currency to another, but they do not.

There is a small difference in that when placing a limit order for an ETF that is in your base currency you know exactly the limit in that currency that you will pay, whereas a limit order placed on a share that is priced in a different currency leaves open the possibility of exchange rate fluctuations having an effect.

This is matter of currency risk, not cost of conversion.

In hindsight, if one was using GBP ETFs and GBP was not his home currency, he would be at capital loss due to depreciation of GBP towards most od currencies.

Thus I believe its more about using currency closest/hedged to home currency.

As for conversion, if you create account in EUR and you buy USD ETF with dividend. You would get USD> EUR conversion, then if you want to reinvest, you need to do EUR> USD conversion.

I know it is small % of loss. But still it accumulates/compounds over time. :slight_smile:

Do we know how much a round trip currency conversion like this would cost? Is it not tiny? I just did a check. Currently, to sell 100 SWUS at $5 would give me £405.45. Buying 100 at $5 would cost me £405.45. I don’t think that Trading 212 put any spread on the buy/sell rate for USD <-> GBP.

I don’t understand how there is any differing currency risk involved in between one or the other of VWCE and VWRA. They are exactly the same fund, same ISIN number. At any moment their prices differ only by the current USD/EUR spot exchange rate. Whatever your home currency, be it USD, GBP, EUR or CZK, it will cost the same in that currency to buy 100 shares of either ETF, and you will receive the exactly the same amount in your home currency when you come to sell 100 shares. You can test this. 10 shares of each cost £555 currently. Both versions pay their dividend in USD. Of course some investors prefer to see the price in their home currency and some investors do not benefit from the cost-free fx that T212 provides to its clients.

Maybe you don’t track the % of capital gains on your stock which has FX factor.

My account is USD, at some days, my GBP stock fluctuate 1-2% due to USD/GBP FX. I even had 5% fluctuations when USD spiked week ago.

Thus it is possible that your dividend payout can come at moment when GBP goes weaker against USD, then you go repurchase stock in GBP, at point when GBP goes stronger vs USD. Effectively costing you $$$.

Regarding currency, this has nothing to do with instruments ie etf,stock. Just real life, if person wants to cash in on his gains, if he has GBP stock/etf. While GBP has deteriorated in value towards his local currency. Obviously that person had less capital gains. Thus it makes sense to diversify. It might even happen on other spectrum , that USD might appreciate in value, then he would increase capital gains. Or vice versa GBP appreciated, while USD depreciated.

I still don’t understand. If I buy 100 shares of VWCE (EUR) and 100 shares of VWRA (USD) they will cost exactly the same amount in my home currency, whatever that currency may be. At all future times the two holdings will have the same market value in my home currency. If I sell the two holding at the same time the capital gain in my home currency will be exactly the same. Of course the capital gains in terms of USD or EUR will look different as the year goes by, but should I care about that? Perhaps only so I can more easily compare the USD appreciation against some other USD investment. But at the end of the day, only the capital gain as expressed in my home currency matters. Both ETFs provide identical diversification across companies, regions and currencies.

These two ETFs also have taxable undistributed income, but that is measured in USD and is the same for both so there is no currency effect on dividends.

Distributing ETFs with the same ISIN, like IWRD and IDWR, are also identical, and although the first is priced in GBP and the second in USD, both pay their dividends in USD, so there is no issue of differing currency effects on the dividend received.

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I give up… :slight_smile:

Yeah, I guess EUR makes more sense. Thank you.
Is it correct that when I buy the EUR version (VWCE) the money will go CZK -> EUR and not CZK -> EUR -> USD just like @BullChew said? I want to avoid as many additional fees as possible.
Btw. I don’t want to go pure ETF, I want Acc ETF + a couple stocks (mostly US stocks). Would that change your opinion?

I did a bit of research and I guess Richard.W is right. I’m still not sure if they are “exactly” the same. I thought, if you use an ETF which is in your home currency, you might avoid a very small conversion fee, but if T212 doesn’t charge such a conversion fee, then they’ll be exactly the same (on the other hand, if that’s the case, what’s the purpose of having multiple versions of the same ETF and confuse people?)

As for the currency risk, this definitely has no effect on the currency risk, because the underlying securities trade in USD and the prices are always converted back to whatever currency you’ve chosen.

Good question. Here is my guess at some answers.

(1) Many people do not realise as you now do that there is no difference in currency risk or potential profit. So let those people have a version in their currency, if that makes them feel good.

(2) With other brokers (not Trading 212) there is a currency conversion fee; in such cases it makes sense to buy and sell the instrument in your home currency.

(3) If you are euro-based and measure your wealth in euros then you may find it more helpful to follow the chart of VWCE since that has the EUR/USD exchange rate effects more clear for you to see. If you trade VWRA you have to keep thinking about how your gains in USD might look once you convert USD to EUR. So as a matter of convenience the VWCE chart may be better for signalling to you when you want to enter and exit a position. Of course someone could watch a chart of VWCE, but buy and sell VWRA and achieve piratically the same thing as one you buys and sells VWCE at the same instants (Trading 212 always displays a “result” in the app that is in home currency. So if you buy 1 share of VWRA and 1 share of 1 VWCE you will see their gain/loss “results” in euros as practically identical at all moments.)

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Having made some currency mistakes I would always stay as close to home as possible.

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Good advice. It also makes record keeping for your tax reporting simpler.

I’m strictly in the ISA for now anyways in fairness so there aren’t any tax issues for me

@Dom
The only real difference is trading hours.
From an EU perspective:
The EUR version is tradable in the morning and the afternoon
The US version is tradable in the afternoon and the evening
On shorter time scales you’ll have different trading opportunities
On longer time scales it doesn’t make any difference which one you trade.
I had a conversation about that with @Richard.W a couple of days ago.
FX doesn’t create a profit difference between those products.
If you buy USD you won’t see the EUR/USD fluctuation effects on your chart.
If you buy EUR the fluctuations will be automatically integrated to the price on your chart.
If you want to hold, you should buy in euro, especially if you’re supposed to join the eruozone at some point.
Once part of the eurozone, you won’t be able to trade american funds as per regulations that came into effect in 2018. Something related to a “key information document” missing for US ETFs…

No such American funds are available on Trading 212 so this mistake is impossible to make. However, there are plenty of ETFs that are priced in USD and traded on European exchanges. For example, VUSD is USD denominated, but actually domiciled in Ireland. So you need not fear owning that ETF. Similarly, SUWS is a good MSCI world SRI ETF, but only comes in a USD distributing version. SUSW is the equivalent EUR denominated version, but accumulating. This EUR version trades on the London Stock Exchange, but also as 2B7K on Xetra. An embarrassment of riches, no? It remains to be seen if Brexit will have any affect as to the exchanges we can trade upon. If an ETF trades in London but is domiciled in Ireland, as many are, it must surely be in everyone’s interest to maintain access for all investors.

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@Richard.W
Just had a look at VUSD.
For some odd reason I was imagining that I could maybe trade it during US opening hours. Too bad it’s not the case… Those EU rules are a bit of a pain honestly. Now that I know exchange rates aren’t the issue on Trading 212 I would love to have access to SPY :sunglasses:
Thanks for pointing those ETFs out for me. I didn’t even know they existed. Search engine isn’t very granular. Thanks god we have you :laughing:

Good points, thanks!
I’d like to add a point in favour of using the original fund’s currency. If you need to do technical analysis, especially if you choose commodity ETFs, you won’t see the actual support and resistance levels in your local version (e.g. in SGLN vs IGLN), because the same R and S levels have different conversion rates at different times.