How To Reduce The Currency Bite With TD Direct International

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  TD Direct International is a brokerage based in Luxembourg. It’s popular among non-American expats for these reasons:

  1. It provides access to a variety of stock exchanges.
  2. Its platform is much easier to use than most of its competitors.
  3. Luxembourg doesn’t charge long-term capital gains taxes.
  4. Its transaction and platform costs for stock and ETF purchases are among the lowest in the industry.

But TD Direct International isn’t perfect. As with many brokerages, they take their pound of flesh from currency exchanges. For example, if you send U.S. dollars to the brokerage, to buy a Canadian listed exchange traded index fund (ETF), the brokerage will charge a rate of up to 1% above the institutional bid/ask spread.   What’s the bid/ask spread? That’s the difference between what a bank could buy a currency at, compared to what it could sell that currency at. Even banks pay currency bid/ask spreads. Emmanuel Saphy, at TD Direct International, gave me an example. It was the bid/ask (bid-offer spread) at 9:33 CET yesterday between the U.S. dollar and the Canadian dollar. spread This is the spot. It’s the price at which an institutional market participant, such as a bank, would pay to buy or sell a currency. In this example, a bank could buy USD at 1.3419 CAD, and sell USD at 1.3415 CAD. The difference between the two rates is called the spread. In this case, the spread is 4 “pips”. One pip is the fourth decimal for this currency pair. By Mr. Saphy’s calculation, “this small 4-pip spread is equivalent to 0.029%.” He adds, “On top of the institutional spread, an individual will typically pay an additional spread, which will vary from broker to broker. Below is a table showing the cost of conversion for three amounts using either Saxo Capital Markets(spread of 0.50% on any amount) or TD International (which is tiered).”  

TD Direct International versus Saxo Capital Markets Forex Commission SpreadTDIvSCM Source: TD Direct International

In this case, those with $10,000 USD to transfer into Canadian dollars (to buy an ETF listed on the Canadian market) would pay a $50 commission spread if they used Saxo Capital Market’s brokerage. They would pay $100 if they used TD Direct International’s brokerage. Exchange much larger sums, however, and the investor with TD Direct International gets a better deal. That said, regular Joes rarely invest $100,000 at a time. So the typical investor with Saxo Capital Markets pays lower currency commissions. That doesn’t, however, make up for the higher costs of Saxo Capital Markets. They charge higher ongoing account fees. That has a larger impact on long term returns. Plus, as Mr. Saphy describes, there is a way to reduce the currency commission bite, when using TD Direct International.   To create the smallest possible spread, this is what Mr. Saphy recommends.

Let’s take the example where I have USD, and wish to purchase an ETF or stock on the Toronto exchange, for a value of $50,000 CAD (which is > GBP 15,000).

I have a couple of alternatives for the double transaction that includes purchasing the ETF and ensuring a favorable currency spread when transferring USD into Canadian dollars.

I would purchase the stock first, and select CAD as the settlement currency.

Then, only when the order is executed, would I do a standalone forex on the account (selling USD and buying CAD), to ensure a low spread of 0.5%. I would however do the FX no later than two days before settlement of the ETF purchase, so as to avoid overdraft interest on my CAD sub-account.

If I decided instead to purchase the Canadian stock directly using USD as settlement currency, each partial execution worth less than GBP 15,000, or about CAD 28,500, would be subject to a spread of 1%.

You can therefore slash the FX cost by half, and even by 80% for larger trades, by simply doing a standalone FX trade, instead of embedding it into the stock transaction.

  For every $10,000 invested (when a currency exchange is involved) the investor would get a 50% discount on the usual $100 fee that TD Direct International would take.

You may find better rates, still, if you open a multi-currency account, at a bank (such as DBS) and transfer currencies before sending it to TD Direct International or another brokerage.

 Happy investing!    





Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I’m happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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11 Responses

  1. valferdinandcaro says:

    Hello Andrew,

    Let’s say we are buying VDU shares from TSX through DBS Vickers, which one should be the cheapest if our money is in SGD?

    A) Settle our trade in SGD

    B) Settle the trade in CAD, then booked forex transaction through DBS Vickers?

    C) Convert SGD to CAD in DBS e-MultiCurrency account, then fund transfer CAD to DBS Vickers?

    We just started building our portfolio based from your books and ideas, and we don’t have that much transactions yet to compare

    I assume B and C have the same spread.

    Hope to hear from you soon. Thanks… 🙂

    Regards,
    Val & Hanna

  2. Charles says:

    HI Andrew,

    I’m an EU citizen residing in Singapore. I’ve read both your books as well as your articles. After much research I decided to open up an account with TD. My local bank here is DBS. I’m planning to invest in funds listed on the Canadian exchange therefor I will need to convert my SGD into CAD. If I want to reduce my Fx expenses even further would it be better to use a foreign exchange service/broker (such as currencyfare, transferwise etc) to convert my SGD then deposit it in my TD account or would you recommend just following the above instructions and using TD to do the conversion as the difference in savings would be minimal. thanks a bunch.

    • Hi Charles,

      Much depends on the spread involved. In my article, you can see what the Spot rate difference is. If you can then pay a spread commission of less than 0.5 percent, it may be a good thing to do. I get lower rates by using DBS to change my money, with their multi-currency account. From there, I send that money to my brokerage.

      Cheers,
      Andrew

  3. Mark says:

    Have you looked into Robinhood: https://www.robinhood.com/ Seems very transparent and well, you can’t beat free! Only downside is they are just beginning to expand outside the US so may take a few years.

    I’ve decided to switch from Saxo to TD Direct. Filling out the paperwork now.
    Mark

    • Patrick says:

      Hi Mark

      I’m with Saxo, living in Indonesia it was my only option. If I were to move to Singapore I was thinking of switching to TD Direct….but doesn’t it cost quite a bit to switch your ETFs? I think they told me $160 SGD per ETF….isn’t it cheaper just to cash out of Saxo, close the account, open with TD and the transfer?

      Also curious to understand why you switched and is it worth it?

      Patrick

  4. Rob T says:

    I followed the advice given by TD but unfortunately it went wrong. I did an fx transfer from SGD to GBP and then purchased some ETF’s in GBP on the same day – all transactions were T+2.

    Due to a public holiday in Canada, the settlement for the FX transfer went through in 3 days and the etf’s in 2 – meaning my GBP sub-account went overdrawn! TD should of been clear on this or at least been consistent in their settlements

  5. Lee Ferguson says:

    Dear Andrew,

    TD International has a multi currency account. How does this pertain to the above article?

    Lee

    • Lee,

      If you earn GDP and buy ETFs in GDP from TD Direct International then you wouldn’t have currency exchange bites to deal with. If, however, you earned in GDP and wanted to build a portfolio of Canadian domiciled ETF (including Canadian stock and bond ETFs) you would have to convert your GDP to Canadian dollars first.

      Cheers,
      Andrew

  6. Lee Ferguson says:

    P.S I earn in GBP and HKD and both of those are on the list of 9 currencies that make up the multi currency account.

  7. Lee Ferguson says:

    Thanks Andrew

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