Investment Moats

An Easy Step-By-Step Guide to Setup Interactive Brokers (IBKR)

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There are enough people asking me how I achieved my low trading commissions. Well, I do not think they are that low. So maybe I can share more.

Early this year, I decided to add Interactive Brokers to the brokers at my disposal.

There are a few reasons I decide to add Interactive Brokers or IBKR for short to my wealth management platforms.

Here is a short list:

  1. Through IBKR, I can buy and sell stocks in a lot of markets. Much more than most brokers out there. (Currently, as a Singaporean, you cannot use IBKR to trade the stocks listed on SGX in Singapore but foreigners can. This will change with the launch of IBSG or Interactive Brokers Singapore later this year)
  2. IBKR’s commissions for most markets are low. Based on my trading size of $3000 to $10,000 the commissions for the US is US$1 per trade, US$5 if I were to purchase low-cost exchange-traded funds like IWDA or VWRA on the London Stock Exchange and 0.19% for Hong Kong Stocks in general.
  3. IBKR has been around for a long time and is seen as the default trading platform for international investors
  4. Currency conversion between different currencies is at near spot rates (like 0.00001-0.00002% or 0.10-0.20 basis points ) with a minimum conversion cost of US$2.
  5. Can transfer via FAST transfer to fund accounts easily
  6. They have an office in Singapore at Asia Square Tower 1
  7. Sophisticated enough in terms of their reporting and consolidating. This does not seem like much but if you have used the iFAST platform for advisers, you will know what I mean.

I might elaborate my reasons in a later post.

I am comfortable with IBKR, Standard Chartered Online Trading, and Lim and Tan as my broker platforms.

Some will find that the account application process to be a stumbling block but the Interactive Brokers account opening and approval process is very easy.

The whole application approval was done online, my approval took 3 working days. So there were no trips to Asia Square Tower 1 or snail mail.

In this post, I bring you through the whole process step-by-step.

1. Start Trading with Interactive Brokers by Opening an Account Application

start IBKR or IBSG account application.

You start the process by clicking on the Open Application button. Then Start Application.

If you require additional professional or more specific account types such as managing Trust Accounts and managing for friends and family, the process would look different.

Create IBKR or IBSG account

Then you will need to create an online account. You need an unique email, username and password.

The username will be what you use to access to your Interactive Brokers account the most frequently. So do think about what you set for it.

Once you have finished that part of the process, an account verification email will be sent to your email address.

IBKR and IBSG email send to verify your account.

You will need to go to your email address to click on the link in the email.

login to IBKR IBSG to continue with the account opening process

You will then be prompt to log in to your Interactive Brokers account to continue with the account opening process.

2. Filling in Your Particulars

I selected Individual account type under Customer Type.

Filling in the personal information and addresses in your IBKR IBSG application.

The personal information and addresses are pretty straight forward.

fill in your phone for IBSG and IBKR two factor authentication.

You will need to specify a phone number. This is to be used for your two-factor authentication in the future. Then you will also need to specify the identification that you wish to use to identify yourself as well as your tax residency.

Then your employment details.

Specify your source of funds for compliance reasons.

3. Choosing Your Interactive Brokers Account Type and Your Base Currency

Setting your base currency and account type for your InteractiveBrokers account

Interactive Brokers will then ask you what kind of account type you wish and what is your base currency.

There are 3 kind of account type:

  • Cash
    • Requires account holder to have enough cash to cover the cost of transaction plus commissions. You cannot borrow to support trading in a cash account.
  • Margin
    • US regulatory-based margin account. Allows borrowing to support equities trading, stock shorting, full options trading, full futures/futures options trading, currency conversions, and securities/commodities trading in multiple currencies.
  • Portfolio Margin
    • Allows borrowing to support equities trading, stock shorting, full options trading, full futures/futures options trading, currency conversions, and securities/commodities trading on multiple currencies.

If you are a passive, low-cost exchange-traded fund investor, a cash account might just be enough. However, I chose the Margin account which allows me to borrow money if needed.

The base currency is the currency you use to maintain the book of accounts. This affects the translation of currency for your statements and uses to determining your margin requirements.

I choose to set my base currency to be SGD.

I can hold stocks in a lot of different currencies be it Euro, USD, AUD. When I review the statements, the portfolio and accounts are translated into my base currency SGD.

You can change your base currency after this process easier in your account settings so don’t sweat over this.

InteractiveBrokers will then need you to confirm your postal address is correct.

Then you have to answer some compliance questions.

Specify your net worth and objectives you intend to achieve by trading.

4. Choosing What Financial Instruments to Trade and Where You Can Trade on Interactive Brokers

This section is important in that Interactive Brokers find out your experience with different instruments. If you do not have the requisite experience, you cannot manage certain instruments.

If you are a passive ETF investor and would like to purchase ETF in the United States or United Kingdom (London Stock Exchange), be sure to choose United States and United Kingdom.

I did not specify United Kingdom previously and it is only later did I realize I could not purchase ETF on the London Stock Exchange.

If you wish to trade options, also specify accordingly.

Again, if you get it wrong, you can change this in the account settings. However, changing this will take 1 day of approval before you can trade in the new markets or instruments specified.

5. Submitting Your W8-BEN Withholding Tax Status

seamless submission of W-8BEN form in IBKR and IBSG

Usually, if you open a trading account that allows you to trade in the United States, you will need to submit a W-8BEN form for reporting of your tax withholding status.

This is pretty seamless with IBKR.

There are some compliance agreements and disclosures. Please take your time to read through them and choose to AGREE or DISAGREE where appropriate (if you DISAGREE then it is likely you would not sign up for the account).

IBKR then ask if you would like to participate in their program to earn extra income by lending out your shares.

I did not choose to do so.

You can change this later in the account settings.

application review of IBKR IBSG account opening

IBKR then ask how do you know about them follow by a review of your application.

If you click next, IBKR will continue with the actual processing of your application.

6. Submitting Your Identity and Address Verification Online to Interactive Brokers.

completed and submitted for apporval and submission of additional documentation.

IBKR will then inform you that the process submission is done.

Like many application that involves money, the financial institution will need to verify your identity.

IBKR will need you to submit digital copy of some documents to prove your identity. You can also choose to email, fax and snail mail to them.

On the screen capture you can see that i have submited my identity card and another document for proof of address and they have been received.

Here are the documents that you can submit.

7. Wait for Interactive Brokers Update

All that you have to do next is to wait.

Wait for IBKR to inform you about the status of application.

10 minutes after the application process, I was informed that the identity application has been received and have been processed.

8. Interactive Brokers Account Approval in Email

If everything goes well then you should receive an email informing you that your account have been approved.

My approval came within 3 workings days or 5 calendar days in total.

IBKR will then inform you to fund your account so that you can get started trading.

The funding part is another topic altogether and I will share more in some upcoming post.

The whole process is very seamless and fuss-free.

To get started, create an Interactive Brokers account today through this Link here today.

The above is not affiliate link. This is not a sponsored post.

My Comprehensive Interactive Brokers How-to Funpack

Here are some of my past articles on wealth building with Interactive Brokers. I hope it makes your life easier and brighter.

  1. An Easy Step-By-Step Guide to Setup Interactive Brokers (IBKR)
  2. How to Fund & Withdraw Funds from Your Interactive Brokers Account
  3. How to Convert Currencies in Interactive Brokers

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often. You can also choose to subscribe to my content via email below.

I break down my resources according to these topics:

  1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
  2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
  3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
  4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
  5. Free Stock Portfolio Tracking Google Sheets that many love
  6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
  7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for the first meeting to understand how it works

Breaking down the SembCorp Industries and SembCorp Marine Rights Issue and De-Merger

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There are some deals that you have to treat as homework.

Going through some of these deals are both a mental exercise but also whether we are able to identify whether any part of the deal is attractive enough.

Sembcorp Industries(SCI) and Sembcorp Marine (SMM) were halted a few days ago. There were speculations of privatizations and rights issue but yesterday we get a better picture of it.

There are 2 parts to this deal:

  1. Sembcorp Marine will issue a renounceable rights issue of 5 rights shares for every 1 existing Sembcorp Marine share at S$0.20. This is not to acquire some assets but to re-capitalize SMM.
    • The proceeds will be mainly used to replace existing debt that was mainly issued by parent Sembcorp Industries
  2. After the rights issue, Sembcorp Industries will distribute the 100% Sembcorp Marine shares they own to existing shareholders. Roughly each SCI shareholders would receive between 427 and 491 SMM shares for every 100 SCI shares they owned.
    • If you are a current SCI shareholder, now you own SCI and SMM separately and you can decide what you want to do with it

There are two parts of this deal so let me talk about the rights issue first.

The 5-for-1 rights issue of Sembcorp Marine

The existing balance sheet of SMM looks like this:

  • Assets: 8.4 billion
  • Cash: 389 million
  • Debt: 4.4 billion
  • Equity on book: 2.2 billion
  • Number of outstanding shares: 2090 million shares
  • Last traded share price: $0.85
  • Market Capitalization: $1.78 billion

Sembcorp Marine’s debt to asset is at 52%.

This debt to asset is high but not bothering dangerous levels. This rights issue will bring in $2.1 billion in funding.

Management have stated that this $2.1 billion is to replace the debts. One of the main debt is a $1.5 billion loan from Sembcorp Industries to Sembcorp Marine.

Since Sembcorp Industries currently own 61% of Sembcorp Marine, this action effectively turned SCI’s shareholders from bondholders to equity holders (for a short duration of time heh)

This deal… is dilutive to existing shareholders.

SMM is not doing any groundbreaking acquisition and the effect of replacing debt tends to mean that existing profits and cash flows are shared among a bigger pool of shareholders.

SMM shareholders should feel horrendous about this.

SCI will subscribe up to an amount worth S$1.5 billion out of the S$2.1 billion in rights shares.

What about the other 39% minority SMM shareholders?

The trick is that if these 39% SMM shareholders do not subscribe to their rights, Temasek will subscribe to the remaining S$0.6 billion worth of rights.

So if you look at the right side, SMM ownership will change to a mixture of Temasek, SembCorp Industries, and minority public shareholders.

Because it is so dilutive, most likely the minority public shareholders will not subscribe to the rights issue (this is a renounceable rights issue which means you can renounce your right to subscribe by selling your rights when it is listed to others)

So eventually the ownership structure should be 6.5% SMM public shareholders, 23.6% Temasek and 69.9% Sembcorp Indistries.

Note: Temasek does not own any share in SembCorp Marine directly at this point.

If we piece the conversion of SCI’s loan to SMM and the structure of this rights issue, we can see that the deal was structured to plan for the dis-association of SCI from SMM.

How SMM Would Look Like Post-Rights Issue

The debt of SMM will be reduced but equity will increase. There will be dilution of earnings but it seems the new shareholders Temasek is not that concerned.

The rights issue will bring on 10 billion in shares and post-rights issue the number of shares will increase to 12.5 billion.

The rights were issued at nearly 75% discount of last traded price. Massive discount.

The theoractical ex-rights price (TERP for short) after the rights issue will be around $0.31.

SembCorp Industries Distribution of SembCorp Marine Shares Post-Rights Issue

After the rights issue, Sembcorp Industries will pay out the shares they own of SMM to all their shareholders.

You can think of this as SCI giving stock dividends.

Before we go into this, this is how the ownership structure is like:

  • Temasek owns 49% of SCI. They do not own SMM.
  • SCI owns 61% of SMM.

With this SMM stock distribution, this means Temasek, through SCI, will now own directly 29% of SMM.

If we mesh this together with the ownership structure of SMM, Temasek will now own 23.5% + 29% = 52.5% of SMM.

This makes Temasek effectively the direct parent of Sembcorp Marine.

The slide above was put out by the companies.

There are 2 rows, with the top row if no minorities subscribe to the rights issue and the bottom row if all minorities subscribe.

The placing of no minorities subscribe in the top row seem to indicate that this is the outcome that they are expecting.

In that scenario, Sembcorp Industries ceased to be a shareholder in SMM. Temasek becomes the majority owner as well as existing SCI and SMM shareholders. (Notice that the Temasek ownership % and my 52% is different, obviously, some of my math might be wrong.)

The alternative scenario is that all minorities subscribe and there are no majority shareholders of SMM.

This I think is unlikely the scenario (hence the ultra discounted rights-issue that is so dilutive to force your hand)

A Cleaner SembCorp Industries Emerges

The most appealing part of this deal might be that without the baggage of SMM, SCI might be re-rated better as a utilities and urban development business.

Since SCI owns 61% of SMM, they consolidate SMM’s full income and balance sheet into SCI.

If we backed it out we have a leaner SCI. This SCI has a net debt to asset of 34%. (I am not sure if I have double-counted the $1.5 billion SCI lend to SMM so do be wary of my math here.)

The above slide was extracted from SCI’s full year results.

If we remove the marine business, SCI does not look so bad. The energy business, made up of mainly local and overseas utilities ventures tend to be recurring in nature. The Urban business not so much.

A business like this should be valued based on cash flow. We can use a conservative Price Earnings to value SCI.

But how much is conservative? A well operated utility business such as Cheung Kong Infrastructure (1038) (CKI) is trading at 10 times PE.

I don’t think SCI is as superior as CKI.

If we backed out the marine losses, the net profit could be $450 million. A PE of 8 times would bring the market capitalization to $3.6 billion or $2.00 per share.

However, if you buy SCI today, you get the SMM stock dividend as well. So you have to include that in.

However, how much would the SMM share eventually trade at?

Conservatively, if the rights is priced at $0.20 then maybe that is a conservative price to assume. If you want, you can use $0.15 or $0.10.

If you own a share of SCI this would entitle you to maybe 4.27 shares of SMM:

  1. $0.20: $0.85
  2. $0.15: $0.64
  3. $0.10: $0.43

This sort of bring the intrinsic value of SCI to between $2.43 to $2.85.

Think the share price will shoot up.

As with all things valuation, there are assumptions and I might have make mistakes here and there. So do not treat this as the truth.

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often. You can also choose to subscribe to my content via email below.

I break down my resources according to these topics:

  1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
  2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
  3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
  4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
  5. Free Stock Portfolio Tracking Google Sheets that many love
  6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
  7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for the first meeting to understand how it works

IWDA vs VWRA – Are There Significant Performance Differences Between the Two Low-Cost ETFs?

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There are two exchange-traded funds that passive investors are considering for their long term wealth accumulation.

  1. The iShares Core MSCI World UCITS ETF – Ticker IWDA – Listed on the London Stock Exchange
    • Benchmark Index: MSCI World Index (1,613 equity holdings)
    • Accumulating
    • USD
    • Total Expense Ratio: 0.20%
  2. The Vanguard FTSE All-World UCITS ETF – Ticker VWRA – Listed on the London Stock Exchange
    • Benchmark Index: FTSE All-World Index (3,416 equity holdings)
    • Accumulating
    • USD
    • Total Expense Ratio: 0.22%

Both are UCITS funds, domiciled in Ireland so they are more tax-efficient in terms of dividend withholding taxes and for retail investors, you have less estate duty/inheritance tax issues.

VWRA is the new kid on the block. It debuted last year (I wrote about the two ETF here). As VWRA is newer, the bid to offer spread is not as tight as IWDA, which is a well traded and rather liquid ETF.

Nevertheless, the bid-offer spread for VWRA can be within 20 basis points (0.20%) but sometimes I do see that it can widen. Sometimes it can be at 7.5 basis points.

The biggest difference is the benchmark indices that both ETF tries to replicate. You may be deciding which ETF to invest in based on your philosophy towards MSCI World and FTSE All-World Index.

I do question whether we are fussing over something that makes significant impact or whether the significance is pretty low.

Which is what this article sought to explore.

FTSE All World vs MSCI World

Each index have their own methodology. Each index provider (FTSE, MSCI) have their own methodology as well.

MSCI World Index captures the large and mid cap representation across 23 Developed Markets (DM) countries. DM countries include Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Isreal, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the UK and the US.

FTSE All-World Index is a market-capitalisation weighted index trying to capture the performance of large and mid-cap stocks from the FTSE Global Equity Index series. The index covers developed and emerging markets.

Countries include Australia, Austria, Belgium, Brazil, Canada, Chile, China, Columbia, Czech Rep, Denmark, Egypt, Finland, France, Germany, Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Isreal, Italy, Japan, Korea, Kuwait, Malaysia, Mexico, Netherlands, New Zealand, Norway, Pakistan, Peru, Philippines, Poland, Portugal, Qatar, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, UAE, UK, USA.

The difference is mainly whether you wish a single fund to give you exposure to both developed and emerging markets.

If so, the choice is VWRA. If not it is IWDA.

Here is the geographical composition of IWDA:

IWDA Country Exposure: IShares

Here is the geographical composition of VWRA:

VWRA Country Exposure: Vanguard

The main difference is the composition of United States and China. IWDA do not have China exposure while VWRA currently have higher China exposure (as well as emerging markets countries) and lower United States.

Does Emerging Market Exposure Give Outperformance?

We compare performance next.

The good thing about ETFs is that we can review the history of returns of the benchmark index the ETF is trying to replicate to find out how they do.

I have access to MSCI World index data but not FTSE All-World Index.

However, I think the MSCI All Country World Index (ACWI) should match up very well to the FTSE All-World Index. The MSCI All Country World Index seeks to capture the representation of 23 developed markets and 26 emerging markets.

I wanted to use the MSCI World and MSCI ACWI net of dividends. MSCI provides both index where withholding taxes are deducted from the dividends re-invested (net) and withholding taxes not deducted (gross).

The net index would probably be more conservative. Lower return as well.

However, the earliest data that I have for the net index is in 1999 but for the gross index, I will have the data from 1988 onwards.

This means I have 22.5 years worth of returns data from Jan 1988 to May 2020.

My first thought is that in some years MSCI World will do better and in some years MSCI ACWI will do better.

Here is the month-by-month returns of MSCI ACWI minus MSCI World:

Click to see larger illustration

There are a lot of small bars. If the bars are above zero, ACWI has higher return for that month. If lower, than MSCI World did better. There are more months where MSCI ACWI have higher returns.

However, the largest difference is less than 1% for a month. On average, the difference is very small (but they do compound over time.)

You will also notice that there isn’t a prolong period where ACWI did better than World.

Reviewing the Long Term Returns of MSCI World and MSCI All Country World.

You are probably less interested in the month by month returns if you are investing for the long term.

So it is only natural we pit the long term returns of the MSCI World vs the MSCI All Country World.

Your experience will differ depend on which period you invest in. You could have started investing in a period where the returns are very good or you could have started investing in a period where returns are a bit gone case.

So let us look at the 5-year rolling returns and 10-year rolling returns of these 2 indexes. For those who are new to rolling returns, you can read this article I wrote at Providend on what are rolling returns, and how reviewing rolling returns of a portfolio may give you greater conviction to invest.

We have 389 months between 1988 to May 2020.

5-Year Rolling Returns

There were 330 5-year periods between 1988 to May 2020 if you roll month-by-month.

1 rolling period will be from 1 Jan 1988 to 31 Dec 1992. The next rolling period will be from 1 Feb 1988 to 31 Jan 1993 and so on and so forth.

If I were to plot out the rolling returns of MSCI World and ACWI in two lines, we get something like this:

Click to see larger chart

On a 5 year basis, there are some periods where you annualized returns is 7.81%. There are also periods where the 5-year returns are -4.24%.

You can observe how the grey line (MSCI World) hugs close to the blue line (MSCI ACWI). At some part, the difference is greater.

There are 330 5-year period. Of these:

  1. 159 5-year periods MSCI ACWI did better
  2. 171 5-year periods MSCI World did better

Magnitude of difference:

MSCI ACWI vs MSCI WorldAnnualized Return DifferenceCumulative Return Difference
Largest1.36%6.98%
75th Percentile0.51%2.58%
Median-0.05%0.25%
25th Percentile-0.71%-3.50%
Lowest-1.56%-7.56%
Just how signficant are the differences over a 5-year period?

The difference feels small. Even in the most extreme, the 5-year difference is about 7%.

To give you context, if you earn an annualized return of 6% a year for 5 years, the cumulative return is 33.8. A 7% difference is about 21% performance difference. This is the extreme case.

On an average, the difference is small.

10-Year Rolling Returns

There were 270 10-year periods between 1988 to May 2020 if you roll month-by-month.

1 rolling period will be from 1 Jan 1988 to 31 Dec 1997. The next rolling period will be from 1 Feb 1988 to 31 Jan 1998 and so on and so forth.

If I were to plot out the rolling returns of MSCI World and ACWI in two lines, we get something like this:

Click to view larger illustration

On a 10 year basis, there are some periods where you annualized returns is 13.46%. There are also periods where the 10-year returns are -1.30%.

You can observe how the grey line (MSCI World) hugs close to the blue line (MSCI ACWI). At some part, the difference is greater.

There are 270 10-year period. Of these:

  1. 106 10-year periods MSCI ACWI did better
  2. 164 10-year periods MSCI World did better

Magnitude of difference:

MSCI ACWI vs MSCI WorldAnnualized Return DifferenceCumulative Return Difference
Largest0.88%9.16%
75th Percentile0.37%3.76%
Median-0.20%-1.98%
25th Percentile-0.35%-3.44%
Lowest-0.84%-8.09%
Just how signficant are the differences over a 10-year period?

On average, the MSCI World did better than the MSCI ACWI over different rolling returns.

To give you context, suppose you earn an annualized return of 6% a year over 10 years, the cumulative return is 79%. While an 8-9% return difference is about 10% of the difference, I do not think it is a particular deal-breaker.

Conclusion

Which should you choose?

Based on my data

  1. There are 5-year, 10-year periods the VWRA may do better and there are periods where IWDA will do better
  2. Difference can vary but I felt it is livable and not such a big difference

Given this, if you are holding IWDA and wanted to get exposure to the emerging markets, your mileage may depend on how much exposure you add. If you choose to switch over to VWRA, there is no guarantee you will notice differences.

If you are holding VWRA, you are more diversified.

The purpose of diversification is not only to diversify away from the risk. It is to capture the returns.

To give an example, suppose the top 25 firms in China, and top firm in South Africa in the next 20 years became a titan, if you invest in IWDA, you would not be able to capture the return.

If you invest in VWRA, you will be exposed to capture it.

That said, emerging markets do come with greater risks and volatility as well.

As a side note, for the past 22.5 years, the standard deviation of MSCI ACWI versus World is 15.03% versus 14.83%.

From the past 22.5 years, emerging markets such as China have grown massively, so VWRA should do well, yet the dent on performance is still not very clear.

This may be because the firms in developed markets have done relatively well as well.

What is more important is to :

  1. Get started
  2. Create an allocation
  3. Start funding and do regular contribution
  4. Capture the returns

VWRA or IWDA can be purchase through a brokerage that allows you to trade shares on the London Stock Exchange.

Some brokers are Standard Chartered Online Trading, DBS Vickers and Interactive Brokers.

Personally, I use Interactive Brokers to purchase VWRA.

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often. You can also choose to subscribe to my content via email below.

I break down my resources according to these topics:

  1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
  2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
  3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
  4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
  5. Free Stock Portfolio Tracking Google Sheets that many love
  6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
  7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for the first meeting to understand how it works

Is Saxo Markets Charging a Relatively High Currency Conversion Fee?

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I hope to put something out here so that some of you could help one of our readers.

One of our readers signed up for Saxo Markets Online upon the glowing recommendation from some financial bloggers.

He wishes to use the account to trade overseas market and thus there is a need to convert his home currency (SGD) to USD or GBP.

For Saxo, there is a currency conversion cost.

At Saxo’s Commissions, Charges and Margin Schedule, they explained about this currency conversion cost.

From my understanding, each conversion will cost you 0.75%. This feels like a service fee, and I am not sure on top of this fee, the firm earns a bid-offer spread from the conversion.

For reference, you can compare against Standard Chartered Online Banking’s LiveFX spread, which I talked about here and here. They are not the best but they do not seem to come to 0.75%.

My reader attempted to convert SGD$10,000 into USD so that he can purchase the stock he wanted. However, he was astounded by the total cost of the conversion.

From what I can see on the screen capture, there were some commission costs of $10 each and then 2 times 0.75% worth of conversion fee.

In total, this adds up to 1.71%!

Personally, I am not familiar with Saxo Markets. I would like to think that if they wishes to operate and thrive competitively, the conversion cost will not be so high.

This might what we term in the IT world as a “user problem”.

If you are familiar with or are currently using Saxo Market to do retail trading, and can help me make sense of what you are seeing on your end, do comment below.

Thanks a lot.