Hi all, I’m a retail investor. I’m wondering if there are any users here who trade stocks on European exchanges from the US? In particular I’m just wondering about your experience and learnings.
I’ve never done it, both because I haven’t had any data and haven’t known how to.
When I saw the query regarding pledge for European P123 support on the site, I did a few web searches. What I can find talks about understanding currency conversion and usually higher transaction fees than I might be accustomed to in the US. I have Interactive Brokers and Fidelity accounts which it sounds like both support European exchange trading to a certain degree - w/ Interactive Brokers probably being recommended way to do this if I did. One site I read indicated Schwab probably wasn’t well suited (https://the-international-investor.com/international-stockbroker-list/us-stock-broker-list)
My initial impression is this might be beyond a small retail investor like myself at this point, but am curious if those on the site have a different perspective. Any retail investors here in the US who are trading on European exchanges that would be willing to share your experience/observations/things I should consider/be aware of? Particularly regarding currency conversion loss, trading fees, tax complications (I do my own taxes), etc.
Ignore the currency thing. IB will lend you the Euros for a small interest fee. This only works for a margin account. Currency fluctuations are in effect hedged.
Buy Euros using IB. There is a small trading fee. This is what I use for an IRA account.
There is a third option for larger accounts which I don’t use. Maybe someone else can fill you in on it.
Commissions are higher than U.S. stocks but not unreasonable.
I’m a small account, so #2 one-time conversion to Euro would likely be my scenario if I did it in IRA.
If I may ask, have you had any complications with taxes because of it? (Basically I’m trying to understand if I get “normal” tax forms from IB that I can utilize directly with Turbotax. The closest experience with this I’ve had includes ADRs where I’ve seen some forms with foreign tax withheld on dividends, and that was straightforward. I’m hoping trading foreign stocks in foreign currency might be similarly straightforward w/ capital gains/losses, with the currency conversions already worked out for taxation. For that matter, if done in IRA not even sure if I’d get any credit for foreign taxes paid so might not matter).
[quote]
If I may ask, have you had any complications with taxes because of it?
[/quote]I use TurboTax as well and I don’t recall having any real issues with foreign stocks other than the one you mentioned (foreign taxes paid on dividends, which was not a big issue for me either).
I am not advising you what to do. Personally, I didn’t do the forex stuff in the realized gains/losses manually, I just let TurboTax figure it out automatically from the TXF file that is automatically generated by IB.
In the IRA account, taxes were obviously not an issue at all.
Chaim,
Thank you for that information. I use Folio Investing now but I would like to support expansion into European markets if I can.
With regards to SEP-IRA accounts does IB cause any problems with settled funds or the T+2 (was T+3 I believe) rule? Also, called the “Free Rider” problem.
I assume you know about this but for those not familiar accounts without margin (like SEP-IRA accounts) may require that the funds be “settled” before purchasing new stocks. This may mean waiting 3 days after the sale of a stock before purchasing a new stock. Folio allows one to purchase a new stock immediately after a sale but then the newly purchased stock must be held for 3 days (money settles in 2 days and can be used on the 3rd day).
I accidentally became a “Free Rider” a couple of years back and they were going to suspend my account for 90 days if I made the same mistake again: has to be taken seriously.
Is IB even more strict? I had the impression that you could not even buy a stock after a sale until the money is “settled.”
Sounds like you might have some experience with and knowledge about this.
While IRA accounts with IB can buy with funds from recently sold purchases, you can’t enter the order until it’s sold. That means (for me) no high turnover strategies in IRA accounts unless there is a big cash buffer. It’s another example of Uncle Sam protecting us from ourselves–for our own good of course.