Saturday, 11 June 2016

Interactive Brokers or Standard Chartered

Before: SCB no minimum commission

I started off with SCB online trading for foreign shares because there was no minimum commission. But soon, my monthly investment in foreign shares made more sense for me to use interactive brokers for foreign shares. The reason is the forex spread.

If you changed $2000 of $S to US$, and immediately changed back from US$ to S$, you will end up with $2000 minus 2.27% = $1944.60.  Meaning SCB takes about S$55 (there is a post in HWZ where user Chopra helpfully posted a table of the various bid-offer spreads.

If you used IBKR to buy and immediately sell, IBKR will take US$2x2=4 comms and you lose maybe 0.1% (or less) to the bid-offer spread, meaning you lose maybe S$10. (rough estimate).

If you change bigger amount, you lose even less. Because whether you change S$2,000 or S$5000, IBKR charges US$2 per forex trade. When you go to large amounts, the comm slowly goes above US$2. At S$15,000, IBKR's comm is less than US$3.

When you see the SCB forex costs, you can see why the IBKR 'activity fee' of US$10 a month is no problem for those that change S$2000 a month because the forex savings is much higher than US$10.

Eventually, you should hit US$100k portfolio size and activity fee is waived after that. Then you can sit back and enjoy your dividends which can be converted back to S$ with minimal forex loss.

After: SCB minimum commission

After SCB introduced its minimum commission, there is even less reason to use Standard Chartered if you are a regular investor who buys some shares every month.

SCB: Minimum US$10 commission per trade plus high forex spread. When you reach US$100k you still have to pay. (2020 update - forex spread is now 0.4%)

IBKR: Pay US$10 a month, and get 5 free trades and low forex spread. When you reach US$100k, no need to pay.

What most people don't notice is that the IBKR US$10 activity fee is equal to about 5 trades of US$ denominated counters in the London Stock Exchange. Each time you buy or sell US$ counter on LSE, the commission is US$1.94.

This means even if you only have $1,000 to invest per month, you can buy IWDA, EIMI, and LQDE (World, Emerging markets, US corp bonds) and you only pay the minimum activity fee of US$10.

If you bought IWDA, EIMI and LQDE on SCB you pay US$10 x 3 comms and the forex spread.


FAQ on the Interactive Brokers minimum activity fee
It's on their excellent website, but people always like to ask to make sure.

Every month, IBKR requires you to trade so frequently that you generate US$10 (or equivalent) of commissions. I'm pretty sure it also includes the comm for changing your S$ to US$. So this is what you can do every month for the US$10 that you pay:
  • Changing S$ to US$ - US$2 comm.
  • Buying 1 share or 10 shares of IWDA - US$1.94 comm (Min comm for US$-LSE)
  • Buying 1 share or 10 shares of EIMI - US$1.94 comm (Min comm for US$-LSE)
  • Buying 1 share or 10 shares of LQDE - US$1.94 comm (Min comm for US$-LSE)
  • Buying 1 share of GLD (Gold ETF) - about US$0.30 comm (No min comm for US shares)
  • Buying 1 share of BRK.B (Berkshire Hathaway B US$140) - about US$0.30 (No min comm for US shares)

 The minimum activity fee does not include live data. Live data is not critical. Google finance has real-time last done data. So you are quite safe to put a buy price 2-3 bids before last done price and slowly adjust upwards. It is very easy to do real-time amendment of IBKR orders.

Initially I subscribed to UK Live data at GBP5/month for a few months. But since I only bought boring slow moving ETFs, I found that the prices really didn't move that much so live data was really not necessary, so I stopped paying and just placed orders 2-3 bids lower than Google last done price and then slowly move up.

No comments:

Post a Comment