Subject: Re: Broker recommendations?
For a test I converted some USD in EUR. That was done instantly and with just a few clicks. And the rate: Unbeatable!


Yes, it's quick, and the fee is small, and as you say, the exchange rates they offer are excellent.

I recently had to convert some USD to CAD in my mother's account, about $200,000, and I had to do it with a standard broker (TD Direct Investing), and they had a very large spread on the USD:CAD, I just checked to see if they still offer the same outrageously poor exchange rates, and the answer is yes. They currently quote 1.3496 if I'm converting USD to CAD, but 1.3622 if I'm converting CAD to USD. In other words, if I'm buying USD, it will cost me C$1.3622, but if I'm selling they'll give me C$1.3496. Sounds like a small difference, but applied to $200,000, it means a round trip would cost me 200,000*(1.3622-1.3496)=$2520, or half that, $1260, for a simple one-way conversion. For a smaller amount, $10,000, the absolute loss will be lesser, but the spread is even higher (1.3754 to buy and 1.3370 to sell, almost a 4 point spread!), so a $10,000 conversion will still cost me $192, not that I'll ever see that number on an account statement. Like credit card issuers, they make a lot of money that way, with most of their clients not even aware of how they are getting ripped off.

By comparison, with IB, the spread they offer me is 1.35488 (ask) and 1.35485 (bid), no matter what the amount I'm converting is. If I just accept the bid, I pay 1.35488, and if I do the round trip, I may only get 1.35485, so I will end up losing 200,000*(1.35488-1.35485)=$6.00 on the two trades, plus their transaction fee, US$2. So to convert US$200,000 to CAD, I will lose C$1260 with TD, or about $5.50 with IB. To convert US$10,000 to CAD, I will lose $192 with TD and about $3 with IB.

You don't need to do this kind of transaction very often to make it worthwhile going through the hassle of setting up an IB account! And that's without counting the fact that interest rates charged on margin debt are low, interest paid on cash is high compared to most brokers, the don't sell order flow so they probably get you a better price on buys and sells, their commissions are low, you get access to many more foreign stock exchanges than most brokers, etc.