Author Topic: Why can't we buy currencies like we buy stocks (flat commission-no spread)?  (Read 2925 times)

Seadog

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I've always wondered this because it seems like a bit of a scam to charge a %. Is there really more work involved in changing over $100 vs $100k? It's all just numbers on a screen.

At the basic level for stocks, TD Waterhouse or whomever connects buyers and sellers of stock on their handy platform. I give up some cash, buddy gives up some stock, along with real time updates to prices and whatnot. For this convenience, TD charges me(and him) $10.

Why can't, or why isn't the same thing done with currencies? Instead of getting stocks for my $10k CAD, person B gives me $7400 USD, and similarly whatever platform charges me $10 for bringing us together.

I'm well aware that Norton's gambit is essentially that, however requires the intermediary of a third asset class (stocks) and just seems like essentially a lot of foreplay and silly fucking about for essentially the same end, but with more hassles, time, cost (slightly), and risk.

Heckler

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With NG, you are not buying stocks. You are buying and selling DLR, the ETF that represents the DoLlaR

http://www.horizonsetfs.com/ETF/DLR

L.A.S.

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I'm sure stock brokers are pondering the inverse of your question: "How can we make buying stocks more like currency trading where there are lots of opportunities for juicy fees and fat commissions?"

In all seriousness though, I think a lot of it come down how securities and currency trading and exchanges are regulated.

CanuckExpat

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This would be one of the purported advantages to "cryptocurrencies" like Bitcoin: seamless and transaction fee free international transfers.

Of course whole other bucket of worms about the crypto currency part
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thenextguy

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There is a spread involved in stocks. It's just not as visible. Market makers buy and sell at different prices.

eudaimonia

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First, there is a spread for stocks - it's called the bid and the ask. It is true that the bid/ask spread for most liquid stocks is typically a penny to 5 cents wide.

Second, you can obtain more transparent currencies pricing by buying a futures contract on the major currency. The majors (Euro, Pound, Yen) are typically 1-2 ticks wide and you pay a standard futures commissions charge of about $2.5 (retail). Assuming you want to own Euros forever you would buy the front month dated future and take physical delivery upon expiration. This would be the cheapest way to buy a bunch of Euros. The only issue is that you need to buy in minimum block sizes of 100,000 euros to get the best pricing.

Seadog

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There is a spread involved in stocks. It's just not as visible. Market makers buy and sell at different prices.

Can you elaborate on this? Are you saying that on an extremely thinly traded stock, if I'm looking to sell X shares at $100, and another guy is looking to buy X shares at $100, this transaction wont happen?

eudaimonia

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There is a spread involved in stocks. It's just not as visible. Market makers buy and sell at different prices.

This is flat out inaccurate. The bid and the ask are clearly visible to anyone using a retail platform whether it be TD Ameritrade or IB or whatever.

For example at the close of market today Apple was bid 153.30 and ask 153.35 which was a 5 cent spread. If you are a buyer or seller you likely can get somewhere around the mid of 153.32 or .33 meaning you will pay 2 to 3 cents. If you are buyer and you put in 153.30 you will not get filled unless the market moves down and if you are seller you will not get filled at 153.35 unless the market moves up.

gp_

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I've always wondered this because it seems like a bit of a scam to charge a %. Is there really more work involved in changing over $100 vs $100k? It's all just numbers on a screen.

check out ripple.
https://ripple.com/

they're soon to be a household name.

This would be one of the purported advantages to "cryptocurrencies" like Bitcoin: seamless and transaction fee free international transfers.

Of course whole other bucket of worms about the crypto currency part

bitcoin is one of the most expensive and slowest cryptocurrencies (the btc blockchain) to send money now because of their 1MB block size. ripple is enabling cross-border payments / transfers via their consensus ledger with settlement time being only 3-4 seconds. the cost of sending/transfering money is greatly reduced using their "bridge currency" xrp.
« Last Edit: May 24, 2017, 05:15:00 PM by gp_ »

CanuckExpat

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bitcoin is one of the most expensive and slowest cryptocurrencies (the btc blockchain) to send money now because of their 1MB block size. ripple is enabling cross-border payments / transfers via their consensus ledger with settlement time being only 3-4 seconds. the cost of sending/transfering money is greatly reduced using their "bridge currency" xrp.

I didn't want to open the can of worms about crypto currencies for that reason :)
I don't know much about them, but may look into learning, out of curiosity, and why not jump on the current speculation bandwagon ;)

Recommend any good resources? I don't mind deeply technical
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Ursus Major

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I've always wondered this because it seems like a bit of a scam to charge a %. Is there really more work involved in changing over $100 vs $100k? It's all just numbers on a screen.

At the basic level for stocks, TD Waterhouse or whomever connects buyers and sellers of stock on their handy platform. I give up some cash, buddy gives up some stock, along with real time updates to prices and whatnot. For this convenience, TD charges me(and him) $10.

Why can't, or why isn't the same thing done with currencies? Instead of getting stocks for my $10k CAD, person B gives me $7400 USD, and similarly whatever platform charges me $10 for bringing us together.

I'm well aware that Norton's gambit is essentially that, however requires the intermediary of a third asset class (stocks) and just seems like essentially a lot of foreplay and silly fucking about for essentially the same end, but with more hassles, time, cost (slightly), and risk.

Have you tried Interactive Brokers? You have access to Forex for currency conversion. The spread is minimal and I've payed only $2.00 in transaction commission to convert EUR into USD.

mrspendy

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You can exchange currencies (for hedging or speculation) on interactive brokers very easily and with next to no transaction cost since  developed market currencies are the most liquid market in the world. I'm sure you can do so with other brokers.

I've read you can exchange  foreign cash from your bank branch without much costs if you do it in advance, but have never done so myself

Seadog

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For example at the close of market today Apple was bid 153.30 and ask 153.35 which was a 5 cent spread. If you are a buyer or seller you likely can get somewhere around the mid of 153.32 or .33 meaning you will pay 2 to 3 cents. If you are buyer and you put in 153.30 you will not get filled unless the market moves down and if you are seller you will not get filled at 153.35 unless the market moves up.

Is this really a spread though? This is just a disagreement over the price in my opinion, no different than two ads on kijiji, one saying "Car wanted for $1000" and another saying "Car for sale for $1050". There is no true "price" just a guide as to what the last similar transaction happened at, and a buyer and seller waiting for the other to move.

Contrast this with a bank or those stupid currency exchange place who buys CAD/USD at like 1.30, but then sells at 1.40, while the true rate is 1.35. Some even have the gall to add transaction fees on top. On $200k with these ripoff artists you could easily approach over $10k in fees.

You can exchange currencies (for hedging or speculation) on interactive brokers very easily and with next to no transaction cost since developed market currencies are the most liquid market in the world. I'm sure you can do so with other brokers.

So you set up an account, and then presumably you'd have one in CAD, one in USD, one in EUR? Give them a check, wait for it to clear, do the exchange for $2, Then they just ship you a briefcase full of Euros? How exactly does that work?

I've read you can exchange  foreign cash from your bank branch without much costs if you do it in advance, but have never done so myself

Are you sure about this bank thing? If that were the case you wouldn't see a post on redflagdeals every other day with people asking where the best place to exchange their $40 of USD is since it's taken for rote that you'll be paying 3-10% above the market rate.

With NG, you are not buying stocks. You are buying and selling DLR, the ETF that represents the DoLlaR

http://www.horizonsetfs.com/ETF/DLR

Why is there a MER here? Would this not impact your effective rate? And it doesn't *need* to be DLR, any interlisted stock is the same deal. But same as bitcoin or other cryptos, why the need for an intermediary at all? I want to directly change USD for CAD. Someone else wants to do the exact opposite. Why can't we do that quickly and efficiently at the market rate? Why the need for multiple transactions which although effectively does it, doesn't directly do it?

It just seems like a lot of extra hassles and workarounds for what others call "the most liquid market in the world". Realistically, I could put an ad on kijiji saying I have CAD looking to buy EUROs, at the prevailing market rate, and bypass all these middle men, phone calls, clearing periods, and journaling over to different exchanges. Or even do the same for stocks. But someone realized how notoriously inefficient that was, so they made digital exchanges.  Apologies if this has turned into a bit of a rant....

gp_

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I didn't want to open the can of worms about crypto currencies for that reason :)
I don't know much about them, but may look into learning, out of curiosity, and why not jump on the current speculation bandwagon ;)

Recommend any good resources? I don't mind deeply technical

happy to share resources! bitcointalk.org is a great site for learning more about the industry. for news, i'd recommend coindesk.com.

a lot of people have made a lot of money lately with speculating. i believe a correction will be coming to some degree, however, this (blockchain tech / companies), are essentially a new industry - it's very exciting.

eudaimonia

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For example at the close of market today Apple was bid 153.30 and ask 153.35 which was a 5 cent spread. If you are a buyer or seller you likely can get somewhere around the mid of 153.32 or .33 meaning you will pay 2 to 3 cents. If you are buyer and you put in 153.30 you will not get filled unless the market moves down and if you are seller you will not get filled at 153.35 unless the market moves up.

Is this really a spread though? This is just a disagreement over the price in my opinion, no different than two ads on kijiji, one saying "Car wanted for $1000" and another saying "Car for sale for $1050". There is no true "price" just a guide as to what the last similar transaction happened at, and a buyer and seller waiting for the other to move.

Contrast this with a bank or those stupid currency exchange place who buys CAD/USD at like 1.30, but then sells at 1.40, while the true rate is 1.35. Some even have the gall to add transaction fees on top. On $200k with these ripoff artists you could easily approach over $10k in fees.

This is the very definition of a spread. You have a market maker for the stocks who will sell you the stock right now for the ask 153.35 and who will buy it from you at the bid of 153.30. If you put in a market buy order you will be filled at 153.35; a market sell order will be filled at 153.30. If you want to wait and risk getting filled on a limit order you can usually get the mid (but not always).

The only difference when a bank sells you currency over the counter is that you must buy it from them at the market order price. Which means as a buyer you pay the ask. You don't get to wait around and try to get filled at the mid on a limit order. Of course if you are smart you buy your currency through IB as several people have suggested and you can get filled on a limit order (with commissions on top of the price you pay). The only cheaper way to do it is what I suggested in the first place which is to go out and take settlement on a large futures currency transaction.

runewell

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You can buy currencies.  I have euros and pounds at home from being on vacation. 
Please leave Dicey out of this! Have you not been paying any attention? Trolls are not welcome here!

Seadog

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This is the very definition of a spread. You have a market maker for the stocks who will sell you the stock right now for the ask 153.35 and who will buy it from you at the bid of 153.30. If you put in a market buy order you will be filled at 153.35; a market sell order will be filled at 153.30. If you want to wait and risk getting filled on a limit order you can usually get the mid (but not always).

The only difference when a bank sells you currency over the counter is that you must buy it from them at the market order price. Which means as a buyer you pay the ask. You don't get to wait around and try to get filled at the mid on a limit order. Of course if you are smart you buy your currency through IB as several people have suggested and you can get filled on a limit order (with commissions on top of the price you pay). The only cheaper way to do it is what I suggested in the first place which is to go out and take settlement on a large futures currency transaction.

So these market makers are just massive holding companies that keep a store of all big stocks? Then at the close each day set their prices to buy at market - 0.05, and sell at market + 0.05? These people exclusively make money by buying and selling with a spread and aren't actually invested?

My understanding was that the market was essentially a meeting place and the "market price" is just whatever the last agreed upon trade happened to go through at. One guy bought in because he likes the business, the other guy sold cause he needs cash for a boat. Are these buy and sell orders not just the aggregate sum or all people like me? Along with a few organizations and professionals?

I think we're arguing over semantics, my point is that it seems that these spreads are slightly different than currency spreads, because when you execute a trade, that is by definition the market price, whereas the bank sells at market +, and buys at market -. 

CanuckExpat

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a lot of people have made a lot of money lately with speculating. i believe a correction will be coming to some degree, however, this (blockchain tech / companies), are essentially a new industry - it's very exciting.

This is my interest, in the blockchain technology and how it is going to be applied. I'd like to dig into the nitty gritty, not sure if I have the technical/math background or if I will end up learning. It gets added to a very long list of future projects.

I might buy $100 here or there to speculate myself, as fun money. The speculation is easier to do than learning about the technology
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eudaimonia

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So these market makers are just massive holding companies that keep a store of all big stocks? Then at the close each day set their prices to buy at market - 0.05, and sell at market + 0.05? These people exclusively make money by buying and selling with a spread and aren't actually invested?

My understanding was that the market was essentially a meeting place and the "market price" is just whatever the last agreed upon trade happened to go through at. One guy bought in because he likes the business, the other guy sold cause he needs cash for a boat. Are these buy and sell orders not just the aggregate sum or all people like me? Along with a few organizations and professionals?

I think we're arguing over semantics, my point is that it seems that these spreads are slightly different than currency spreads, because when you execute a trade, that is by definition the market price, whereas the bank sells at market +, and buys at market -.

At this point I'm not sure if you are trolling or actually serious. Yes, see definition of a market maker: https://en.wikipedia.org/wiki/Market_maker. The market maker's sole purpose is to provide liquidity in the market. They don't hold Stock XYZ as an investment or speculation. They use high frequency algorithms to make money off the difference between the bid and the ask.

Banks are also market makers by definition - they have no interest in speculating whether the Euro will go up in relationship to the USD or down. They hedge their positions and make their money by the differential of the bid/ask spread and commissions.
« Last Edit: May 25, 2017, 02:42:57 PM by eudaimonia »

mrspendy

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For example at the close of market today Apple was bid 153.30 and ask 153.35 which was a 5 cent spread. If you are a buyer or seller you likely can get somewhere around the mid of 153.32 or .33 meaning you will pay 2 to 3 cents. If you are buyer and you put in 153.30 you will not get filled unless the market moves down and if you are seller you will not get filled at 153.35 unless the market moves up.

Is this really a spread though? This is just a disagreement over the price in my opinion, no different than two ads on kijiji, one saying "Car wanted for $1000" and another saying "Car for sale for $1050". There is no true "price" just a guide as to what the last similar transaction happened at, and a buyer and seller waiting for the other to move.

Contrast this with a bank or those stupid currency exchange place who buys CAD/USD at like 1.30, but then sells at 1.40, while the true rate is 1.35. Some even have the gall to add transaction fees on top. On $200k with these ripoff artists you could easily approach over $10k in fees.

You can exchange currencies (for hedging or speculation) on interactive brokers very easily and with next to no transaction cost since developed market currencies are the most liquid market in the world. I'm sure you can do so with other brokers.

So you set up an account, and then presumably you'd have one in CAD, one in USD, one in EUR? Give them a check, wait for it to clear, do the exchange for $2, Then they just ship you a briefcase full of Euros? How exactly does that work?

I've read you can exchange  foreign cash from your bank branch without much costs if you do it in advance, but have never done so myself

Are you sure about this bank thing? If that were the case you wouldn't see a post on redflagdeals every other day with people asking where the best place to exchange their $40 of USD is since it's taken for rote that you'll be paying 3-10% above the market rate.

With NG, you are not buying stocks. You are buying and selling DLR, the ETF that represents the DoLlaR

http://www.horizonsetfs.com/ETF/DLR

Why is there a MER here? Would this not impact your effective rate? And it doesn't *need* to be DLR, any interlisted stock is the same deal. But same as bitcoin or other cryptos, why the need for an intermediary at all? I want to directly change USD for CAD. Someone else wants to do the exact opposite. Why can't we do that quickly and efficiently at the market rate? Why the need for multiple transactions which although effectively does it, doesn't directly do it?

It just seems like a lot of extra hassles and workarounds for what others call "the most liquid market in the world". Realistically, I could put an ad on kijiji saying I have CAD looking to buy EUROs, at the prevailing market rate, and bypass all these middle men, phone calls, clearing periods, and journaling over to different exchanges. Or even do the same for stocks. But someone realized how notoriously inefficient that was, so they made digital exchanges.  Apologies if this has turned into a bit of a rant....

So each IB account has a "base currency" meaning the default currency that you deposit / withdrawal, but you can wire foreign currency out of IB from what I understand. https://www.interactivebrokers.com/en/software/am/am/funding/withdrawingfunds.htm
Note the step "select currency for withdrawal". So you'd need a bank account that can accept whatever currency you are doing.

I have bought / sold yen, pound, euros, on IB in order to buy / hedge stock positions; t-costs are minimal even on small $. I've only ever withdrawn USD though so I can't vouch for the wiring forex out of IB, but others on the internet say they do it all the time.

mrspendy

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http://canadianmoneyforum.com/showthread.php/17688-How-to-convert-currency-in-Interactive-Brokers

Quote
Whenever I need cheap USD, I convert it here and then transfer it to back to my US Dollar bank account. It's great.

gp_

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This is my interest, in the blockchain technology and how it is going to be applied. I'd like to dig into the nitty gritty, not sure if I have the technical/math background or if I will end up learning. It gets added to a very long list of future projects.

I might buy $100 here or there to speculate myself, as fun money. The speculation is easier to do than learning about the technology

blockchain is in the very early stages of a new era. once you really understand it, your mind will probably run wild with how you can apply it to anything/everything. i'm learning new things every day, it's incredibly fascinating.

J.Milly

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One thing you have to realize is that the average lot size on stocks is 100 shares and the lot sizing on currency is 100k units. So the actual amount of money which changes hand isn't 100$, that's why spot sometimes is very far off what you get, usually 1.5% on either side. Honestly if you want it cheaper go to a forex desk or just do Norbert's gambit and cough up the full commission on the second leg, that's what I do.