Thanks to Swing Traderkk for asking…
Could you add an account currency filter to your comparison site please?There are many, not least the Irish, who would appreciate being able to spreadbet in currencies other than GBP, like EUR or GBP.
“By default, all clients are included in an automatic currency sweep, which converts all currencies held on the trading account into the account’s base currency at 1:30 a.m. London time. This process prevents customers from accruing currency balances, which will eventually have to be converted back into the base currency.”
What this means is that you won’t run a currency deficit and all the currency exposure is managed automatically for you. So if you have a EUR based account you should only have EUR exposure (on settled trades etc.)Some brokers though do not do any automatic currency conversions for customers. But, whether or not that is a good thing or not is down to what sort of trader you are.
One of the reasons most clients enjoy spread betting is that it is quite an admin free way of trading. There are no end of year tax issues, not commission to calculate in the P&L (as the brokers costs are folded into the spread) and you deal on per point basis so you don’t need to calculate consideration, exposure or calculate gross currency exposure.
You just bet on the markets and make or lose money accordingly.However, larger or more institutional focused clients may be speculating on a more long term and with greater exposure. So if they have a big USDCAD position (where the P&L is in CAD) and mark to market they may not want the broker to convert funds into their base currency automatically. Especially if they are dealing in equities, where over night exposure can be high.
The down side of this is that if you have GBP20,000 on account but lots of CAD denominated positions (where margin and P&L are booked in USD) you will be running an overdraft.
Say your CAD margin is CAD50,000 you’ll have a GBP credit of GBP20,000, but a CAD deficit of CAD50,000. If you’r broker doesn’t do any automatic conversions you will be charged interest on the CAD overdraft you are running. Normally at a pretty high percentage (upwards of 8%). Automatic currency sweeps help avoid these charges, that are normally caused by poor account management.
The benefit of a broker not doing any automatic foreign exchange conversions for you are that you can manage your multi-currency and exposure yourself (should your account size be large enough to make it worthwhile). Also, automatic foreign exchange conversions are generally done at quite a wide spread.
By managing your currency exposure with a physical currency broker you should be able to save yourself considerable money on the rates.
It’s always worth checking with your broker how they manage your currency exposure, but also check your online account statements (not just the trading platform – as they can often show different balances).
If you want a simple EUR based MT4 account go with ETX Capital, they are one of the better all round spread betting brokers offering EUR accounts.
If you want to manage your own currency exposure, go with an institutional broker, but you may find you need upwards of EUR250,000 to get an account and won’t be able to spread bet.
We’ll look to add a base currency column to the spread betting comparison tables shortly.
Richard founded the Good Money Guide (previously Good Broker Guide) in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.