Hey Guys, one more question about the transaction costs. How to check the cheapest exchange to buy iShares MSCI World ETF in USD using IB? Before I opened IB, I bought it on SIX using CT. But I can see on justetf.com, that it’s listed in USD also on London Stock Exchange. Which one is cheaper?
Update:
It’s even more crazy. If I search for SWDA ticker, I got this:
American exchanges are the cheapest. European ones tend to be 1-2 orders of magnitude more expensive, and some (like LSE) will also hit you with a hefty stamp duty, although it seems to be now charged only for plain vanilla stocks, not ETFs.
I bought $100k worth of VTI paying less than $3 in fees in total. On BYX + ISLAND + IBKRATS according to my brokerage statement. BYX (BATS) is especially cheap, they reward you for removing liquidity, i.e. if you place an order that can be immediately matched with someone from the order book, like buying at market price.
Here (some details photoshopped out, but the rest are real numbers):
SWDA/IWDA are European UCITS-style ETFs, not traded in US. An example of a US-based MSCI World index tracking ETF you can buy is URTH, but I’d rather buy a much more liquid and lower cost VT. It’s from Vanguard, which is IMHO a bit more reputable and generally less greedy than Blackrock (iShares). Here’s a list of some global funds: http://etfdb.com/etfdb-category/global-equities/. Look out for most liquid (high AUM) and low cost (TER) funds. Note that they are not all the same and track different indexes. Small caps and EM are often the main differentiators. MSCI excludes EM for example, MSCI World + EM would be MSCI All Country World.
Buying a US-based fund instead of EU is also beneficial from US dividend taxation perspective. A disadvantage could be US inheritance taxes, but for swiss residents that’s a concern starting from a net worth of several millions thanks to US-CH estate tax treaty.
Also, in the above dialogue IB is actually asking you not for exchange (it’s “SMART” - auto selection), but rather for exact product type. AMB:IWDA is traded in EUR, and LSE:IWDA is in USD, LSE:SWDA in GBP, that’s the difference. IB should route your order to cheapest exchange(s) automatically, but can’t make the decision for you which of these three currencies you want. Look at https://www.interactivebrokers.com/en/index.php?f=1563 or https://pennies.interactivebrokers.com/cstools/contract_info/ for details on specific IB symbols
Thanks @hedgehog for help. Now I understand. Investing in US-based ETF is really tempting, I’m only wondering what are the tax implications of that. Mr. @_MP says that you shouldn’t invest more than $60k in VT:
“I will invest up to CHF 60’000 maximum into this ETF because afterwards, the US estate law makes your heirs lose 40% of the amount invested into this fund. I will then switch to the Ireland based ETF Vanguard FTSE All-World UCITS (another option could be iShares Core MSCI World UCITS with its larger fund volume, but I prefer Vanguard that tracks the FTSE index, as it includes emerging markets).”
This is only a concern for your next of kin if you die before you manage to get rid of the US assets. Which in case of stocks you can do, like, every business day.
Then as I already said, US and Switzerland have an estate tax treaty which lifts the exemption for swiss residents from $60k to the exemption limit for american citizens, which is about $5M at the moment. We had a thread on this forum with some more details. So I’m fairly certain there’s no need to worry about it until your total wealth approaches a few millions, and then you can afford lawyers to ask about it and how to avoid it (through trusts maybe)
Also, no next of kin that you care about - no problem
It was just an example about trading fees. I have VTI and VEA as my two biggest passive holdings at the moment. Slightly cheaper in terms of TER than VT, and no EM - i’m pessimistic about China.
Now I will wait a bit (to ~18:00), and if it won’t work, then I’ll hit “Cancel” and try different price. I’ll let you know if it works. Please also let me know what are your experiences with currency exchange.
I think I know what is the problem. When I clicked “Decline” first time it switched back from “FXCONV” to “IDEALPRO”. Now, I pushed “Cancel” and I’m waiting for the order to get canceled. At the moment, the status of the old order is “Cancel requested” and I can’t make a new order with “FXCONV” because it says that I don’t have enough cash.
Anyway, now it’s still in status ‘Cancel requested’. If I won’t get the money back today, I’ll have to call them tomorrow. Damn, IB interface is really confusing. CT is so much easier.
Ok, thanks for the info. I’ll wait to tomorrow then. By the way, which exchange opening time do you mean? NYSE? So according to this wiki article it’s basically 15:30-23:00 (UTC+2h - for summer Central European time zone)?
My point was to show that trading costs practically nothing on US exchanges, it’s at the level of minute volatility and can be basically ignored. What point is it to saving a couple of bucks by going to the right exchange if the next minute the asset you wanted to buy rises (or drops) in price by a few hundred bucks? It matters only for HFT and day traders.
On european exchanges, on other hand, trading and stamp duties can be a quite significant cost, 0.1 - 1%
I read your blog post, excuse my ignorance, I am new to this. But is this correct that non-Swiss domiciled brokers like IB do not have to charge a Swiss stamp duty? Why does the law exclude foreign brokers? Will this apply even when investors buy/sell shares with a Swiss ISIN? Thanks in advance.
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