After a thorough research, I cannot justify the 0,45% spread on any USD purchases. As pointed by several users, this become a 90 pounds fee on 10k transactions which is higher than any other broker dealer with competitive pricing - see Interactive Brokers, Degiro, Webull - .
I saw a thread with Adam replying to this last year and entertaining other options for plus members but as since nothing has changed, I assume the team decided that this was the way forward and a very efficient way to increase bottom lines.
Has there been any updates on this? It is quite inconvenient to move my investments somewhere else for this particular reason as I do see all the good value that you add through your platform, but these costs are quite unbearable for any short term trading activities.
I’ve never really noticed before today, but I’ve actually spent over £1,100 in fx fees in the last 1 month alone. It really adds up if you use the app often.
The competitors you mention don’t seem that comparable to Freetrade (though Degiro is a good example of a much better FX fee):
Webull doesn’t even cover UK or EU markets any more, it is exclusively a US markets app it seems.
IB looks like it offers zero commission only to US residents
Degiro looks better - offers 0.1% and offers all markets, no ISA/SIPP is a deal-breaker for me though
I’d like to see freetrade do something a bit different with this and offer currency accounts for different currencies, letting us transfer money once then use it to buy and sell with zero fx fees, which is a bit complex for them but would have other advantages. Interactive Investor offer an ISA and this service but not the two together - so perhaps it is not possible within an ISA due to rules over holdings, which would be a shame, but should be possible in a GIA.
Advantages:
Means the FX rate is less important as it is not per transaction
Will be required anyway for launch in other markets (e.g. EU) - you can’t properly launch in a country if your accounts are in a foreign currency
Allows us to trade in other markets without worrying about FX charges (which are usually substantial)
Gives an easy path for access to world markets for all users without forcing them to pay FX on every trade
They don’t have to worry about the FX charges of partners as they’re doing a trade in the native currency of the given exchange, so they are no longer tied to that and can shop around for lower currency transfer fees.
Sets them up for a US launch eventually
Disadvantages:
Lots of up-front work for Freetrade - this would be complex to do and require client accounts in different currencies for everyone etc.
More complexity in the app as they’d need to track and show different currency balances and explain that to users
Still paying FX fees once when transferring money to the other currency (though you’d probably be able to get better rates for a simple transfer between bank accounts instead of a transfer to buy stocks specifically).
The alternative (which they might end up with if in a hurry) is to show Euro people an account in Euros, UK people an account in GBP, US users (we can dream!) an account in USD etc and charge everyone FX fees per transaction to access other markets (as currently for UK users).
It’s my understanding that due to HMRC rules you cannot hold foreign currency in an ISA, so conversion must be done at purchase if the base currency of the share isn’t GBP.
I wonder if there is some way round this - for example Freetrade transparently handling the fx conversion separately, Freetrade holding a float in each currency and avoiding conversions most of the time by using the appropriate stock of funds, then ordering from the partner in the exchange currency - so the ISA cash remains in GBP but the FX fee can be very low or even 0. Not sure what the situation is with other tax-free shelters in other countries, I imagine it gets quite complex. Will be interesting to see what solutions Freetrade come up with, but there are multiple reasons to prefer fewer FX conversions if possible.
Wait you move £250k of US stocks a month on Freetrade? No offense to the team, I think it’s great but I don’t think I’d put £millions through a phone app, I’d probably look at a ‘real’ broker, not least because Freetrade is very expensive in that case.
On the topic of the thread 45bp still feels very high, even compared to T212’s recently increased rate or Degiro. 10-20 feels much more reasonable - even as a FT+ perk.
And what happens if currency moves against the position that Freetrade took out and user tries to deal? Do you use worse rate that Freetrade fx management provides or do you use the at-the-time cheaper market rate?
That is conflict of interest, and as a broker Freetrade has a duty of care to not trade against their clients. And doing fx management the way you describe can only be done with professional and institutional clients that become a counterparty. Meaning not retail broker relationship, no FSCS protection, no negative balance protection, etc.
True. The 0.45% is the rate Freetrade used to pay for its FX. It’s only after creating their own platform that they’re able to use this as a source of revenue.
Personally, I would like them to consider a lower (or zero) exchange rate for the Plus account. On the other hand, the basic account has an affordable cost, imo.
Do american brokers that hold your money in dollars offer ISAs accounts for UK residents?
I ask because as far as I can understand we can only hold pound sterling in an ISA due to HMRC regulations.
If american brokers can’t offer a tax wrapper account for UK residents where they can hold dollars, then it becomes a matter of choice between paying capital gains tax or paying FX fees. Each individual will have to work out what’s the best option for their individual circumstances.
