Brokers And Service Providers | ISA Vs. Trading Account - US Stocks / Tax

27th Mar '18 by Noodle Hat

5 comments 4983 reads

Following on from a couple of other posts regarding US brokers.

I trade with tight stops and so even a 1% forex fee (typical for ISA international trades) each way adds up to substantially affect my position size when limiting my risk per trade.

Finding it very difficult/ next to impossible to find a broker who doesn't charge forex, holds in ISA etc... In fact the only one I have found is HSBC investdirect plus but by all accounts their web interface is stuck in the late 90's and questions about reliability of service. So reluctant to go with them.

The obvious alternative is go with interactive brokers or Schwab and hold in USD account. However the discussion over income tax vs capital gains, changes to tax law in future etc make me REALLY want to keep my folio in ISA as it currently is all ISA.

Would be interested to hear what majority of people do and if tax outside an ISA is as big of a headache as it sounds! ( I would be paying cap gains tax as rotate my folio often and gains exceed threshold).

Also if anyone has experience of HSBC investdirect plus?

Thanks!

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ISAallowance

27th Mar '18

You could consider an IG ISA, from memory I think the forex fee is now 0.3%, markets available include US, Aus, Germany, Austria, Belgium, Holland, Ireland.

Noodle Hat

30th Mar '18

Hi, thanks, yep I looked into IG. As you say 0.3% is a massive improvement but still a fair wack, i think £30 on a £10k trade. I think my main aversion is probably not very logical that its IG and I don't really like their business model/ them as a company! I guess in reality they're probably quite a stable company to house your money with and little chance of folding?

One worry I had, and its probably not actually a problem ( just my lack of technical knowledge) is that they have a somewhat dubious rep on spread betting/ chasing stops. Is this even possible for them do do/manipulate on share trading or is the bid/ask out of their hands?

Probably not a popular approach on stocko but i generally look to place my stops 3%-10% from buy so a total 0.6% lost in fees + say 0.4% spread (us stocks) means 1% of stop already taken by trading costs, hence HSBC appears attractive, a higher transaction fee at $30 but it doesn't scale with transaction size.

gus 1065

Hi Noodle Hat.

If I read your intro piece correctly, you’re looking to trade using small stops for foreign stocks with minimum tax admin and leakage.

Assuming you’re UK based, I presume you’ve looked into opening a spread betting account (either with IG or one of the other providers if you have an aversion to them per se). Since this is viewed as “gambling”, any gains are tax free (i.e. no CGT or income tax payable) albeit with the quid pro quo that any losses are not offsettable. Likewise, since you’re betting on the difference between two numbers irrespective of the underlying currency, my sense is that there is in effect no FX transaction charge. Bid/offer spreads tend to be wider than through conventional brokers although there is no fixed deal commission or stamp duty. For better or worse, you also operate on margin so have the additional feature of leverage (with an associated daily interest charge for open positions).

There are various offerings from different providers - Robbie Burns provides some helpful comparisons of who does what in his regular blog (link attached). He mentions Spreadex and Spreadco in his most recent missive (towards the bottom).

http://nakedtrader.co.uk

Gus.

maffs0

31st Mar '18

I have tried all these options and nothing is perfect. I have my ISA with IG and the problem there is, as you say, the 0.3% + 0.3% fx commision. Hopeless for swing trading. If my average win is 10% and average loss is 5%, these then become 9.4% and 5.6%, a big difference. I also like to pyramid into a sale and scale out gradually, so the $15 commissions add up as well.

As a result, my ISA will soon all be UK stocks.

I will trade US stocks in three accounts. A SIPP with Interactive Brokers, a margin account with Interactive Brokers and a spread betting account with IG. The problem with the spread betting account is that you have to pay interest on the full position and the spread (0.1%+0.1%) doesn't help. Compared to IB's $1 commission, these really add up. So my plan is that my first trade will be in my SIPP, when it fills up, I'll move to the IB margin account and when it is full, I'll use the IG spread bet.

Thats the best I've managed. Let me know if anyone has worked something better out.

M.

jonesj

Firstly, I think the brokers are losing out with unreasonable forex fees.

When I have to lose 1.5% buying and 1.5% selling, it just makes some trades uneconomic, so I don't make them. Therefore, thanks to their greed on exchange rates, they get neither the obscene forex fee, nor the higher but reasonable overseas trading fee.
Although I have some remaining holdings, I haven't purchased a new foreign stock via a UK broker for several years. That's purely due to the forex fees.

Nevertheless, over 80% of my portfolio is invested overseas, mainly via UK investment trusts.
I also have a broking account in Singapore & an IG spread betting account, which has been open all of 6 days. Got lucky by going short on Tesla on Monday.

My take on the taxation is:
1 Always use the ISA allowance. The taxation & administrative benefits make it worthwhile.

2 Try to use the capital gains tax allowance as well. This could be the place for your US stocks, via a suitable US broker.

3 Maybe investigate spread betting, particularly if your gains go beyond the annual capital gains allowance.

ISA vs. trading account - US stocks / Tax

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Noodle Hat

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