How to Invest In Global Markets With One Account After Rate Hikes
Today, I'd like to introduce you 2 choices to invest in different stock markets with one currency.
For example, a Singaporean named Mike deposit SGD in his Tiger account.
1. How can Mike invest in US stocks after funding Tiger Account with SGD?
Mike have 2 choices: financing and currency conversion. Let's look at the differences of the 2 methods.
1. Financing
Mike can borrow USD and buy the US stocks without converting his currency. Then Mike has to pay the interest generated from financing.
According to the latest data from Tiger Brokers' official website (financing interest rates), the annualized interest rate is 6.330%.
So how is the interest charged?
Interest is charged on a daily basis and is settled on a monthly basis, with interest deducted from the account at the beginning of the month.
However, when you do day trading, you won't be charged with interest.
If you buy and sell stocks on the same day, no interest will be charged on that day.
2. Currency Conversion
Mike can also exchange the S$ to USD. Tiger does not charge exchange fees, but you may lose part of the difference in exchange rate fluctuations. Different from financing, currency conversion has a one-time cost.
2. How does Mike choose to finance or exchange money?
1) If Mike mainly invested in SG stocks and buys US stocks occasionally for day trading or only hold the stock for a few days, he should choose financing because financing fees is lower than the cost of conversion in this scenario.
2) If Mike's holdings are mainly US stocks or he wants to hold US stocks for a month, he should choose to exchange as the financing costs become expensive as Fed increases fund rates.
The financing rate offered by Tiger is based on the latest fund rate, you can refer to the exchange rate on the official website. (currency conversion)
3. Why does financing becomes more expensive?
In previous years when fund rate is near 0%, the annualized rate of conversion to USD was only 4%, compared to the current financing rate on Tiger of 6.3%.
Looking ahead, the interest rate on financing will continue to increase as there more Fed rate hikes to come.
Compared to the high interest rate of SGD-USD, the interest rate is lower when you exchange to other currencies.
Conclusion
Let's summarize the differences and advantages of the 2 methods.
When investing in stocks different from your account currency, we have several factors to consider.
1. Your position.
- For occasional purchases of stocks in other currencies, choose financing;
- For long-term investments/holdings, choose foreign exchange.
2. The currency in your account.
As we mentioned before, the increasing rate makes financing to USD more expensive. You need to decide based on your position and investing details.
However,
if you fund your account with USD, the financing rates for HKD & SGD are both low. You can choose financing or conversion at your will.
AS USD continue to appreciate, if you use US dollars to finance for investing HK/SG stocks, the appreciation of the USD can cover the annualized rate of the financing.
To learn more about financing, please click financing interest rates
For more information on currency exchange, please click currency conversion
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
Firstly in very bad times when volatility is at all time rage, to do day trading is preposterous. Just consider the risk no? There's more risk no?
Secondly, would u buy (with borrowed money) when mkt is trending downwards or upwards? Afterall both hell n heaven are without limits no? Lol
Lastly, just wished all those who left favourable remarks have actually thought thru with their critical thinking faculty before praising n agreeing. Nothing wrong if agreeing Especially if u know what you are saying n doing.
But for the rest of the new entrants to Tiger apps n community, their inexperience and eagerness to learn could be thwart n mislead by all these positive remarks. Do include a qualifier warning as a stop gap, for the sake of new members.
We all want everyone to grow and prosper together (not exactly in tandem) in this community ya? Agree?