How Stock Trading Platforms Deceive You With “Low” FX Fees

If you plan to buy US stocks from Australia, you’ll need a way to exchange your AUD into USD. (And no, asking your cousin Dimitri to help you out – because he owns a laundromat next to the casino – isn’t practical).

This conversion costs money.

In fact, most stock trading platforms – especially low-cost platforms like Selfwealth, Webull, Tiger Brokers and moomoo – make most of their money by giving you a haircut (usually between 40 and 70 pips) during this transaction.

But most people are too financially illiterate to understand the true cost of this number.

And I was horrified to find out that I paid Selfwealth about $4,000 in FX fees to build out my $500,000 portfolio.

If I’d known what I’m about to tell you, I could have paid as little as $50.

How Trading Platforms Lie To You.

Stock trading platforms bury their currency conversion fee in the fineprint, while touting their low headline brokerage fees.

Selfwealth’s pricing page is a perfect example.

Above: Selfwealth positions itself as the good guy in the fight for lowest fees.

It boasts about the $9.5 brokerage per trade (1), compares this to major banks (2) and scoffs at brokers that slap you with non-trading fees (3).

But if you’re not careful, you’ll miss the tiny snippet (4), that says, “Foreign exchange fees are charged per currency conversion on each trade”.

No. It insists you poke around the website to eventually discover – buried in more fineprint – that a 60 pip FX fee applies.

Technically, the platform isn’t explicitly lying. Not enough to attract ASIC’s attention.

(Related: Best Share Trading Platforms In Australia).

But in my view, it is presenting information in a disingenuous way that distorts your perception of its real fee structure.

It’s not unlike a magician’s sleight of hand – it distracts you with low brokerage fees, while the real trick happens elsewhere.

A noob investor will see this number, think that it translates to roughly 0.6%, and think –

But this investor is wrong. In fact, they’re making three huge mistakes.

What 99% Of Investors Don’t Realise About FX Fees.

Here’s what you need to know about FX conversion fees.

1. The Percentage Myth.

60 pips isn’t equal to 0.6% of the money you’re converting.

Pips and percentages are totally different things. 60 pips is a fixed adjustment to the AUD/USD exchange rate.

The best way to explain this is using an example.

As I’m writing this article, the AUD/USD FX rate is 0.71.

A 60-pip spread is 0.0060, so the platform would reduce your FX rate to: US$0.7100 – US$0.0060 = US$0.7040

2. USD Hides The True Cost.

Notice that Selfwealth charges you the spread on the US side of the transaction.

You owe them US$6, and to find out the real cost in AUD, you need to convert that number to AUD. At the same 0.71 rate, you’ll pay AU$8.4.

This is where the real cost becomes apparent – $8.4 of $1,000 is 0.84%.

In fact, you’ll likely pay more in absolute terms – because you’ll (hopefully – if you invested wisely) be paying the FX fee on a larger sum.

In net terms, you have a mind-boggling 1.68% drag on your portfolio – just in FX fees.

3. Larger Deposits Get Scary.

0.84% seems small only at small amounts. Once the figures get serious, the real cost starts to sting.

If you’re starting from zero, depositing a few hundred dollars per month, $50,000 may seem like a “tomorrow” problem that doesn’t apply to you.

But when you really think about it, isn’t it just a matter of time until you reach it – so why would you throw away money on FX fees in the meantime?

If there’s one thing I learned, consistent savings add up quickly – so that $50,000 figure may not be as far away as it seems.

(Related: Best Stock Trading Apps In Australia).

Which Trading Platforms Mislead You Like This?

I’m not here to pick only on Selfwealth. That would be unfair.

I singled them out above because I was caught off guard by their practices – and because they offer no discounts on their FX fee.

Most retail stock trading platforms do the same tricks, but many of them will give you a discount on the fee – or they’ll charge the fee on the AUD side of the transaction:

The only platforms that gives you low FX fees with no sneaky tactics are eToro and Interactive Brokers.

With the latter, you’ll pay just a few dollars (literally $2-4) on most transactions, or 0.3 pips. Yep, that’s not a typo.

But nothing in this world is free – Interactive Brokers charges you for live data feeds while eToro and Tiger Brokers, for example, provide them for free. And then you have to deal with Interactive Brokers’ silly interfaces.

eToro, meanwhile, charges you a flat 0.75% on the AUD side. Yep, it’s a flat percentage – not a pip-based adjustment to the exchange rate. But this is just a starting point – you can reduce it to practically zero if you’re clever.

Steven