foreign currency stock trading without the fx exposure

[stock punter]

calling all foreign currency stock traders!

anyone here uses a broker that allows them to trade foreign currency stocks without taking the fx exposure? in other words would be like borrowing the foreign currency from the broker (not margin trading though, since I'd look to place S$ in the account)

For example suppose I want to buy US$10k worth of stock, instead of converting S$13,500 to US$, and thereby run fx risk on the transaction (on top of the price risk on the stock), I'm looking for a broker that will allow me to place a S$ amount, say 15k (ie I am happy to over-collateralise) and lend me the US$ on an overnight basis (ie I'll pay normal borrowing cost on the US$, and expect to receive interest on the S$) then when I sell the stock I'll close out the US$ position)

my current broker, DBS Vickers doesn't have this facility (hough strangely the securities arm DBS securities which executes futures trades, does offer it... so for stock index future trades I can do it already without the fx exposure... go figure why one part of DBS can't offer, what another part can...)

thanks!

[DamnAussie]

I dont do trading anymore on a personal basis and have never done it in SG.

Do you want to do all this on your own using a trading interface provider or a fully fledge broker who will trade on your behalf ?

Maybe you can find a local broker who will let you open a US dollar account and also allows you to trade in US stocks ? The trick is to convert your SG to US at the right time, ie a little before you plan to do the trade but this is an additional factor to calculate when you plan to make the stock purchase, then sale. You may also ne able to open an account in the US in US dollars. You have probably thought about the above already and it looks like you want to minimise your risk to US$ at all times.

An alternative is to do a quanto trade but this is an option and you will need to actually purchase it from a financial company.

I think that unless you have alot of money, (as in considered to be a High Net Worth individual), you will not be attractive enough to a broker to warrant the additional costs and risks of covering the FX factor and subsequent stock purchases.

[stock punter]

thanks for replying aussie mate!

The point is, I dont want to pick "the right time".  I simply want no fx risk at all.  I am not after a full service broker, just an online platform with low fees.  Even though I am a foreigner, I've lived here a long time, and so I view S$ is my "base" currency.  I also picked up some Kiasu-ness, so prefer a broker with a Singapore presence (rather than just random offshore internet-based broker

BTW the broker won'e be taking any fx risk either.  Easier to illustrate by using my DBS securities account as an example

I've deposited around S$ 50k.  The margin for S&P futures is around US$ 4k (can't remember exactly), so if I trade 1 lot the broker will have my cash account as long S$ 50k, short US$ 4k (of course the US$ amount will fluctuate daily, depending on whether the future trade is winning or losing), so the broker pays me interest on the S$ amount, and charges me on the US$ (as it effectively loans me the amount)

When I close the futures trade, if I made money I'll have a positive US$ amount as well, and if I lost, I'll have a permanent negative amount (until the next hopefully winning trade, or if I convert some S$ to US$ to close out the loss). 

So whilst I run fx risk on my potential profit/loss (cant be avoided), I dont run it on the actual underlying position

So what I am after is a similar setup for cash stocck trading.  Like I say, I am disappointed DBS Vickers can't do it given that DBS Securities have no problem in doing it, and sure I could ring up all other singapore brokers and ask them, but if anyone reading this already has a broker than can do it, and willing to share the info, it will be much appreciated!

[Stamford]

u can do this with interactivebrokers
but they don't accpet SG main a/c - must be G7 lah
so i'm afraid with SG as base, to trade global equity u MUST  carry FX risk

am in same boat as you ie SG base - and as much as i admire sg's phenomenal achivements - finance sector here is not on par with the rest of the economy

i woud recco u give up your hang-up about using a singapore based broker as they will not be world class

[stock punter]

thanks stamford

just to clarify my comment in the previous message.  I am not against foreign brokers (and indeed I am indifferent between Singaporean or foreign), but I do strongly prefer the broker to have a presence in Singapore, even if only to have someone local to deal with if things go awry. 

[DamnAussie]

When I close the futures trade, if I made money I'll have a positive US$ amount as well, and if I lost, I'll have a permanent negative amount (until the next hopefully winning trade, or if I convert some S$ to US$ to close out the loss). 

Regarding your example Im not sure I understand this part. If you have a negative amount then surely you need to at least cover the interest or charges on the US$ side even if you have collateral elsewhere (which in this case would ge SGD) ? I don't know everything so happy to be corrected or informed.

As for using a SG based broker I understand the reasoning as its something i would prefer myself. However if its not possible to find a broker in SG maybe there are brokers in the US which would accept SGD ?

I guess this whole idea comes from the low US$ and the possibility of it going lower over medium term. Of course when...and if........the trend reverses then your revenue will be go up expotentially as you will then be using FX to convert those USD into SGD. Is this your overall intention ?

Cheers

[TryThis]

See if they will offer contracts known as "contract for difference".. while these do not eliminate the fx risk, the risk is reduced by a lot.. your exposure is only on the net gain(loss), not the notional of the underlying..

[stock punter]

damnaussie, let me explain by an example

suppose i buy a stock today for US$10k, exchange rate (US$/S$)= 1.35, so S$ 13.5k

say in 1 month stock went up 10% so worth US$11k, but exchange rate went down to 1.20 (purely illustrative example.  I dont have any specific view on the US$)

if i bought the shares initially by converting S$13.5k then when I sell, the US$11k will convert back to S$13.2k, so a loss of S$300

What I am looking to do is simply borrow the US$10k, then a month later I sell the shares, pay back the 10k loan, and convert the profit of US$1000 to S$1200 (less interest costs on the US$ loan for the 1 month).  In other wards only the profit (or loss) is now exposed to the exchange rate

As you rightly pointed out there is also the cost of the borrowing, ie I have to pay interest on the US$10k.  However I'd expect this to be a low rate (say interbank rate + 1% or so), since the loan is fully collateralised with S$ cash amount, in other words there is no credit risk to the broker (as there is with unsecured borrowing or even with margin lending)

[sternbear]

If you are borrowing USD how is the loan fully collateralized with a SGD cash amount ?

[Guess]

Presumably you would need to over-collateralise sufficiently to account for what the 'expected' USD/SGD fluctuations and would be expected to top up the collateral if a certain loan - collateral ratio was breached

[sternbear]

Presumably you would need to over-collateralise sufficiently to account for what the 'expected' USD/SGD fluctuations and would be expected to top up the collateral if a certain loan - collateral ratio was breached

That's what I thought, but that implies that the loan itself is subject to FX risk (not just the profit/loss on the investment). So I don't see how OP is getting around the FX risk this way

[stock punter]

the collateralisation is simply to reduce the risk to the stock broker, thereby reducing the interest cost.

there is no fx risk (on the principal) since i want to borrow USD and pay back USD.  Lets say if the share price never moved from US$10k, I could sell the shares anytime and pay back the loan, regardless of how the US$ / S$ rate moved.

[sternbear]

I don't understand what the problem is then, you seem to have worked it all out.
You can borrow USD from pretty much any bank and then trade away to your heart's content

[stock punter]

yes, simply borrowing USD is my fall back option.  It's not ideal since it may involve various loan start up costs/application fees, higher interest rate, potential diffculty in repaying as when I want without any penalty (ie when I sell the shares I'll want to repay the loan), and also paperwork hassle in needing to transfer amounts between a loan account with the bank and the trust acount at the broker

would have been simpler to have all this done at the stock broker level, simply pay a daily interest rate at the amount borrowed, and like I mentioned before this is already available at the futures broker (DBS securities).  thats why I am frustrated it is not available at the cash stocks broker (DBS vickers).  I don't know if this is a specific deficiency of DBS, or whether other cash brokers are also incapable of offering this foreign currency lending facility