Investing in markets outside of your local market is always a smart idea. The very fundamental beginners rules for investors, is to diversify your investment profile over a large number of instruments, markets, and also locales. You don’t want to put all your eggs into one basket.
There are a lot of ways to invest abroad. You can invest in a foreign currency (via simply buying it, or placing a forex contract for differences on it), you can buy foreign stocks, foreign bonds, and even invest your money into foreign real estate (by acquiring it or investing into Real Estate Funds. Whichever option you would choose, you will have to withstand enormous currency exchange fees (with the exception of CFD trading via forex brokerage platforms).
As you wouldn’t trade (stocks or forex) through the bank’s platform because of the excessive fees and poor execution, so shouldn’t you be exchanging your money through one. The vast majority of people do not compare the real-time exchange with the bank’s quote, and thus are unaware of exchange rate markups these facilities take. At the end of the day, as an investor, you should be focused on return, and if that return is consumed by fees, it makes no sense.
Some Fees You Could Be Paying On Foreign Investment Currency Exchanges
Currency Transfer (Between popular currencies like USD, EUR, GBP, AUD): $20-$50 per wire transfer, and additional 1.5%-2.5% in markups.
Currency Transfer (Between exotic/less-trad-able currencies): $20-$50 per wire transfer, and additional 2.5%-4.5% in markups.
Cash Exchange (Popular currencies): 1.5-3%
Cash Exchange (Exotic currencies): 2.5-5%
What’s The Alternative?
The best bank alternative to foreign investments is whole-sale currency providers. These are companies that buy currencies in bulk and then re-sell them in pieces. They are trading several billions annually, so they have the right regulatory supervision, have enough liquidity to handle big clients, and most importantly offer their services for free. They can move money abroad for you, and the wire transfer wouldn’t cost you anything regardless of the transfer size, and use slighter markups (and you can also get a discount if you are moving bigger volumes).
Here you can find a selection of companies that specialize at international money transfers to different popular locations in the world. You can also use them to move money between your accounts, even if you’re in the same country (you can pay them as an intermediate).
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Are your funds secure?
When you use such alternative providers your funds are secure as long as you have decided to go with a brokerage which is licensed by one of the largest financial regulators – FCA (Britian), ASIC (Australia) or SEC (USA). Please note that in the USA We are not aware of any payment provider licensed by the SEC, in most cases they are licensed by each state they want to operate in.
You have to conduct a thorough research. Read relevant reviews and experiences like in InternationalMoneyTransfer.co blog and simply formulate an opinion. In the same manner as you did when you chose your trading platform and brokerage.
Still, you will be exposed to some risk while going down that route. Although a part of the regulation is that clients accounts are segregated from the company’s current accounts, if something goes awfully wrong, you will be forced to file a lawsuit (as a corporation) or be in contact with the regulator which is usually not that efficient.