Advice trading currency
January 14, 2010 10:31 AM   Subscribe

Advice about how to convert dollars and euros back and forth.

For the sake of simplicity, lets say I currently have $100 in a bank in the United States, am living in Europe, and the bank does not charge me ATM fees to take that money out in Europe. I speculate that at this moment, the exchange rate is favorable for buying Euros so I take all the money out of my US account in Europe (I have found that via the ATM I get nearly the same rate that's posted on, thereby avoiding commisiion). So, thus far, that exchange was done without paying any fees or commissions.

Now what i'd like to do, is find a way to do the same to exchange the euros back into dollars when I think the time is favorable. There are some American banks in Europe like Citibank or global banks like HSBC. Does anyone know if I open an account with them, put my euros in there and then withdraw that money at their ATM branch in the states would I benefit from the same no-fee transaction.

Basically, the bottom line is that I want to trade between these two currencies but the whole idea of the currency trading market and it's rules scare me and seem complicated. Plus, there are brokers involved, accounts to sign up for, fees to pay, forms to sign etc...

My way seems like it could be a much more hassle free way to do it. And since i'm talking about a sum of less than $10,000, I wouldn't be involving raising any alarms with the authorities (I think).

Can someone please critique this idea and tell me if I am making it out to be too simple??

posted by postergeist to Work & Money (10 answers total)
Your way is hassle free - IF you intend to be travelling between Europe and the US constantly. Most people don't do this, and therefore it is less hassle for them to do the paperwork.
posted by jacalata at 10:40 AM on January 14, 2010

Generally speaking the cheapest way to exchange one currency for another is if you are exchanging significant sums--far in excess of $10,000--in which case you would have to file all the paperwork in order to prove legitimate intent.

Given that you are not planning to exchange this level of currency, the scenario you describe above sounds reasonable. However, you are ignoring the cost of the plane tickets to and from the States/Europe.
posted by dfriedman at 10:45 AM on January 14, 2010

Don't do it. For one, nearly the same rate is not the same rate. Even a small difference between the buying and selling rate adds up to a big difference if you are buying and selling multiple times. Even so, the difference is probably not that small. Have you considered that the exchange rate may have changed between the time that you withdrew money and the time that you checked the rate online? Secondly, dealing with cash will be a huge hassle. You can't withdraw large amounts from an ATM and you certainly don't want to be carrying cash around all the time. It looks like your plan requires you to be in the USA or Europe at the "favorable" moment to make the trade, which seems like a big assumption. Even if you manage to make a small profit (let's say you make 2% on a trade of $5000, or $100) it will be far too little to make this worth your while.

If you really want to speculate on USD-EUR, there are derivatives that allow you to do that with larger amounts and there are ETFs that allow you to do that with smaller amounts.
posted by ssg at 10:49 AM on January 14, 2010

You can hedge exchange rate risk with swaps and swaptions, however, these are rather arcane financial instruments and require significant amounts of capital.

You can also use exchange-traded funds (ETFs) as ssg notes.
posted by dfriedman at 10:51 AM on January 14, 2010

More specifically, a foreign exchange swap.

(Sorry, it's been a while since I have dealt with derivative securities, and there are so many different types and flavors...)
posted by dfriedman at 10:54 AM on January 14, 2010

Just piping up here to say that if it were as easy to do as you postulate, many more people would do it (and not lose money). Foreign Currency hedging/swaps are complex, and not for the faint of heart. This is the currency version of 'timing the market', and for success, relies primarily on luck. Also - too much work!
posted by dbmcd at 10:59 AM on January 14, 2010

Why don't you just get a discount brokerage / forex account and trade?
posted by jckll at 11:39 AM on January 14, 2010

After all, John Maynard Keynes made his fortune this way -- If he can do it, why couldn't you!
posted by jckll at 11:40 AM on January 14, 2010

If you're living in Europe when you want to exchange your EUR to USD, are you planning on going to the states just to withdraw the money? That's a long trip for under 10k

Here are some tips that I picked up (perhaps you can add it to your existing knowledge to make something happen): The Capital One credit cards (in the US) do not charge any fees when you use their cards to buying something in another currency/country, perhaps the Capital One cards in the UK do the same thing?

Citibank in Europe (at least my experience in Belgium) operates virtually independently from Citibank in the US. Any transactions between the two are as if they were different banks altogether.
posted by JiffyQ at 11:58 AM on January 14, 2010

Look into Everbank. You can link a US$ account with a Euro account and freely shift money back and forth between them when rates are favorable. But AFAIK, they do not have ATMs, so you would have to transfer to another bank first before withdrawing/depositing cash.
posted by oceanmorning at 10:34 PM on January 14, 2010

« Older Ableton Live in two days of piddling around?   |   What are your favorite non-fiction anthologies? Newer »
This thread is closed to new comments.