Buy Foreign Stocks: E*Trade vs. Fidelity

When E*Trade launched its global trading platform in 2007, I saw it as an opportunity to finally be able to buy some internationals stocks that are not otherwise available to retail investors in the U.S. At that time, Chinese stocks were as hot as they could be and buying Chinese stocks seemed to be the easiest way to quick money. As I still remember, in 2007 many top-performing mutual funds were those invested in China. Though I already own a China fund, the PowerShares Golden Dragon Halter USX China (PGJ) which also did quite well, I wanted more. So when E*Trade Global Trading became available, I jumped in shortly and bought two Chinese stocks that are traded in Hong Kong: Industrial and Commercial Bank of China (ICBC) and Alibaba.com. However, China stock market crushed after reaching the all-time high in October 2007 and stocks traded in Hong Kong were not immune to the catastrophe. Even though the markets, in both China and Hong Kong, have recovered a lot this year, my investments were a mixed bag: ICBC is doing quite well but Alibaba is a big disappointment.

Anyway, my investments are not what I want to talk about here. It’s the platform that allows ordinary investors to buy stocks traded on exchanges outside the U.S. Until last week, the only broker that lets investors invest in international stocks directly is E*Trade as far as I know. But now, it has a competitor. On October 30th, Fidelity introduced its own international stock trading platform as the appetite for investing in foreign stocks grows. The move puts Fidelity in direct competition with E*Trade. So how are these two compared against each other? I took a quick look at Fidelity’s new platform and the following are what I found.

Eligibility

I opened my E*Trade Global Trading account without any eligibility issue. At that time, I didn’t have any account with E*Trade and there was nothing that prevented me from getting the account. However, that doesn’t seem to be the case with Fidelity, which requires to have a non-retirement account¬† that trades 120+ times per year and $25,000+ in assets, or
$1 million in household assets. Well, I have to say that the requirement is very high for a small investor like me. I may like Fidelity better than E*Trade, but I am not eligible to have Fidelity International Trading account for sure.

Foreign Markets

If you are eligible for trading with Fidelity International Trading, then you do have a wider selection of foreign markets offered through the platform. In addition to Canada, Hong Kong, France, Germany, Japan, and United Kingdom that are available at E*Trade, Fidelity also provides investors access to six more developed markets: Australia, Italy, Belgium, Netherlands, Norway, and Portugal.

Commissions

My biggest concern when trading stocks is how much a trade is going to cost me, whether it’s a domestic stock or a foreign equity. I am always looking for the cheapest brokers. However, there’s no such thing as cheap in foreign stock trading. It cost me a lot to buy ICBC and Alibab with E*Trade.¬† Here how much Fidelity and E*Trade charge to trade in a particular market:

Country Fidelity E*Trade
Japan 3,000 JPY 3,399 JPY
Canada 19 CAD 19.99 CAD
France 19 EUR 19.99 EUR
Germany 19 EUR 19.99 EUR
HonKong 250 HKD 299 HKD
United Kingdom 5 GBP 9.99 GBP
Australia 32 AUD N/A
Italy 19 EUR N/A
Belgium 19 EUR N/A
Netherlands 19 EUR N/A
Norway 160 NOK N/A
Portugal 19 EUR N/A

So basically, E*Trade charges a lot more in commission than Fidelity does. However, if you are like me, who wants to buy foreign stocks but don’t like a lot of money to meet Fidelity’s requirement, then E*Trade is the only choice, despite the high cost.

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Currencies

When I bought those two stocks through E*Trade two years ago, I had to convert my fund into Hong Kong dollars before I could use the money to purchase the shares because E*Trade requires all trades be conducted in local currencies. At Fidelity, it seems that things a little more flexible as you can settle your trades in both local currencies and U.S. dollars. But, there is a price on settling with U.S. dollars. According to Fidelity,

If you choose US dollars as the settlement currency for your international stock trade, a foreign currency exchange fee (in the form of a mark up or mark down) based on the size of the currency conversion will be charged when the foreign currency exchange executes.

So you still have to pay for converting local currencies into U.S. dollars, not that Fidelity will do it for you for free. Thus, Fidelity recommends that if you trade in a particular market very often, it’s better to exchange “a certain amount of currency to avoid currency exchange fees on each trade”.

Currencies Exchange Fees

Since you may need to convert your U.S. dollar into the local currency before making a trade with either E*Trade (required) or Fidelity (recommended), another cost of buying foreign stocks is the fee that you pay to make the conversion. I wasn’t able to find the exact mark-up at E*Trade, but last time it cost me $11 to convert $1,000 to Hong Kong dollars. At Fidelity, the more money you convert, the less fee it charges. For $100K or less, the fee is 1.0% of principal. So if I exchange $1,000 into Hong Kong dollars, pretty much the same as what E*Trade charges. However, I am not sure whether the fee is also proportional to principal at E*Trade as the information is not available.

Well, from what I have seen, even though it costs more to trade with E*Trade, but it is still an affordable choice if you want to invest in foreign stocks unless you have a lot of money to be eligible for Fidelity’s International Trading.

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6 Responses to “Buy Foreign Stocks: E*Trade vs. Fidelity”

  1. Markus |  Nov 16, 2009 at 11:19 pm

    Interactive Brokers is cheaper and more established than either brokerage mentioned above for global trading.

  2. Sun |  Nov 19, 2009 at 7:47 pm

    Maybe it’s time to take a look at Interactive Brokers. I have heard it many times, but never really knew anything about it.

  3. directd |  Feb 02, 2010 at 1:20 pm

    The problem with IB is that they are really for traders and not investors. You have to make a minimum number of trades per month or pay a very high maintenance fee.

    It is unfortunate that there are so few options for small investors wishing to enter foreign markets. Surprised that Ameritrade or Schwab haven’t tried to give ETrade some competition here. I would think it’s only a matter of time really as the appetite for access to foreign markets will only increase over time IMO.

  4. Nicholas Vandersky |  Sep 02, 2010 at 12:37 pm

    This article is very useful! Have been trying to find a good comparison on discount online brokers for trading online.

    IB is good too but requires you to make 10 dollars of commission trade fees per month or else they charge you the equivlant. So you are looking at minimum of 120 a year to maintain an account with them.

  5. peter |  Jun 02, 2011 at 1:19 pm

    Where can I find a discount stock trader in the U.S. or offshore that keeps all my
    money,100%, in a foreign currency. However,
    I mainly trade the U.S. stock market. I don’t like to be in U.S. dollars.
    Peter

  6. Mei |  Aug 08, 2011 at 4:34 am

    What 1% fx fee? Can you not trade fx yourself?