The most expensive hidden cost: FX conversion at your broker

The FX market has a mid-market rate, sometimes called the interbank rate. Your broker does not convert you at that rate; it converts you at one offset from it. The offset is the markup, and it is the entire fee regardless of how it is presented.

There are two presentations. Either the broker converts at the mid-market rate and charges an itemised fee, say 0.25% of the converted amount. Or it converts at a worse rate and charges nothing. Economically these are identical. Only the first is auditable.

The distinction from currency risk matters. The FX markup is a one-off transaction cost. Currency risk is an ongoing market position: if you hold US shares, you hold dollar exposure regardless of what currency your account is denominated in. Neither substitutes for the other, and a hedged share class removes the risk, not the fee.

An honest caveat about the leader. At Interactive Brokers the USD 2 minimum binds on any conversion below roughly USD 100,000. Converting EUR 5,000 therefore costs you an effective 0.04%, not 0.002%. That is still an order of magnitude below the field — but it is not the headline number, and on small amounts Interactive Brokers can actually be dearer than Trading 212. The next section puts that on paper.

You put EUR 5,000 into a US-listed share and later sell it. The conversion happens twice. For clarity we apply both to EUR 5,000.

The commission on that same trade is between zero and about EUR 5 at every broker in the table. So the conversion is not one cost component among several. On a foreign-currency trade, it is the price of the trade.

One detail people miss: the sell-side conversion applies to the proceeds, not to your original stake. If the position doubles, so does the exit charge. At 0.95% on EUR 10,000 of proceeds that is EUR 95 rather than EUR 47.50 — the success of the investment increases the fee.

Now the case that affects most people: EUR 500 a month into US-listed assets. That is EUR 6,000 a year, EUR 60,000 over a decade — and 120 separate conversions.

That last row is the interesting one. On EUR 500, 0.002% works out at a cent, so the USD 2 minimum bites every single time. Twelve conversions a year cost roughly USD 24, and the cheapest broker in the table becomes more expensive than Trading 212 for this pattern. A headline rate is worth nothing when the minimum binds.

The fix is batching. Convert EUR 6,000 once a year: 0.002% of that is twelve cents, so the minimum applies again — but only once. About USD 2 a year instead of USD 24, so USD 20 instead of USD 240 across the decade. Same broker, same money, a factor of twelve, purely from batching.

The honest counter-argument: batching means holding money uninvested or in the wrong currency for longer, and converting the whole amount at a single exchange rate. You are trading a certain fee saving for exchange-rate timing risk. On a EUR 500 monthly plan that trade-off is reasonable; on six-figure sums it should be made deliberately.

Trade Republic, Scalable Capital and eToro do not itemise a conversion fee. At the two German providers the mechanism is the same: US shares are quoted and settled in euros, and the conversion sits inside the quoted price. Scalable Capital has no direct US exchange access at all — orders execute on gettex, EIX or Xetra in euros.

This is not the same as a concealed fee. The mechanism is disclosed; the number is not. But an unnumbered cost cannot be compared, and "cannot be compared" is not a neutral property.

You can still estimate it. Take the share's price on its primary listing at a given moment, convert it to euros at the mid-market rate for the same second, and compare that against your actual fill. The difference contains the spread and the embedded conversion together. Repeat it across several trades and you have a defensible order of magnitude.

eToro is a slightly different case. Its published fee page states that the conversion charge varies by location, payment method and Club level, with a 50% discount for Platinum and Platinum+ and an exemption for Diamond — but gives no base rate. Because the core account has historically been dollar-denominated, that is simultaneously the most important number for European clients and the one that is missing.

• Dividends. A US dividend arrives in dollars and converts to euros. On a EUR 200,000 US portfolio yielding 2%, a 0.5% markup on EUR 4,000 is about EUR 20 a year — small, but every year. Reinvest the dividend and you convert back, paying a second time.
• Withdrawals. Moving money from a dollar account to a euro bank account is another conversion. At eToro, withdrawing from a USD account costs an additional USD 5 with a USD 30 minimum; from a local-currency account it is free.
• Deposits. Funding a dollar account from a euro bank may hand the conversion to your own bank, frequently at a materially worse rate than the broker's.
• Corporate actions. Rights issues, tender offers and redemptions in a foreign currency all trigger a conversion, usually without your involvement.
• Interest on balances. Foreign-currency cash earns interest in its own currency and converts when credited or reallocated.

1. 1Hold the currency. A multi-currency account removes the conversion entirely. Trading 212 supports more than twelve currencies, Interactive Brokers runs a separate ledger per currency, and Lightyear holds GBP, USD and EUR free of charge. Buy US shares from a dollar balance and you pay nothing. One warning specific to Interactive Brokers: if you let the platform auto-borrow the currency you are short instead of converting deliberately, you pay margin interest without noticing — a common and entirely avoidable mistake.
2. 2Buy the euro wrapper. A UCITS ETF tracking the same index, listed on Xetra in euros, involves no conversion at all. The trade-off: the fund has its own ongoing charge and tracking difference, and it still converts internally. The currency exposure remains unless the share class is hedged.
3. 3Batch. Fewer, larger conversions, particularly where a fixed minimum applies. The worked example above shows the factor of twelve.
4. 4Pick the broker on this line. If conversion is the largest cost block in your pattern, it should dominate your broker choice — not the commission everybody talks about.

A low conversion rate is not an end in itself. Do not move to a worse broker to save 0.2% if the commission, the custody fee, or the missing product access costs you more.

Do not confuse the markup with currency risk. A euro-hedged share class removes the market risk, not the fee — and the hedge itself carries an ongoing cost of roughly the interest-rate differential between the two currencies. That running cost can comfortably exceed a one-off 0.5% conversion.

Do not park a large dollar balance purely to avoid future conversions if that balance pays no interest. Swissquote's own schedule pays 0% on cash in every currency. A EUR 20,000 balance forgoing 2% costs EUR 400 a year to save EUR 190 of conversion. That arithmetic does not work.

And do not pick a US-listed ETF simply to avoid a fund wrapper: EEA retail clients generally cannot buy US-domiciled ETFs anyway, because they lack the key information document required under the PRIIPs regime. In practice the choice is a euro-listed UCITS ETF versus a dollar-denominated individual US share, not US ETF versus UCITS ETF.

1. 1Find the conversion line on your broker's price list. If there is not one, that is your finding — treat the provider as unpriceable for foreign-currency assets.
2. 2Count your conversions per year, not per trade. Buy, sell, every dividend, every withdrawal.
3. 3Check whether a fixed minimum applies, and whether batching removes it. At Interactive Brokers this is the single biggest lever.
4. 4Open the currency sub-account before your first foreign-currency trade, not after. At Swissquote this alone is the difference between a reasonable account and an expensive one.
5. 5Total up your annual conversion cost and set it against your annual commission for the same year. If conversion is larger, you have found your primary selection criterion.
6. 6Check the tax and regulatory points for your own residence separately — withholding tax on dividends, the treatment of foreign-currency gains, and reporting duties are country-specific and change over time; your national tax authority gives the binding position.

This guide is information, not investment advice.