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Welcome to another issue of Investors Ask where I post my answers to interesting questions from readers or members of the investment communities I engage in.
Today I’ll address the following question:
Should people from Europe buy US stocks in euros or does it not really matter if you buy in euros or dollars?
There is only one reason to buy a US stock listed in euros
And that is to avoid foreign exchange fees. So if you are earning in euros, or most of your portfolio is in Euros, then it can make sense to buy in euros.
Personally, I always buy the primary listing since I have had a bad experience with market makers on a secondary listing and the foreign exchange fee is negligible compared to returns I am expecting.
For reference, the foreign exchange fee at my broker is between 0.08 to 0.20 basis points, or 0.008% to 0.02%.
What about currency hedging?
Some investors mistakenly believe that buying a US company in euros provides a currency hedge. However, because the underlying company’s revenue, profit, and share are in USD, the EUR-denominated price will fluctuate based on:
The performance of the US company’s stock on its primary US exchange (in USD).
The exchange rate between the Euro and the US Dollar.
Any temporary divergences in price are usually minor and arbitraged away by traders.
Thanks for reading!
This issue was a bit shorter than usual, but I hope you enjoyed it. See you next time!
If you have a question you’d like me to cover, leave a comment below.