Influence of the currency on the purchase of shares in Etoro

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Post in italiano

We have already highlighted how the commissions on Etoro can affect our money deposit , making our net deposit less than the gross one and in fact by making us pay a small deposit fee.

Now we are wondering how the currency can influence our purchases, with the euro-dollar exchange rate updated on 05/04/2020.

Let’s take as an example a purchase of Dior titles that I personally made on two separate dates.

On 7 June 2019 I made the purchase of Dior shares for a quantity equal to 1.066546 units while on 31 March 2020 I made a purchase of Dior shares for a quantity equal to 0.340287 units.

On June 7, 2019, at the time of purchase, a Dior share cost € 442 while on March 31, 2020, at the time of purchase, a Dior share cost € 318.

The following table shows a schematic of the matter.

Purchase datePrice per shareQuantity purchasedInvestiment
07/06/2019442€1.066546471.41€
31/03/2020318€0.340287108.21€
Table 1. This table shows the data relating to the price of a Dior share, the quantity purchased and the total investment

Also take into consideration that the currency exchange at the time of purchase on 07/06/2019 was 1.1264 $ / € while the currency exchange at the time of purchase on 31/03/2020 was 1.0997 $ / €. The Etoro account is in dollars, so it appears that the action purchase of 07/06/2019 was more expensive than that of 03/31/2020, because one euro was worth more dollars than the date of the second purchase.

To understand how much was paid in percentages on the first purchase compared to the second, due to currency exchange only, the following ratio is considered:

\frac{IC-FC}{FC} \cdot 100\%

In which:

  •  IC means “Initial Change” and therefore represents the currency exchange on 07/06/2019
  •  FC means“Final Change” and therefore represents the currency exchange on 31/03/2020

Calculating you get:

\frac{1.1264 \frac{USD}{EUR}-1.0997 \frac{USD}{EUR}}{1.0997 \frac{USD}{EUR}} \cdot 100\% \approx 2.43\%

Instead, to understand how much was saved on the second purchase compared to the first, due to the mere currency exchange, the following ratio is considered:

\frac{FC-IC}{IC} \cdot 100\%

Calculating you get:

\frac{1.0997 \frac{USD}{EUR} - 1.1264 \frac{USD}{EUR}}{1.1264 \frac{USD}{EUR}} \cdot 100\% \approx -2.37\%

So on 31/03/2020 I saved 2.37% in dollars compared to 07/06/2019, while on 07/06/2019 I spent more 2.43% in dollars compared to 31/03/2020 . If I had been able to obtain Dior securities by keeping the currency in euros for the duration of the investments, my spending in euros would have had no correspondence in terms of greater expenditure or savings.

If we wanted to calculate how many dollars I actually spent more on the first purchase than on the second, you should take into account not only the difference between the purchase prices but also the difference between the currency exchange rates.

Remarks

If I had bought Dior securities on 07/06/2019 with the same currency of 31/03/2020 I would have spent 2.37% less and therefore I would have spent about $ 431.52 per share. Due to the currency exchange I spent $ 431.52 – $ 318 = $ 113.52 more per share but if there had been no currency exchange I would have spent $ 442 – $ 318 = $ 124 more per share. The increase in the price difference is therefore around 8.45%. It would have been cheaper to buy in the currency of 3/31/2020.

If instead I had bought Dior securities on 3/31/2020 with the same currency as 07/06/2019 I would have spent 2.43% more and therefore I would have spent about $ 325.73 per share. Because of the exchange rate, I spent $ 318 – $ 442 = – $ 124 less per share, but if there was no currency exchange, I would have spent $ 325.73 – $ 442 = – $ 116.27 per share. The decrease in the price difference is therefore around 6.23%. Once again it would have been cheaper to buy in the currency of 3/31/2020.

Conclusions

This applies to all Etoro users who, with dollars, purchase shares not listed in dollars (Europe, UK etc.). The balance needle therefore leans heavily towards the USA, because the platform allows deposits without currency differentiation.

The trader, however, can take advantage of the purchase and sale of non-USD shares in dollars, trying to find that historical moment in which it is more convenient to buy the shares not only because their price has fallen but also because the euro has weakened against the dollar. In this way, the trader can take advantage of any higher purchasing power than the dollar to buy shares not listed in dollars.