With the launch of US shares on Sharesies, you’ve got the opportunity to diversify your investment portfolio, learn about thousands of new companies and funds, and have your US and NZ shares all in one beautiful place! 🍍
In our last update, we shared the three US exchanges that we’re providing access to (New York Stock Exchange, Nasdaq, and Chicago Board Options Exchange).
Next, we thought we’d deep dive into foreign exchange, looking at what it is, how it works, and why it’s important for you to understand as an investor. We’ll also give you an overview of how foreign exchange works on Sharesies. Let’s get into it!
What’s foreign exchange?
Foreign exchange (also called Forex or FX) is when you turn one currency into another currency based on an exchange rate. For example, if you were travelling to the US, you’d need to exchange your NZ dollars into US dollars so that you could pay for things in the local currency. If the exchange rate was 1 NZ dollar to 0.50 US dollars, you’d get $50 US dollars in exchange for your $100 NZ dollars.
Exchange rates are constantly moving up and down based on the supply and demand for each currency. The supply and demand for a currency can be influenced by many things, including inflation, interest rates, and a country’s economic performance and growth.
How does foreign exchange work on Sharesies?
To buy US shares in Sharesies, you need to exchange your NZ dollars into US dollars. To do this, you’ve got an NZD Wallet and a USD Wallet. You’re able to exchange money instantly at any time (from NZD to USD, and from USD to NZD). For now, you’re only able to top up your NZD Wallet—you aren’t able to deposit money directly into your USD Wallet.
When you exchange money in Sharesies, you’re charged a 0.4% exchange fee—we show this exchange fee upfront rather than hide it in the exchange rate. For example, if you want to exchange $1,000 NZD to USD, you’re charged a $4 NZD exchange fee (0.4% of $1,000 = $4). We subtract this fee from the original amount, and then exchange the rest. In this example, we’d exchange $996 NZD into USD ($1,000 - $4 = $996).
When you want to exchange money, you enter the dollar amount that you want to exchange (either NZD or USD), and we show you the estimated amount that you’ll get once your money has been exchanged. You’re able to see the exchange fee, the amount to exchange, and the exchange rate. This exchange rate is the current wholesale exchange rate that we get from XE.com, who we’re partnered with to give you access to a rate usually reserved for larger amounts of money!
Next, you’re asked to confirm your exchange. If the exchange rate has changed since you first placed the request, you’re shown an error and you’ll have to go back and start again. We do this so that you always know what exchange rate you’re going to get. Once you’ve confirmed your exchange, the exchanged money appears in your Sharesies Wallet immediately.
You’re able to exchange money whenever you want (24/7!), so you have the right money in the right Wallet, ready to invest. But if you don’t exchange your money in advance, no worries! You’re able to exchange your money when you place a buy order too. In Sharesies, your total Portfolio value (and returns for US shares) is always shown in NZ dollars, based on the current exchange rate from XE.
How do currency fluctuations impact my investments?
While investing always involves risk, investing in shares in another currency exposes you to the added risk of currency fluctuations. When you invest in US shares through Sharesies, your US investments are impacted by any movements in the US dollar and NZ dollar.
For example, if the NZ dollar loses value against the US dollar, the NZ dollar value of your US shares goes up. If the NZ dollar gains value against the US dollar, the NZ dollar value of your US shares goes down. Currency fluctuations can impact returns by amplifying gains and losses, so it’s something to keep in mind when you’re considering your investment strategy. Diversifying your investments (e.g. investing in US shares and NZ shares) is one way that you can manage the risk of currency fluctuations across your wider investment portfolio!
Ok, now for the legal bit
Investing involves risk. You aren’t guaranteed to make money, and you might lose the money you start with. We don’t provide personalised advice or recommendations. Any information we provide is general only and current at the time written.