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Currency Conversion Fees: How to Spot Them and How to Reduce Them
Key takeaways
- The conversion fee is hidden in the exchange rate or explicit — it depends on the broker.
- You pay it with every ETF purchase in EUR or USD from a Czech koruna account.
- A currency sub-account at a broker can significantly reduce conversion costs.
- Specific conversion rates change — always verify currently with your broker.
- For regular investors, conversions accumulate and can exceed the purchase fee.
The conversion fee is the cost of exchanging currencies when purchasing a security in a foreign currency — and for a regular investor it can exceed even the purchase fee itself on an annual basis.
Where Conversion Hides
There are two ways a broker charges for conversion:
- Explicit fee — a visible item in the fee schedule, for example 0.25% of the trade volume.
- Hidden in the exchange rate — the broker offers a worse exchange rate than the market rate. The difference goes into their pocket. This form is harder to detect without comparing to the market rate.
Why It Matters for ETFs
A large portion of UCITS ETFs available on European exchanges are denominated in EUR or USD. If you invest regularly from a koruna account, you pay conversion on every purchase. With monthly DCA, that amounts to 12 conversions per year. How DCA works is explained in DCA: cost averaging.
How to Reduce Conversion Costs
- Currency sub-account at the broker — some brokers (e.g., Interactive Brokers) allow you to hold EUR or USD and convert separately, typically on more favorable terms than automatic conversion at purchase.
- Buying ETFs in CZK — some UCITS ETFs are available in koruna quotation on the Prague Stock Exchange or via Xetra in EUR. Verify the offering with your broker.
- Aggregating purchases — instead of 12 small purchases, one larger annual purchase reduces the number of conversions, but bypasses the advantages of DCA.
The Broader Cost Context
The conversion fee is one of three main cost layers — alongside the fund's TER and the broker's purchase fee. A complete overview of how to combine and evaluate them can be found in TER, spread, conversion, and taxes. We recommend comparing brokers by conversion terms via how to compare broker fees.
FAQ
What is a conversion fee at a broker?
The cost of exchanging currencies when purchasing a security in a foreign currency. It can be explicit (in the fee schedule) or hidden in the exchange rate. You pay it with every purchase in EUR or USD from a koruna account.
How can I reduce the conversion fee?
Use a currency sub-account at the broker and convert separately in a larger amount. Or look for ETFs in koruna quotation. Specific options depend on the broker — verify them directly with the provider.
Is the conversion fee more important than the purchase fee?
It depends on purchase frequency. With regular monthly investing, conversion repeats 12 times a year. At a low-cost broker without a purchase fee, conversion can be the largest cost item.