Low volume, large spread OTC stock

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guliver
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Low volume, large spread OTC stock

Post by guliver »

I'm faced with the following options for selling a foreign-stock (ROG.SIX) held abroad:

1. Sell in Switzerland, convert CHF to $ and wire to US: This costs me a 1% fee altogether (ouch...).
2. Move stocks to the US (free), where they'll land in my Schwab One account as RHHVF. Then sell ($50 fee per transaction).

Option 2 is better on paper ($50 << 1%), but I'm worried seeing the ridiculously low volume of RHHVF. That spread might cost me more than that 1%. Am I wrong to go with the first option, to play it safe? How can I quantify how much I'm paying in the 2nd option?
123
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Re: Low volume, large spread OTC stock

Post by 123 »

Option 1 just seems better to me because you are selling a "Local" stock on a "Local" exchange.
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whodidntante
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Re: Low volume, large spread OTC stock

Post by whodidntante »

How does #1 avoid the spread?
Topic Author
guliver
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Re: Low volume, large spread OTC stock

Post by guliver »

whodidntante wrote: Thu Feb 25, 2021 9:06 pm How does #1 avoid the spread?
ROG, traded in Switzerland's SIX exchange, has a high volume and low spread (market cap $257.937B, 30 Day Avg Volume 1,486,264).
The same stock is traded OTC in the US (RHHVF) with a 30 Day Avg Volume of 4,472...
langlands
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Re: Low volume, large spread OTC stock

Post by langlands »

Do you have a broker that allows access to Level II quotes? Given how illiquid your stock is on the US exchange, I think the most prudent thing to do is to just observe how large the bid/ask spread is during the day and where orders tend to get filled (check the last price) and for what size. In other words, simply estimate the cost of trading on the US exchange. You're talking about a stock (if I'm doing the math right) that has a turnover of literally several hundred thousand dollars per day. I don't think any generic answer will be useful here.

I agree that the spread on the Swiss exchange is essentially negligible for this consideration. It's basically a question of whether the spread is greater than 1% as you put in your OP, which you can check for yourself when the markets open next week.
Caduceus
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Re: Low volume, large spread OTC stock

Post by Caduceus »

I don't think that's how it works. I used to invest quite heavily in some OTC stocks in your same situation - exact same stock, one trades overseas, one trades in local market under two different ticker symbols, and one denominated in foreign curency, and the other in the local US currency.

There aren't different liquidities for the two tickers as you have to remember that they are the same security. Sure, there would go many days that no one would buy or sell the version I held, so sometimes the price wouldn't update, but people were buying and selling the foreign version, so there was a ready and liquid market for it. The price not updating isn't the same as there being no liquidity. Anytime you want to buy or sell the local version, you can just enter the order and you will be able to get very close to the market price that you want at the current spot exchange rate. That was my experience. I was always able to buy or sell my stock at very close to the market price at current exchange rates any time I wanted to, and once my trade executed, the local version price would update. As long as the stock traded in Switzerland is sufficiently liquid and with low spreads, you shouldn't have a problem no matter which version you hold.

You should call the execution/trading desk of your broker and ask about the mechanics if this bothers you. I had a long conversation with them a few years back before purchasing my OTC position and they explained everything to me quite clearly. I don't think you need to find a holder of the version that have; the broker can and does just buy or sell shares for you that trade on the foreign market as well, as long as the price you are offering is the same or slightly lower at current spot rates.
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guliver
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Re: Low volume, large spread OTC stock

Post by guliver »

Caduceus wrote: Sat Feb 27, 2021 4:45 pm I don't think that's how it works. I used to invest quite heavily in some OTC stocks in your same situation - exact same stock, one trades overseas, one trades in local market under two different ticker symbols, and one denominated in foreign curency, and the other in the local US currency.

There aren't different liquidities for the two tickers as you have to remember that they are the same security. Sure, there would go many days that no one would buy or sell the version I held, so sometimes the price wouldn't update, but people were buying and selling the foreign version, so there was a ready and liquid market for it. The price not updating isn't the same as there being no liquidity. Anytime you want to buy or sell the local version, you can just enter the order and you will be able to get very close to the market price that you want at the current spot exchange rate. That was my experience. I was always able to buy or sell my stock at very close to the market price at current exchange rates any time I wanted to, and once my trade executed, the local version price would update. As long as the stock traded in Switzerland is sufficiently liquid and with low spreads, you shouldn't have a problem no matter which version you hold.

You should call the execution/trading desk of your broker and ask about the mechanics if this bothers you. I had a long conversation with them a few years back before purchasing my OTC position and they explained everything to me quite clearly. I don't think you need to find a holder of the version that have; the broker can and does just buy or sell shares for you that trade on the foreign market as well, as long as the price you are offering is the same or slightly lower at current spot rates.
Thank you, that is most encouraging. Also looking on spreads this morning (not a representative sample, I know), I see a spread of 1.0%, suggesting a .5% deviation from the current SIX price. Hopefully an order will receive an even better price, but even if not, seems like selling through my US broker will be the cheaper option.
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