How To Trade Currencies with a PayPal Account

Eddie Braverman's picture
Rank: The Pro | 21,126

This is a hack I came up with the other day for people who want to trade spot currencies without a futures account, without alerting their compliance department, and/or without the gains being reported to the IRS. You might consider it if you think you know the direction of the dollar and you want to get a little more bang for your savings buck than the .2% you're currently earning in the bank.

I use PayPal for all my online transactions and, since I live in France, I get paid in both dollars and Euros. Since dollars are my native currency, PayPal reports my total balance in USD. However, I usually sweep my USD into my bank account, and only leave the Euros on deposit in my PayPal account. As you can probably imagine, I've been watching my USD account balance rise every day the dollar has fallen over the past couple weeks, and it got me to thinking.

PayPal supports 21 different currencies, from the Australian Dollar to the Thai Baht. If stability is your thing, the Swiss Franc is available. Convert to Mexican Pesos for a virtual trip south of the border. British Pounds, Canadian Loonies, even the Polish Zloty are represented. All you have to do is open a PayPal account (most of you probably already have one), make a deposit, and then transfer the money to your currency of choice.

Obviously, the first time you do this you're essentially shorting the USD, so make sure you're comfortable with that. If the dollar rises against your chosen currency, you'll see your account balance drop. But the opposite is also true, as I've watched my balance climb while the Euro kicks the dollar's ass.

Near as I can tell, you convert at the spot rate minus 2.5%, which is steep but less than you'd pay at a currency kiosk at the airport. The dollar has fallen 10% against the Euro over the past couple weeks, so you make it up pretty quickly when you're right.

Benefits:

  • Any fool can have a PayPal account. You don't have to worry about qualifying for a futures trading account.
  • Since there is no leverage, there are no margin requirements. You buy as much or as little as you want and it works like a savings account in another currency.
  • Your Compliance Department never has to know. There are no compliance reporting requirements on a PayPal account, so you can trade without pre-approval from Compliance and they'll never know. Also no duplicate confirmations.
  • Gains aren't reported to the IRS. Not that I would encourage tax evasion, I'm just giving you a heads up that you'll need to be extra honest at tax time and report the gains yourself, BECAUSE THEY'LL NEVER FIND OUT OTHERWISE. PayPal only reports interest income from the money market account they offer, and they don't keep track of currency gains or losses.

Hope this helps anyone looking to dabble in currencies.

Comments (14)

Oct 1, 2010

Pretty fucking brilliant idea Ed. Little humor in there too. Awesome post once again.

If I had asked people what they wanted, they would have said faster horses - Henry Ford

Apr 24, 2013

[x]

Oct 1, 2010

Eddie - this is a pretty slick bamboozle; respect.

Brown_Bateman :

While there is no denying 2.5 is a big spread in the conventional market, to the small/inexperienced retail investor who wants to take a longer term view with a few thousand its tough to beat; obviously if your losing 2.5% this wont work for day trading unless PayPal deal in Zimbabwe $.....plus no standard contract size and as Eddie stated no leverage. I live abroad and I pay about 2.5 % on currency transfers/payments not denominated in GBP(I'm in the UK). Seems reasonable from my perspective.

You can also achieve roughly the same thing by opening an international checking acct from Barclays. Each day you can check you balance vs some 15 odd currencies, and then just request a payment via check to yourself in whatever currency you want. Go back to the bank and cash it back into base currency--paying something like 30PS to process a deposit in non-base currency so there is economies of scale to be gained on in the cash-out.

Pay-Pal still seems like a better bet though cause opening my international account bank account was an absolute bitch... with no love from my firm to expedite the process.

Interesting idea to swipe a few illusive dollars though Ed. This could spark a wave of million$ accounts held in all cash in Pay Pal simply for the pursuit of currency speculation; the spread is certainly worth the tax savings --- so long as you don't get pinched.

Apr 24, 2013

[x]

Oct 1, 2010

Paypal is a bitch though when you start to transfer payments back and forth,

my funds got suspended multiple times while they "investigated" the resources

Oct 1, 2010

Brown Bateman,

Yes, you can transfer funds directly from your bank account into your currency of choice at PayPal. I've never attempted to transfer Euros to my U.S. account. I guess it would be up to the receiving bank what to charge, but I've paid a lot in international wire transfer fees in the past. But PayPal is more of an electronic transfer than it is a wire transfer, so i don't know.

Oct 1, 2010

Great idea, great post. I see you have an eye for avoiding the Dark Eye of Compliance, which is always fun.

Oct 1, 2010

Long Rublor

Oct 2, 2010

FYI

I just converted some Euros to dollars in my PayPal account to see how bad I got beat on the spread. I'm showing the current spot at 1.3778 and PayPal paid me 1.3423. So it's exactly a 2.5% discount to the spot price with no discernible bid-ask spread. In other words, you can take the spot price of whatever currency you're converting (from Google Finance, for example) and deduct 2.5% and you'll get your conversion rate.

Just thought you'd want to know.

Someone pointed out earlier that you pay the 2.5 points on both ends of the transaction, and that's correct. So be aware that the total vig is 5 points round trip.

Oct 2, 2010

So you're suggesting people speculate on currencies through PayPal, using the example of EURUSD where you yourself highlight a 70 pip spread or roughly 35x what you would pay on a regular bid/ask retail spread - you then say that this is a smart way to do it because you can avoid taxes/not report to compliance. This in a market where 90%+ of retail investors are incapable of making money even face with a 2 pip spread.

Brilliant.

Oct 2, 2010
ideating:

So you're suggesting people speculate on currencies through PayPal, using the example of EURUSD where you yourself highlight a 70 pip spread or roughly 35x what you would pay on a regular bid/ask retail spread - you then say that this is a smart way to do it because you can avoid taxes/not report to compliance. This in a market where 90%+ of retail investors are incapable of making money even face with a 2 pip spread.

Brilliant.

ideating,

It's just an idea, dude. Relax. For those who want to put a portion of their savings in another currency and are looking for a convenient way to do it, this might work. I never said it was a retirement strategy.

Sheesh.

Oct 2, 2010

Everyone talks about the Dollar-Euro trade, how bout the Dollar-Swedish Crown trade?!

Take a a couple of hours and check out the trade. You'll spot the trends. You'll make some trades.

Like always, thanks Edmundo

Yours truly,
The Young Investor

Oct 2, 2010
The Young Investor:

Everyone talks about the Dollar-Euro trade, how bout the Dollar-Swedish Crown trade?!

Take a a couple of hours and check out the trade. You'll spot the trends. You'll make some trades.

Like always, thanks Edmundo

Someone ban this fucking troll once and for all.

Oct 3, 2010
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