Can I open an international broker account?
And how do I buy international securities?
Here is a question for you:
Would it be possible for a Spanish guy to be the customer of a UK broker and buy an American stock on a German stock exchange?
We give you the answer straight away, yep it is. As an example a Spaniard can open an account at IG (a UK broker), buy an Apple stock (a US company) traded on the Frankfurt stock exchange.
Check out this graph and keep an eye on the coloring. In our case green is Spain, blue is the UK, yellow is the US and red is Germany.
Let’s break this down and see how international trading works. We should start with foreign brokers.
Account Opening at Foreign Brokers
Have you ever wondered why banking is so local?
It is almost certain you have an account at a local bank (e.g. a bank present in your country). Right? The reason for it is the difficulty of opening a foreign bank account. And it is even more complicated and expensive to use the foreign account at home, right? This roots in some regulatory issues as well, but mostly banks are not good at providing service to foreign citizens.
The good news brokerage accounts are totally different, and there are a lot of ways to have a foreign broker account. Especially for a European Union citizen, it is possible to open a broker account in another EU country. There is even better news. You can also open accounts in the US or at a Swiss brokerage company.
Regulation says so. The catch is brokers do not always provide their service to foreign customers. Don’t ask why. We do not understand it either, but some brokers provide cross-border services, and some don’t.
Here are two examples which we shed some light on the diversity of brokers:
- In the US there are two well-known brokers. Interactive Brokers and Fidelity. You would think they act more or less the same, but not. Whereas Interactive Brokers is easily accessible for European Customers, Fidelity’s service is not accessible if you are not a US resident. It is Fidelity’s business decision not to provide the service.
- Let’s see another example. IG is a UK broker specializing in FX and betting broker services but also provides online stock brokerage. They provide service to all EU customers. On the other hand, Barclays Stockbrokers is also a UK stockbroker. On contrary to IG, Barclays only provides their service to UK citizens.
Seems puzzling, we admit. You might ask how on earth you will know if the service is available? Well, this is where Brokerchooser comes in and filters the brokers available for you. Handy!
Right, we just made clear, you can open a foreign account by law, but it is up to the brokerage firm whether they provide the service in your country.
Let’s go further. One advantage of having a foreign account is the access to foreign markets. Let’s talk about the broker’s access to international markets.
Your broker’s access to international markets
Providing access to markets is the main service of a broker firm. With other words if you want to buy something the broker buys it for you on the market.
Funny or not, markets usually meant “market singular,” meaning a lot of brokers provide access only to one or to a handful of markets. Since it is expensive for a broker to register at every stock market, you might end up with a relatively small choice.
You might think you do not need access to exotic markets, and you are quite right. But look, most domestic brokers do not access the Japanese market, the third biggest after US and UK. That is weird.
Again, it is up to the broker how many markets it provides. Here are three brokers and their access as an example:
- 31 markets provided by Saxo Bank (a Danish Brokerage firm, they are a big player);
- 18 markets by TD Direct Investing (a Luxemburg subsidiary of a Canadian Bank, they are big as well);
- only two markets at HSBC Invest Direct Plus (a super big bank’s brokerage subsidiary).
Check out our comparison table to get more information about broker’s international market access.
It is hard to grasp what drives brokers when choosing markets. It is not their size or international client footprint.
When we say markets we talk about stocks and stock exchanges, but there is a similar theme with other products. E. g. in Forex currency pairs define how many “markets” the broker is providing. It is usual to have the main currencies, but smaller ones are not a given and depends on the brokers.
With market access, we mean online trading possibility. Nevertheless, it is quite common your broker provides a broad portfolio of markets, but only through a live broker, that you have to call and costs more.
Take a deep breath, because we are getting now to the advanced section.
We were saying brokers need to register to specific markets. It is expensive, so they do not provide a lot of markets. However, brokers came up with a smart trick. Some of them provide access to markets through CFDs and spread betting. Great, and what the heck is that, right?
CFD and spread betting is a bet on whether the stock price goes up or down. With this trick brokers can provide access to more exotic markets (e. g. Brazilian, Polish, etc.) without being registered on the specific stock exchange. So they can make it possible for you to trade on a broader product range.
If you read the five type of brokers page, you know CFDs are bets on prices. We will cover them in more detail, but for now remember that if a broker promises access to a certain market, just check, if it is real access or CFD.
Next to CFDs, you should know about another broker trick. Some brokers advertise market access by country. For example, they say US stock. If they do this, there is a possibility that they let you trade stocks in the specific country, but not through the prime stock exchange. In the US the most well-known exchanges are NYSE and NASDAQ. However, some brokers provide access to BATS (Better Alternative Trading System). For this particular example, BATS is a liquid, robust and cheaper exchange than the prime exchanges. It also has more or less the same companies. It is just not the prime market. So keep an eye on for exchanges when investigating foreign markets.
If you were listening carefully, you might have noticed that we were talking about stocks and their geographic coverage. Of course, by other products, it is also important to check what your current and future broker is providing. As an example at FX, the provided so-called currency pairs show you how big the FX broker’s international coverage is. The major currencies (EUR, USD, CHF, stc.) are accessible by all FX brokers, but the smaller ones are not necessarily. If a specific currency is important for you, you should check if it is available.
All in all the major take away from this whole section is that it is up to the broker if it provides a specific market access. We already covered a couple of more advanced topics. Read the next short chapter only if you still have the energy. Otherwise, jump to the sum up questions.
Third country stock on exchanges
We talked about your access to international brokers. We also talked about the broker’s access to international markets. Hang on, because there is one last bit to clear out about international investing. Some stocks are introduced to multiple exchanges. For example, IBM is listed on the New York Stock Exchange, the Chicago Stock Exchange, London Stock Exchange, and a few others. It is called cross-listing.
The benefit is you can access foreign stocks in your domestic market. You can also trade specific stocks cheaper in the market cheaper for you. E. g. You can buy IBM, a US company if you have access only to the London exchange. Or, if you reached multiple markets, you could choose the one with the lowest commission.
Sum up questions
You are done with this section, congrats! Now, you might feel international investing is a piece of cake. It is not rocket science indeed, but there are a few obstacles which you need to keep an eye on. Check the graph again.
- Can you open a foreign broker account?
- Which international markets are accessible with a broker? Who defines which markets are accessible?
- What could be the tricks a broker can pull if it advertises accessible markets?
- True or false: German Stock Exchange only provides German stocks. Why?
We bet you have a better understanding of international markets. You also know more about how you can invest in foreign markets. True, we talked extensively about international accounts and foreign markets. Whether it is possible or not. But why to do it will be our next section.