Can an Italian open a trading account at a Dutch broker and buy an American stock on a German stock exchange?
Yep, he can.
For example, an Italian can open a trading account at Degiro, a Dutch broker. He can buy shares of Apple stock, which is a US company traded on the Frankfurt stock exchange. So there you go. Check out this handy graph and keep an eye on the coloring.
Let’s break this down and see how international trading works. We should start with international brokers.
What is a trading account?
A trading account is an online account that allows you to trade an invest on exchanges online. You can think of it as a digital bank account that allows you to buy and store securities like stocks, ETFs or bonds.
Trading accounts at international brokerages
Have you ever wondered why banking is local?
I am sure you have a local bank account. Right? It is difficult to open a foreign bank account. It is even more expensive and complicated to use one at home, right? As a rule of thumb, banks are not good at serving foreign citizens.
The good news is trading accounts at brokerages can be international. There are a lot of ways to have a trading account at a foreign broker account. For Europeans, it is possible to open a broker account in another EU country. What's more, you can also open accounts in the US or at a Swiss broker.
At least this is what the regulation says. The catch is that brokers do not always provide trading accounts to foreign customers. Don’t ask us why. We do not understand it either, but some brokers provide cross-border services, and some don’t. Here are a few examples:
- Interactive Brokers and Fidelity are two well-known US brokers. You would think they act more or less the same, but they don't. Interactive Brokers is easily accessible globally, Fidelity’s service is only for US residents. We think it is Fidelity’s business decision not to provide trading accounts for foreigners.
- IG is a UK broker specializing in FX and CFDs. IG also has stock brokerage services in the UK and in Australia, but not in Sweden.
- Barclays Stockbrokers is UK stockbroker. On contrary to IG, Barclays only provides their service to UK citizens.
Seems puzzling, we admit. How on earth you will know if the broker is available? This is when Brokerchooser comes in and filters the brokers available for you. Try our broker finder to get the brokers available in your country!
To sum up, you can open a trading account at an international broker by law, but it is up to the broker whether they provide the service in your country.
Let’s go further. One advantage of having an international broker account is the foreign market access. Let's investigate that.
International market access
International stock markets
A broker's job is to connect you with the stock markets. With other words, if you want to buy a stock, the broker buys it for you on the market. If you want a Turkish stock, your broker needs to have access to the Istanbul Stock Exchange.
To put it simply, the broker decides how many markets it offers. Funny or not, a lot of brokers offer access to only a handful of markets. This can be quite weird. Even mid-sized brokers can skip for example Japanese stocks, the third largest stock market after NYSE and NASDAQ.
It is expensive for a broker to register at every stock market. Still, it is hard to grasp what drives brokers when choosing markets. It is not their size or international client footprint. Here are a few examples:
- HSBC Invest Direct Plus, a super big bank’s brokerage subsidiary only allows 2 markets
- Degiro, a Dutch discount broker gives you access to 32
- Saxo Bank, a Danish broker, a big player offers 36 stock markets
- Interactive Brokers offers the most markets, 74
Your broker might provide a lot of markets, but only through a non-online, live broker. You will have to call them and it usually costs more. For that reason, Brokerchoosr only counts online brokers when testing and comparing trading accounts.
So how do you know which stock markets are available at a broker? Check out our comparison table to get a summary view.
Forex and CFD markets
When we say markets, we usually talk about stock exchanges. However, there is a similar theme to other products. E. g. in Forex currency pairs define how many “markets” the broker offers. You always have the main currencies, called majors, but minor ones are not a given and depend on the brokers. For forex trading, you will need a great forex broker. Here is our best forex brokers in 2019 list.
Take a deep breath, because we are now getting to the advanced section. We were saying brokers need to register to stock markets, which 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. Great, and what the heck is that, right? CFD is a bet on whether the stock price goes up or down. By offering this bet to customers, brokers can provide access to all markets without being registered on the stock exchanges.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor, accounts lose money when trading CFDs. If you want to learn more, here are a few CFD trading tips.
For now remember that if a broker promises access to a certain market, check, if it is stock or CFD.
Beside CFDs, you should know about another broker trick. Some brokers advertise market access by country, e.g. US stock. If they do this, they let you trade stocks there, but might 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). BATS is a liquid and robust exchange with more or less the same companies. It is cheaper than the prime exchanges. It is just not the prime market. So keep an eye on for exchanges.
We already covered a couple of advanced topics. Read the next chapter only if you can keep going. Otherwise, jump to the sum up questions.
Cross-listing on stock exchanges
We talked about two things so far
- You can open an international broker account
- International brokers can give you access to international markets
Now hang on, because there is one last bit to clear out about international investing. Some stocks are introduced to multiple exchanges. For example, IBM, a US company is not just listed on the New York Stock Exchange, but also on the UK London Stock Exchange. This is called cross-listing.
The benefit? You might be able to access more international stocks on the market you have access to with your trading account at your chosen broker. E. g. you can buy the IBM stock if you have access only to the London exchange. If you are a pro, you could also choose the market with the lowest commission.
Summing up: Can I open?
You are done with this section, congrats! International investing can be a piece of cake. Next section is about why use an international broker.
Now, test your knowledge with these sum-up questions:
- Can you open a trading account at an international brokerage?
- Who defines which international markets are offered at a broker?
- Name a few tricks a broker can pull when it advertises international markets!
- True or false: German Stock Exchange only provides German stocks. Why?
Don't forget, you can check which broker is available in your country by using the broker finder.
Trading account: The why?
If Brokerchooser were Cosmo, this would be on the cover:
Six pleasures you are missing out - The truth behind owning a foreign broker account
- It is inexpensive – finally, you can buy yourself that treat
- More to shop – thousands of products wait just for you
- Just sooo fabulous – the platforms are easy to use, even for you
- More news and gossips – because smart is the new sexy
- It is safer – and you don’t want to be in danger, do you?
- Your international broker loves you – yes! You, you, you
Ok, these might not be all true. And we are also not Cosmo. But you have to give it in; there are a lot of benefits of an international broker account. Let’s go through them more seriously.
Prices of trading accounts
International brokers are generally cheaper than their domestic rivals. It depends of course on the specific international and domestic broker, but because of scale effect, bigger, international players are generally cheaper.
At Brokerchooser we often hear that platform’s user experience is not that important. Probably you think this the same way. Sorry, we have to disagree.
Having good functionalities can serve you with enhanced trade insights and ideas, a better overview of your portfolio and trading costs or more security when logging, just to name a few. Platform quality is important, and as a trend, big players are better than domestic platforms.
Research and analysis
Research and analysis is an interesting topic. We need to give it in; some domestic players are running quality proprietary research, and domestic analysis tools can beat big names. Still, the general rule is bigger players can afford bigger research teams, and mostly this leads to high-quality research and super alerts.
Things to consider additionally
We went through the Cosmo points, but there are further aspects you should consider before moving all your money to your new trading account at an international broker.
- Language: your international broker will most likely be accessible in English. Are you fine with this?
- International money transfer costs: transferring money to an international account can get expensive, depending on your bank.
- Tax: we will cover tax later, but your tax report could get more complicated.
- Pension schemes: your country most likely has a special pension security account with tax benefits. This subsidy might not be available if you are investing at a foreign broker.
Most people start to invest in their domestic market with their trading account. You fill your car at the domestic oil company, your cousin tells about the manufacturer where he works, and so on. Domestic companies are surely great, but looking further abroad you can get to world class companies, like Disney, Google, Louis Vuitton, etc. Having access to the US, UK, German, Japan, French and Chinese markets is an advantage not provided by most domestic brokers.
When we talk about product portfolio, it is not just about countries. It is also more common at the international brokers to have access to more product types. You can trade more likely with FX or bonds at an international player. International players can provide a one stop shop for all your trading and investment needs.
On the other hand, you might want to check the international broker if it provides access to your domestic market. It might not.
These are of course just trends. You might find a great domestic broker, and some international players do not live up to the broad product portfolio promise.
When it comes to the safety of a trading account, international broker’s superiority is not self-evident at all.
If you are not from a prime credit rating country, you might get better off with a good, e.g. US investor protection. On the other hand, some argue if disaster comes, it will be very hard to get your money back from a US governmental body sitting in Europe. Both points are right, and security needs some extra thinking. You should consider both the safety of the broker and safety of the country of the broker. By country safety we mean the country of regulation under which the broker operates (and not necessarily the country of domicile, where the broker company was founded).
At broker safety, you could consider three factors:
- 1. Is the broker listed on a big stock exchange? - Being listed forces companies to be transparent. The key here is big, because being listed on a small exchange is warning sign, not a reassuring fact.
- Does the broker have a strong bank ownership? - A strong bank can bail out its broker subsidiary. It is not a guarantee, but could be an investor safety net.
- 3. How are press reviews and user reviews on the broker? - This is a soft factor, but with a little bit of Googling you can find valuable information about most broker’s public reputation.
As you can see these factors depend very much on the broker and not on where the company is based. As a general rule international players tend to be better in broker safety factors but it is not a rule by far.
When it comes to the country safety of the broker, you should consider another three factors:
- How does the country’s investor protection work? - You need to assess the country’s regulation.
- How much will the specific country enforce the protection for the foreign investor? - Of course, all countries claim they will stand by. But, we have seen strange things before. So, you should check the country’s credit rating and its general reputation.
- How are the secrecy laws enforced? - Check the country’s regulation.
You can see yourself that safety is not an easily assessed issue. Brokerchooser votes on a secure broker of a secure country, but this is also a bit of a belief thing. It is a no brainer, that a secure Swiss broker is better than a dodgy Cyprian (sorry, Cyprus). If your country is not in a great fiscal state, you could consider using an international broker.
Summing up IF you should open
- Which are the most compelling advantages of opening a trading account at an international broker?
- When it comes to product portfolio why international players are better?
- Name a few factors why the quality of a trading platform is important?
- What should you consider when it comes to safety? Which are the six factors?
- What other aspects are important when investing at a foreign broker?
We went through the pros and cons of international brokers in great detail. Most likely you are interested, but you might have some questions on how to open an international account. Luckily we got you covered.