Can an Italian open a Dutch broker account and buy an American stock on a German stock exchange?
Yep, he can.
For example, an Italian can open a Degiro account, a Dutch broker. He can buy an Apple stock, 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.
International broker account
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 to foreign citizens.
The good news is brokerage accounts can be international. There are a lot of ways to have a foreign broker account. For a 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.
The regulation says so. The catch is brokers do not always provide their services 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 not. Interactive Brokers is easily accessible globally, Fidelity’s service is only for US resident. We think it is Fidelity’s business decision not to provide the service.
- 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 an international broker account 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 offers 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.
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 broker in 2019 list.
Take a deep breath, because we are getting now 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 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.
Sum up questions
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 an international broker account?
- 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.