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.
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.
Most people start to invest in their domestic market. 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.
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.
When it comes to safety, 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.
What you should also think about
We went through the Cosmo points, but there are further aspects you should consider before moving all your money to 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.
Sum up questions
- Which are the most compelling advantages of 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.