How to open a brokerage account for international trading
In most cases, the process of opening a brokerage account for international trading is the same as opening an account for general U.S. stock trading. Here are the steps:
- Determine what type of brokerage account you need (individual, IRA, etc.) and what you want to invest in -- stocks, mutual funds, ETFs, and international stocks, for example. Narrow down your search to some top brokers that offer what you need.
- Compare different brokers that offer international stock trading to find the best fit for you.
- Fill out the new account application, which will require you to provide identifying information, such as your Social Security number.
- Add funds to your new account. You can do this by linking your bank account and transfering funds, or you can mail a check or money order.
- There may be specific procedures before you can start trading internationally, such as currency exchanges. Check with your broker for its exact procedures.
- Start investing.
How to start trading stocks internationally
The exact process for entering orders varies by broker, but the general procedure is:
- Find an online broker that allows online trading on international stock exchanges. Be sure to check that any specific international markets you're interested in are available. Some offer a relatively small selection of international stock exchanges to choose from, while others have a list of dozens of international markets that are available.
- Open a brokerage account. Check the brokerage's website for the specific account opening procedures.
- Fund your account. Depending on your broker's system, you may need to convert your U.S. dollars into the local currency of whatever stock exchange you wish to trade on.
- Do your research and buy your international shares.
It's also worth noting that many brokers have rules specifically for international trading (such as margin requirements), and many foreign stock markets have their own rules that may apply.
Are there fees for trading stocks on international markets?
If you buy or sell stocks on international exchanges, you should expect to pay a trading commission for the service.
While most brokers have done away with commissions on online stock trading, that typically only applies to stocks that trade on major U.S. exchanges -- NYSE, NASDAQ, OTC. And as we've mentioned, there are quite a few international stocks that trade on all of these -- for example, you can buy stock in non-U.S. food conglomerate Nestle on the OTC exchange with no need to open an international brokerage account.
On the other hand, if you trade directly on an international stock exchange, you can expect to pay one or two different kinds of fees.
- Some brokers (Interactive Brokers is one of them) charge foreign-trading commissions based on a percentage of the trade amount. In other cases, the commissions are denominated in local currencies, so they may change over time. But in either case, expect to pay a commission.
- You might also have to pay foreign currency conversion fees. After all, if you're buying stock on a foreign exchange, you need to do so in the exchange's local currency. It is reasonable to expect a fee of 0.20% to 1% for converting your currency through a broker.
How much money do you need to start trading on international markets?
The short answer is that it depends on your broker's policies and what you plan to invest in. Even if a broker doesn't have a minimum opening deposit requirement for a standard investment account, it might have one if you plan to trade on international markets.
Also, it's worth noting that while some brokers allow for fractional share trading, that policy likely doesn't apply to international markets. And because there are generally commissions on international stock trades, you'll probably want to make sure you're investing enough to make paying the commission worthwhile.
This means different things to different people, but think of it this way: If your broker charges a $9 commission to buy stocks on a certain foreign market, it probably doesn't make sense to buy $20 worth of a stock.
Is trading on international markets safe?
There are two different types of safety to consider.
First, the money in your account is safe in the sense that it is protected in the event your brokerage fails or has a major security breach. SIPC insurance (the brokerage equivalent of the FDIC) covers as much as $500,000 per broker, and most brokerage firms have policies that guarantee against unauthorized trading activity in customer accounts.
On the other hand, trading on international exchanges is not safe in the sense that you can absolutely lose some or all of your money if the stocks you buy decline in value. In several ways, international stocks are riskier than U.S. stocks, as they have different political, regulatory, and currency risks. It's important to do your due diligence before buying stocks that trade on foreign markets.
What is a broker for international markets?
An international stock broker is a broker based in the United States that allows customers to buy and sell stocks directly on foreign stock exchanges. International stock brokers often let customers trade in markets including:
- U.K.
- Canada
- Australia
- France
- Hong Kong
- Japan
- Netherlands
- Singapore
This is not to be confused with foreign stock trading, or foreign ordinary share trading. That refers to stocks that list on a foreign exchange but also trade on the over-the-counter (OTC) market through U.S. brokers. Samsung, Nissan, and Nestle are examples of foreign ordinaries that trade OTC in the U.S.
Some brokers allow for international stock trading within an ordinary brokerage account. Others require customers to open a separate account to place trades on foreign markets. Some require funds to be converted into local currencies before trading. Others do it automatically as part of the transaction. Some brokers allow international stock trading in many types of accounts. Others restrict it to non-retirement accounts only.
