The US stock market is one of the most traded markets in the world but how can international traders gain access to the US markets?
The U.S. stock market is an exchange where traders and investors converge to buy and sell shares of publicly traded companies.
The shares of stock that these traders actively buy and sell represent a financial interest in the underlying company or business.
For shares of a company to be traded in the stock market, the company must be publicly held, meaning its founders must issue stocks to the market in a bid to raise capital for their particular business ventures.
They can use the money raised to finance their current operations and pay for expansion plans or future endeavors.
If a company can turn such capital into profit, their corresponding stocks will deliver profit for the individuals who hold them.
Similarly, if the underlying company loses money, the shareholders will incur losses in the form of falling stock prices.
Historically, the U.S. stock market has generated substantial returns to traders over time, but it also skids lower, presenting traders with the possibility for both profit and losses; for return and risk.
A closer look at the U.S. stock market
Before we look at how international traders can access the U.S. stock markets, let’s explore the following topics:
- The U.S. stock market offers larger exposure in terms of growth than many markets across the globe. But as we previously mentioned, there are risks to note too.
- Wall Street has different indices such as the Dow Jones Industrial Average, the Nasdaq Composite Index, and the S&P 500 index.
- The US stock market opens for trading at 9:30 a.m. Eastern Time (ET) and closes at 4 p.m. ET from Monday to Friday
Things to consider when looking for a broker to day trade U.S. stocks
When selecting a broker to help you access the U.S. stock market, these are some of the factors you need to consider:
- Commissions and other fees
One of the main concerns for a day trader looking to jump into the U.S. stock market is likely to be the costs. As you are probably aware, the overhead costs involved with day trading can and will affect your profit and loss.
Costs from online trading brokers can come from commissions, fees for order executions, data fees, ECN fees, and even margin fees. Believe it or not, these fees can be insurmountable for many new traders with little capital.
Regardless of whether you win or lose a trade, the broker extracts its cut both on the buy and the sell transaction. Therefore, professional traders always look to save on trading costs as much as possible to keep that more money in their own pockets.
Nonetheless, commissions are less of a concern with stock traders these days, as big players in the brokerage industry have shifted to zero commissions and no longer charge commission fees for U.S. stocks, options, and ETFs trades.
- Chart patterns and technical analysis tools
Day trading stocks, options, or other financial instruments demands you use technical analysis tools and charts to maximize your profits.
So, you need to need to look for a broker that offers these important tools and familiarize yourself with different types of patterns like shoulders, pennants, triangles, head, and head.
Chart patterns can and will help you predict future stock price movements based on support and resistance concepts. Support and resistance are trend lines that traders use to determine potential entry and exit points.
- Reliable trading platform
One should also look for brokers that offer access to free and reliable trading platforms across both desktop and mobile.
Additionally, these platforms should give you access to U.S. stocks, options, futures, ETFs, forex, cryptocurrencies, commodities, and indices.
Other important things you will want to know about a broker include:
- Can you contact your broker and get one-on-one help?
- What methods can you use to fund your account?
- Does the brokerage firm even know what it is doing?
Top brokers that offer access to international traders
Done well, day trading stocks listed on U.S. exchanges such as the New York Stock Exchange (NYSE) or the NASDAQ can be one of the best ways to make money from the comfort of home and grow your wealth.
But if you are a day trader based outside the U.S., you will need to open an account through a brokerage or trading platform that offers access to international traders.
TradeZero is a brokerage firm headquartered in the Bahamas and regulated by the Securities Commission of that country. This platform is stable on both desktop and mobile, features direct access routing, and offers hotkeys.
While TradeZero offers some enticing day-trading services at a low cost, there are a few caveats that you need to know.
One major disadvantage is they don’t allow American citizens to open accounts with them because of regulatory issues. Only non-U.S. traders can open an account with this brokerage firm.
Interactive Brokers is a brokerage firm headquartered in Greenwich, Connecticut. IB has about 960 employees in its offices in the U.S., Canada, UK, Switzerland, Japan, Hong Kong, India, Australia, Hungary, Estonia, China, and Russia.
It is regulated by the U.S. Securities and Exchange Commission (SEC), NYSE, FINRA, FCA, and other regulators around the globe.
IB is known for its robust and sophisticated trading platform, competitive commission schedule, direct market access, excellent research tools, and international trade capabilities.
Fidelity is one of the largest brokers in the U.S. and is designed to serve the vast majority of retail traders.
This broker is pretty well-known for its brokerage services, providing zero-commission trades on stock, options, and exchange-traded funds (ETFs). It also boasts a strong reputation for its mutual funds.
In addition, the company offers its customers a range of research and education tools for making trades. This broker is considered safe because it is regulated by a top-tier financial authority and it has a long track record.
What you will need to open an account with these brokers
Opening an account with any of the above brokerages will allow you to buy and sell U.S.-listed stocks and a host of other financial instruments including bonds, ETFs, and mutual funds.
Brokers usually act as something of a middleman for traders and investors, getting you connected to other traders to help get trades done.
- Provide personal information
To open an account with these brokers, you will need to be a legal adult (usually 18 years old). But if you are not a legal adult and interested in the stock market, you can still trade, but you will need to request your parent to set up a custodial account with your broker.
A custodial account will allow you to trade stocks just as you would with your account, though the names of your parents will be on the account as well.
In most cases, brokerages ask clients to provide some personal information including your name, date of birth, social security number (or taxpayer identification number), address, phone number, e-mail address.
They may also ask you to provide your driver’s license, passport information, or information from other government-issued identification, employment status and occupation, annual income, as well as your net worth.
- Minimum account balance
Your broker may also require you to maintain a minimum balance in your trading account.
Most brokers require a minimum account balance because they make money by lending your cash out to other traders in exchange for interest.
Since it is expensive for a brokerage to maintain your account, they have to make sure that you are adding enough incremental revenue to cater for the costs of having you as a client.
For online discount brokers, the minimum account balance is usually between $500 and $1,000.
**It is also important to keep in mind that traders some countries, particularly those under U.S. sanctions, may be denied access to the American stock market**
As mentioned before, there are no specific laws that bar non-U.S. citizens from trading U.S. stocks.
But before you trade any stock listed in a U.S. exchange, you will need to be in a position to buy shares.
This means you will need to open up a brokerage account and have funds to fund it. If you are just learning how to use technical analysis tools and read charts, you might incur some losses as you trade.
If you have got enough cash to trade U.S. stocks, find an online brokerage with good research and charting tools.
All the brokers that we have covered in this blog post have charting tools and access to financial statements, conference calls, and analyst research.