Stock investing is among the most effective strategies to build and likely to have significant wealth. Furthermore, recent technological developments and increasing competition have made purchasing overseas equities, such as US stocks, more manageable and less expensive.
The US stock market is highly volatile but also an appealing marketplace in the world. Many foreign corporations and young enterprises with strong development prospects list their stock on US markets.
So, how can Australians go about investing in American stocks?
You can navigate the entire process, from figuring out what you need to know first to picking a broker, setting up your account, and determining what kind of stocks to trade, as well as the fundamentals of managing the US and Australian tax structures.
What Do I Need Before Starting?
There are things to consider if you are a newbie in the US trading market.
Rather than having a single exchange, the United States has many, the most popular being the NYSE and NASDAQ, followed by CME.
- New York Stock Exchange (NYSE): Blue-chip firms with very substantial shareholders’ equity (USD 4 million+) are only allowed to list on the NYSE. Think Exxon, Citigroup, and General Electric. There is still a physical trading floor at the exchange.
- National Association of Securities Dealers Automated Quotation System (NASDAQ): The NASDAQ is well-known for its technology innovation. It is home to Apple, Microsoft, Amazon, Alphabet, and other cutting-edge firms. The NASDAQ Stock Exchange is entirely electronic.
- Chicago Mercantile Exchange (CME): CME began trading agricultural contracts and has since expanded to include metals, foreign currencies, government bonds, cryptocurrencies, and various derivatives, including weather.
Shares, bonds, ETFs, REITs, and derivatives are the five basic asset types available for trading in the United States.
- Shares: Shares signify a portion of a publicly listed company’s ownership. They are traded on the stock exchange, such as the New York Stock Exchange (NYSE) and the New York Stock Exchange (NASDAQ).
The market capitalisation (the number of shares issued multiplied by the current share price) defines whether the shares are large-cap, mid-cap, or small-cap.
- Bonds: Bonds are debt securities with a set rate of return that pay interest (e.g., government-issued bonds, company bonds, municipal bonds).
- ETFs: ETFs are security baskets structured to mirror the success of market indexes or sectors, assets, bonds, or a mix of investment kinds. The SPDR S&P 500 ETF (code: SPY) is one example, as it tracks the S& P 500 Index.
- REIT: Real Estate Investment Trusts (REITs) owns a portfolio of income-producing real estate properties and trade their shares or units on stock markets.
They provide a more liquid kind of real estate investing than actually owning a home. REITs can specialise (for example, on residential, retail, industrial, or hotel property) or have a diverse portfolio.
- Derivatives: Derivatives are deals whose value is determined by the underlying assets, such as stocks, commodities, or currencies. Futures trading, forward contractual, options, swaps, and warrants are examples of common derivatives.
There might be an average delay of roughly 15 hours to consider depending on where you reside in Australia and where each US exchange is based. As a result, the majority of US trade hours will fall during the night in Australia.
By employing orders other than market orders, you can control your exposure to price volatility while you sleep.
Another alternative is to set up notifications to tell you when a certain price threshold for a specific share is achieved, even if you’re asleep. However, this function is only accessible to premium accounts.
Day Trading Capital Requirement
While this only pertains to day traders (not long-term investors), anybody considering short-term US stock trading should know the capital requirements for day traders.
According to US laws, day traders must have a minimum of $25,000 in a trading account with brokers to demonstrate the capacity to suffer a series of losses and take on colossal volume deals with a tiny percentage profit potential. This is the bare minimum: many trading professionals recommend significantly more.
Picking a Broker
When you’re ready to begin trading in US securities, the first thing you’ll need to do is choose a broker. Australians interested in investing in US equities should search for three key characteristics in a broker:
- Trading on the internet. This guarantees that transactions are simple.
- Commission-free or low-fee options are available. Keep your expenditures down by avoiding transaction fees or paying modest fees.
- App for mobile devices. Allow yourself to keep track of your finances and conduct transactions on the go.
Other factors to consider are the quality of the information provided (pricing, reporting, and research) and the ability to make fractional investments in high-value equities such as Alphabet, Amazon, Apple, and Tesla.
Brokers To Trade US Markets
For investing in US stocks, there are three brokers that Australians should seriously consider.
1. Stake: The Best Option
Since 2017, Stake has been active in Australia. A user-friendly UI and smartphone app provide commission-free digital trading in over 3,500 US stocks and ETFs. It is possible to invest in fractional shares.
Even though there is no trading transaction cost, when you deposit or withdraw AUD into or from your USD account, you will be charged a nominal exchange fee, as well as a USD 2.00 withdrawal fee. This is a pretty common technique among internet brokers.
For experienced investors searching for enhanced capabilities, a premium account with a monthly charge is offered.
Stake allows its customers to invest in publicly traded firms in the United States, including Apple and Amazon, with no brokerage fees. Amazon’s stock is currently worth more than $3,000 a share (USD). This may appear to be out of reach for the majority of investors.
Stake permits fractional investing, making investing in firms such as Amazon considerably more affordable at a fraction of the cost. You may acquire a fraction of a share in a firm like Amazon through fractional investing.
If you put $50 (USD) into Amazon, you’d get 0.016 shares. If such value of Amazon rises by 50% over the next few years, so will the value of the fractional investment. You will still expose this fractional quantity of shares you possess to the stock market’s typical volatility.
Through one of its partner platforms, Drivewealth, Stake allows non-US residents to invest in US-listed firms. Drivewealth is a corporation headquartered in the United States that offers Stake users execution and clearing services.
Stake uses a custodian structure, which is highly prevalent among American brokerage firms. This structure implies that Stake users’ investments are remanded in custody by the designated Custodian, Citibank.
Because of this custodial structure, Stake can provide fractional shares because it pooled investors’ funds to purchase many shares.
- There are no commissions on stock purchases and sales.
- Excellent user experience — both the app and the desktop are pretty simple to use.
- Start right now — it’s free to join.
- Account creation is quick and completely digital.
- Trading stocks and ETFs for free
- Trading systems that are simple to utilise
- Only available in the United States
- Some features exist under a paid membership.
- A scarcity of educational resources
- Customer assistance isn’t always available.
eToro is among the world’s largest social brokerage firms, enabling online and mobile trading in stocks, ETFs, commodities, derivatives, cryptos, among others.
Again, there is no trading charge, but there is a modest currency conversion cost, as well as an inactivity fee if you do not make any transactions for a year.
Interacting with other investors on the social news stream and possibly mimicking the actions of exceptionally successful traders on the site is part of the social trading component.
With a Trust Rating of 92 out of 99, eToro is rated low-risk. eToro is not a publicly-traded corporation nor operates a bank.
The company is approved by two tier-1 regulators (high trust), one tier-2 regulator (medium trust), and one tier-3 regulator (low confidence).
The Australian Securities and Exchange Commission (ASIC) and the Financial Conduct Authority (FCA) are eToro’s tier-1 regulators (FCA). Find out more about the Trust Score.
As a multi-asset broker, eToro strives to ensure that traders have a good experience. For instance, eToro allows you to choose between trading CFDs and trading the underlying value straight from the preview pane. Subtle, but quite helpful.
For investors with balances anywhere from $5000 to $2500, eToro provides a VIP club membership with five categories ranging from silver to diamond.
Privileges range from a specialised account manager to decreased withdrawal and deposit costs, exposure to exclusive signals, and tangible assets, among many other VIP-style banks, depending on the level.
Additionally, eToro allows fractional shares for CFD shares and has a zero-dollar commission for US stock trading (which is not available to US customers).
- It gives you access to 17 different cryptocurrencies.
- You can open an account with a low minimum deposit and begin investing.
- Social trading refers to the ability to follow the actions of well-known traders.
- Experience with social trading
- Account creation is quick and easy.
- New traders who want to use the copy trading option should use this platform.
- It works best for experienced traders who want to make money by collecting followers.
- This is the best option for passive investors who want to buy and hold stocks without paying fees.
- Non-trading costs are pretty high.
- Only 44 states in the United States have access to the service.
- While eToro offers currency and equities trading in other countries, crypto transactions are the only option for eToro consumers in the United States.
- The minimum deposit to begin being cloned is $2,000, which is rather costly.
- More complex features and tools are lacking to cater to more seasoned traders.
SelfWealth is unique in that it allows Australians to trade in both Australian and US stocks through a unified platform. Every transaction has a modest flat cost – $9.50 at the time of this writing – and the minimum trade value is $500.
SelfWealth, like its rivals, provides a free account as well as a fee-based premium account for experienced investors who have free access to the latter for the first 90 days after opening an account. To finance US trades, a modest currency conversion fee is charged.
SelfWealth is well-known for its no-fee brokerage services. Irrespective of trading size, all Australian and US stock market trades are only $9.50.
This implies that your trading charges are unaffected by the sort of trader you are or the size of your account. There are no further commissions. With SelfWealth, you always know where you stand when it comes to trading fees.
SelfWealth’s website, on the other hand, is the only feature you should be concerned with. SelfWealth provides a secure phone/tablet application and a traditional website client web login. Once a month, login, purchase your ETF, and then log out, close your laptop, and walk away.
After creating an account, you’ll get an ANZ cash account into which you may deposit money to finance your ASX trading. OpenMarkets, an extensive retail brokerage, executes CHESS-sponsored trades and uses your HIN (Holder Identification Number).
That’s a lot of terms, but it effectively implies that ASX is registering your shareholdings. Still, you’re the principal shareholder rather than keeping the shares in a shared custodian account.
You can acquire as little as $500 worth of each stock or less if you already own a marketable parcel worth more than $500 in the stock you want to buy. And the most excellent quantity you may acquire is only limited by your trading account’s cash.
- Complete asset protection through ASIC, ASX, and OpenMarkets is provided by CHESS.
- Trades with a set cost of $9.50, regardless of size
- All shares and ETFs listed in Australia and the United States are available.
- Excellent smartphone software that is simple to use.
- Clients save money by using a no-frills service.
- Email trade confirmations make it simple to connect to Sharesight.
- Safeguard the cash in your trading account
- Beneficially, you own the holdings under your HIN.
- SelfWealth Premium is available for free.
- There are no automated alternatives available.
- The cost of converting AUD to USD is high, and US trades are paid in USD.
- The SelfWealth premium instils a percentage of comparison and stimulates trade.
- The wealth check score, safety rating, and member ranking are meaningless and potentially deceptive for novice investors.
- The portfolio tracker does not account for dividends or stock splits, making it potentially deceptive; for accuracy, use Sharesight.
The term “superhero” is a relatively new one. It is a homegrown Australian share trading platform with simple graphics, an application, and a website builder that provides a younger audience with affordable access to Wall Street.
Superhero’s key feature is the opportunity to trade ASX-listed items for less than $500 each trade, with a minimum commitment of merely $100. Only Commsec Pocket, Stake, and a few other micro-investment platforms provide this service.
These US share trading sites, on the other hand, often let you buy ETFs, managed funds, or US stocks, while Superhero enables you to buy any ASX-listed company.
With a Basic account, Superhero provides $5 trades for ASX listed equities. When Superhero first began, the sole restriction was that you could only buy shares at market rate (which means you won’t know what they’ll go for when you submit your buy or sell order, and you’ll merely get the floating market rate at settlement).
Superhero has now removed the costs for Live accounts and elevated everyone to the higher membership category for free. This implies that a basic account may now place Limit orders and obtain Live price info through Superhero.
Superhero’s ‘Reports’ feature now includes complete tax reporting — a much-needed feature— as well as real-time account financing via PayID banking.
On the Australian Stock Exchange, Superhero provides an industry-leading unlimited $5 transaction with a minimum trade size of $100. Even better, certain Exchange Traded Funds have no brokerage fees on purchases, which encourages long-term investing.
What’s the catch, then? There don’t appear to be any significant red flags right away. Still, Superhero works a little differently than other share trading businesses in general — we’ll get to that in the CHESS sponsorship section.
- At $5 per trade, this is the cheapest brokerage for Australian stocks.
- Only $100 is required as a minimum transaction size.
- There are no monthly costs.
- The site is simple to use, and the mobile app is fantastic.
- Invest in several ETFs with no commissions by starting with just $100 each trade.
- Allows trade on the Australian Stock Exchange (ASX) and the New York Stock Exchange (NYSE)
- After you’ve sold, trade with funds that haven’t been settled.
- Regain control of your retirement savings.
- Purchase fractional shares in the United States.
- Individually, no CHESS is sponsoring this event (you will not receive a HIN).
- You won’t be able to trade overseas stocks.
- When dealing with a lot of information, it’s easy to become overwhelmed.
- Trading features that are as simple as possible
- It is not possible to trade outside of the US or ASX markets.
- A shared custodian account holds your investments.
Setting up Your Account
All brokers listed above provide a simple step-by-step online account opening process that includes supplying identification and bank account information.
Next, please fund your trading account to begin trading. This entails putting AUD into your USD trading account and paying a currency conversion charge, which generally ranges between 0.5 and 0.7 per cent of the transferred money.
SelfWealth’s minimum trading size is $500, whereas Stake and eToro provide fractional shares and modest minimum transaction quantities for stocks and ETFs.
Choosing Which Securities to Trade
If you’re a new investor, you’ll generally want to stick to trading stocks, ETFs, and maybe REITs at first. However, as your confidence and expertise grow, you can try other derivatives and cryptocurrencies.
All securities investments have some risk, but currency derivatives necessitate a higher level of expertise, and both products and cryptocurrencies may be highly volatile.
Setting the Order Type
Once you’ve decided on security to trade, you’ll need to input the symbol and the number of units you wish to buy/sell into the trading platform. Depending on your account type (basic or premium), you may access various order types.
- Order of the market. You buy and sell equities at the current market pricing (which means the opening price at the next session if you initiate your transaction outside US trading hours).
- You should keep the order to a minimum. You decide whether you want to purchase or sell at a specific price. If the price reaches the specified price point during the day, you will complete the deal according to your request.
- You must halt the loss. When selling securities, this is commonly used. If the price of a security reaches a specified price point based on your order, the sell order is automatically executed, similar to a limit order.
This feature allows you to sell your shares automatically if the price falls below a particular threshold, preventing additional losses.
Registration And Tax Considerations
To avoid paying a 30% withholding tax on share sales and profits, the US government requires foreigners who seek to trade in US assets to complete a W8BEN form.
With a proper W8BEN form, you can pay 0% withholding tax on sales and only 15% on profits (with the latter usually able to be offset against your Australian tax).
The W8BEN form is available via your online broker.
When completing your Australian federal return, you must report all of your earnings, including profits from overseas sources, as an Australian resident.
Tax withheld by a nation with which Australia has a tax treaty (including the United States) can generally be returned as a tax credit on your return, preventing double taxation.
Capital Gains Tax
When you trade your securities and make a profit, you usually have to pay tax on capital gains at your marginal income tax rate. Whenever the selling price of a security exceeds the acquisition price, along with any fees, capital gains occur.
How Do I Reduce Capital Gains Tax?
Capital gains tax is lowered by 50% if an investment is held for more than 12 months.
For instance, if you bought security on January 1, 2020, and sold it on February 1, 2021, your capital gains would be $1,000 (50 per cent of $2,000), and you would impose a tax on a $1,000 gain.
However, if you sold within 12 months, said December 28, 2020, you would be taxed on the whole $2,000 capital gain.