Editor’s note: This article was first published in August 2010. The description of US brokers being reluctant to take foreign clients, and of opening an account at an international bank with US branches, reflects the situation then; online brokers serving international clients are now common.
This follows on from our article on investing in the US stock market, so here we’ll look at how to choose a broker to trade on the US stock market. If what you want is to choose an online broker to invest in your own country, you won’t have any trouble, because practically any bank is a broker. So what should you keep in mind when choosing an online broker to trade on the US stock market?
As we always say, with any type of investment it’s essential to understand it. In this case, we need to know in advance which companies listed on the US stock market we want to invest in, and why.
Before choosing an online broker
Before choosing an online broker, make sure you consider the following factors:
- Language: Some say that to choose an online broker you need a basic knowledge of English, but I think it should be intermediate rather than basic. The broker will send you information in English, you’ll have to communicate in English, and all the information coming from the stock market is in English. You need to take that into account.
- Define your type of investment: Before choosing a broker, you should be very clear about whether you want to invest for the short, medium or long term, and also whether you’ll be investing small or large sums of money, because each broker specializes in one type of investment and charges fees in different ways. Once you’ve worked this out, compare the types of fees. If the commission per trade is higher but you don’t plan to make many trades, you shouldn’t worry too much about it, as long as the commission on returns and on selling the shares is lower. This is another factor you should have clearly defined.
- Open an account: To trade, you need to open an account and, as we mentioned before, ideally with an international bank that has branches in the United States. A local bank has to transfer money to another bank, and every transfer costs money and takes longer. If you’re going to use a US broker, try to make things easy for them in this respect, as if you were a US citizen.
- Choose the broker: In the past, most US brokers and brokerage firms were reluctant to work with foreign investors. Today the vast majority have opened their doors, but some are still unwilling to invest money for non-US investors. You’ll need to take this into account as well.
With all that said, the process is simple, not much more complicated than investing online in your own country. I would only insist that you need to know the US companies you’re going to invest in, as well as the mindset of Americans.
In the United States, if the press catches a company executive cheating on his wife, that’s more than enough reason for the company’s shares to fall, because people may think he’s distracted and will end up running the company into the ground.
Still, it’s undoubtedly a great investment opportunity in the biggest companies in the world, where you can make large sums in a single morning, always keeping in mind that you can also lose large sums of money in five minutes.
When you change countries, the rules and ways of investing change, but America is still the land of opportunity, and we have the chance to own a little piece of it. Good luck.
Further reading
- What Arthur Rock analyzes before investing
- How to become a successful investor: first steps
- My first stock market investment
- Why stock market investing is the most profitable investment
- The only secrets to getting rich
Featured image: Ken Lund, CC BY-SA 2.0, via Flickr.
