Best Brokers to Trade US Stocks
How to buy shares listed on US markets?
Alfredo de Cristofaro December 02, 2022
Best Brokers to Trade US Stocks:
Investing internationally is a fantastic opportunity for an investor, not only to diversify their portfolio but also to not miss out on great investment opportunities and to become a shareholder of globally successful companies.
Investing in the US market means being able to buy shares of global giants such as Amazon, Tesla, Facebook, Apple, Google Alphabet. Accessing the US stock exchanges also allows you to trade American Depositary Receipts (ADR). ADRs are shares listed in the United States which represent shares of foreign companies, such as Alibaba or Gazprom.
At the same time, however, the investor should pay close attention to crucial factors when investing in US markets.
As a reminder, there is a currency conversion from British pounds to US dollars. To buy shares in US dollars you will need to have US currency, so keep in mind there is the exchange rate risk during conversion. One should also be aware of the double taxation of overseas dividends (both the US and the country where you have tax residency might tax your dividends).
For the analysis of the best brokers to buy and sell US stocks, in this guide we have considered those that guarantee access to regulated exchanges, namely NASDAQ, NYSE (Dow Jones, S&P 500, Amex, Arca) and BATS.
We also reviewed brokers that allow you to trade OTC (Over the Counter) US stocks, including pink sheets and penny stocks. These are products that are as risky as they are appreciated by those traders with limited risk aversion.
ATTENTION! In this guide we always refer to real shares and not to CFDs, the latter, while widely promoted across the internet, we at Qualebroker.com are wary, both for the high costs (primarily of rollover and for the bid-ask spread) and because we consider them riskier and obscure instruments for novice investors.
In our opinion, the greatest risk derives from the high financial leverage that can be offered and which risks make one erase the capital in an instant if a stop-loss is triggered or if one goes into margin call.
On the contrary, the purchase of real shares allows one to become an owner and shareholder of the company of the shares that make up the equity. This configuration allows the possibility of reducing costs (especially those related to the custody and maintenance of securities), especially for medium and long-term investors.
In choosing the best broker to invest in US stock markets, you will first need to establish your trading habits.
Specifically, it will be necessary to define the following:
i) the unit price of the shares to be traded, and
ii) the total number of trades that will take place on the trading account each month.
Why do you need to know the unit price of the US shares you want to trade? Because some brokers like Interactive Brokers (IB) determine the final commission of each trade based on the total number of shares purchased/sold in the transaction.
Specifically, for INTERACTIVE BROKERS you pay $0.005 for each share purchased/sold (with a minimum commission of $1.00).
As a side note, the higher the unit price of each share traded, (and the lower the number of shares traded), the lower the commission will be.
For example, if you buy 10 Amazon shares (ISIN: US0231351067; unit value of approximately $3,500 per share for a transaction value of approximately $35,000) with IB you will pay just € 0.82: a very low rate!
Have we therefore identified the two brokers with the lowest rates for trading US stocks?
The answer is no! In fact, the online broker eToro allows you to trade on about 1,100 shares listed on Nasdaq and NYSE.
eToro has all of the major Nasdaq technology stocks and the most capitalized stocks of the New York Stock Exchange. Other brokers and banks, on the other hand, primarily use a fixed commission structure for US shares (i.e. a commission that does not take into account either the transaction amount or the number of shares traded).
For example, using UK broker Interactive Investor, one would have paid a fixed commission of £7.99 for that same transaction.
However, the variable fee structure may not be ideal if the securities being traded have a low unit price and/or you want to purchase or sell a large number of shares.
As an example, the Uranium Energy Corp stock (ISIN: US9168961038) whose unit value is approximately $1.70 and assuming you want to buy 10,000 shares for a value of $17,000, the commissions applied by IB will be € 33.92, while that of Interactive Investor will always be £7.99.
Therefore, if you prefer trading US securities with a low unit price, a broker that uses a fixed or digressive commission structure such as Interactive Investor, Hargreaves Lansdown or Fineco Bank may be a better fit for you.
You can also use a broker for US stocks with a high unit cost such as IB and another to use for US stocks with a low unit cost such as the latter listed, indeed it would all be to your advantage! These three banks and online brokers will allow you to pay a flat fee of £7.99 - £11.95 - €9.00 - $3.95 respectively per transaction.
But the rates can be significantly lower if you carry out many transactions during the month or quarter, thus having the possibility to move to a lower commission plan, starting from the following month or quarter.
After the commissions, another aspect to be taken into consideration when operating on foreign markets is the management of the currency. What does this mean? When buying shares denominated in a foreign currency, you will need that currency to invest.
Brokers adopt several methods for clients to overcome this obstacle: some allow you to set up a multi-currency account and deposit the currency in question (for example by depositing dollars into the trading account).
Others allow automatic conversion of the amount necessary during the placing of the order. Let's take a look at what the options are offered by various brokers.
DEGIRO does not allow you to directly deposit dollars into your trading account. However, it allows you to set up a multi-currency account and convert British pounds into USD on the platform. The cost is €10 + 0,25% of the converted amount. These dollar balances can then be used for all operations within the US markets. As an alternative, with the AutoFX function, you can execute any trade on US shares at the current GBP/USD exchange rate, the spread of which is widened by 0,25% (both buy and sell).
eToro offers a USD denominated account. You cannot hold British pounds in your trading account. For those with a US dollar-denominated bank account, this setting is perfect as it allows you to deposit USD into your account. These dollars can then be used to invest in US markets. If, on the other hand, you deposit British pounds, the system will carry out the automatic conversion into US dollars with an exchange rate increased by 0.5%.
Interactive Brokers and TradeStation allow you to both deposit US dollars directly into your trading account (at no cost), and to convert British pounds into US dollars with a commission of just 0.002% (min. $2.00) of the converted value.
An investor or trader may be seeking more advanced features for operating in the US markets. For example, some may be interested in being able to short-sell US stocks, while others may want to trade on leverage.
DEGIRO only allows you to invest long-term on US stocks. In the past it allowed one to open short positions through the corresponding CFDs (with leverage x1), but this functionality is no longer available.
eToro allows short selling and leveraged trading on US stocks (approximately 1,100) only through the corresponding CFDs. In practice, if one wants to trade real shares one must go long and without leverage. Otherwise one will trade CFDs.
Interactive Brokers and TradeStation allow you to short sell over 13,000 US stocks (both on regulated and OTC markets). See the full list here. A margin service is also available for both intraday and overnight leveraged long positions.
You can also follow the QualeBroker.com portfolio
We have decided to make our investment portfolio on eToro public for our users. We invest in stocks and ETFs, choosing the securities on which to invest with the principle of Value Investing: we buy when we believe the stock has excellent potential and that its price is undervalued. To achieve a good level of diversification we invest in different sectors and countries (but with a particular focus on US equities) and hold no less than 8-10 products in the portfolio.
The time horizon is medium to long term (1-5 years) and we suggest copying the portfolio with at least $500. Our Profit Target is 25-30% per annum.
→ Click here to view the past performance of our profile.
OTC and Pink Sheets
Finally, we see in the table below which of the brokers considered offer access to US OTC markets and the trading of pink sheets and penny stocks.
Summary of the 4 best brokers to trade US stocks:
Disclaimer: Your capital is at risk. Other fees apply. For more information, visit etoro.com/trading/fees.
eToro is a broker that allows you to trade stocks and ETFs without commissions. The platform is simple to use and the minimum deposit is $10.
TradeStation is a broker whose complex platform and advanced services make it ideal for advanced traders.
Risk disclosure: Investing involves risk of loss
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