Best Brokers for International Investors

How to Select the Best International Brokerage

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Investors have never had more options for accessing global markets with thousands of different exchange-traded funds (ETFs) and American Depositary Receipts (ADRs) trading on U.S. exchanges. While country ETFs provide exposure to an entire economy, they don’t provide exposure to specific equities within those economies. Many ADRs also have significantly less liquidity than foreign stocks, which makes them a subpar way to invest in foreign markets.

In this article, we will take a look at the best brokers for international investors who want to buy and sell stock directly on foreign exchanges.

Top International Brokers

Many popular U.S. discount brokers provide access to certain international markets, such as Canada’s Toronto Stock Exchange (TSX), but fail to offer access to more obscure markets. The good news is that there are brokerages that offer this kind of access to investors.

Interactive Brokers is the most popular international broker for U.S. investors with access to over 50 exchanges around the world. Individual accounts have a minimum requirement of USD$10,000 and must maintain minimum monthly trading activity or incur a fee. Flat rate commissions are just $1 per 100 shares, while tiered pricing varies based on trading volume and regulatory fees — although it’s very competitively priced.

Other U.S. brokerages offering exposure to foreign markets including Charles Schwab, OptionsXpress, and MB Trading.

These brokers have a more limited set of international markets than Interactive Brokers, but could be worth exploring for investors that only need exposure to certain markets.

Investors looking for cheaper or regional exposure may consider brokerages like OCBC Securities, which is a Singapore-based firm that offers access to a variety of Asian stock exchanges.

The most significant piece of exposure is likely the Shanghai Stock Exchange’s A-Shares that tend to be difficult to access for foreigners. While U.S. citizens are accepted as clients, they cannot trade on U.S. exchanges using the brokerage account.

Risk Factors to Consider

International investors should exercise caution when selecting foreign brokerages since they aren’t regulated the same as U.S. brokerages. In addition, investors should consider the other costs and complexities associated with directly purchasing foreign stocks.

Investors should keep in mind that foreign brokerages are not regulated by U.S. regulatory agencies, which means that they should look into the reliability of foreign regulatory agencies. There are many examples of foreign brokerages that have shut down overnight resulting in a complete loss of capital. International trading can also be more expensive than domestic trading and certain rules may apply (such as limitations on trading in certain markets).

Investors purchasing foreign stock may also be liable to pay capital gains taxes to taxing agencies in other countries. For example, an investor that made a profit trading Chinese shares may have to pay taxes on those gains in China.

The only exception are countries that have pre-existing agreements in place with the U.S. to avoid double-taxation. For more information see: How to Pay Taxes on Foreign Investments. Some brokers may also charge currency conversion fees on top of each trade that can add up over time and take a bite out of profitability.

Alternative Investments

International investors that don’t want the hassle associated with buying and selling foreign stock may want to consider international ETFs, U.S.-traded ADRs, or purchasing actively-managed mutual funds targeting foreign markets.

International ETFs let investors target regional or country-specific markets with broad exposure, while actively-managed mutual funds may offer value-driven or other approaches. These securities may be worth considering for investors that don’t want to invest the time and energy in analyzing foreign stocks, which can be a daunting process given that corporate and financial information isn’t always reliable and up-to-date.

ADRs represent a more direct way to invest in foreign markets using U.S.-traded securities. Often times, these ADRs are blue-chip companies that are dual-listed in the U.S. and on their home exchange. While the value of these two listings may vary, there is rarely a persistent discount since arbitrage traders can profit from the difference if it becomes too wide. This makes them a compelling investment even if liquidity is limited.

The Bottom Line

International investors have a number of different options when investing in foreign markets, including international ETFs, U.S.-listed ADRs, and mutual funds. Advanced investors looking for exposure to specific securities may want to consider buying stock directly on a foreign exchange, which requires a brokerage that provides access to those exchanges. The good news is that there are several options for these investors.

Interactive Brokers is the most popular international investment platform with exposure to over 50 exchanges around the world, but investors looking for cheaper and specific exposure may want to consider regional brokers as an alternative. It’s important to carefully consider the reliability of these brokers as well as the cost of investing in foreign stock beforehand, however, since it can be significantly more expensive and risky than investing in U.S. stocks.