Right now in the UK, there are very few actual platforms offering direct and real US stock investing.
Existing share dealing platforms offer US “stocks” through the CREST system, while CFD providers offer internal derivatives where they trade against you. Ultimately, this means you are not investing in actual US stocks but instead getting taken for a ride.
How it often works for UK investors
When it comes to CREST and CFD providers, the share dealing platforms trade through a market maker (for CREST) or their own book (for the CFD providers). This has three unfortunate side effects:
FX on every trade
As you are forced to maintain a GBP price on a US equity, the market makers create an FX spread every time you trade a US stock through your current broker. Some charge you 0.45% on every trade, others charge you 1%. On 25 trades of $5000 that can be as much as $1250!
They’re not getting market price
These market makers know they have a captive audience, so they don’t actually offer you the real price on the stock. As you’re not trading directly in the US, the bid and offer of the UK derivative you are investing in is maintained by a market maker who’s motivated by selling for the highest amount and buying for the lowest amount. You are their fodder.
Limited stock range
You are only able to invest in the stocks that your broker or their market maker is prepared to quote. New stocks and new names aren’t in their risk profile, so you don’t get to invest in these opportunities. These players aren’t working for you, they are working against you.
So if you look into it, there is actually a conflict of interest that’s not too surprising. In both cases you are not trading into a real equities market, you’re trading against a for-profit platform that determines the price you buy or sell for.
There’s a very simple way to make sure you’re not getting taken for a ride or becoming fodder for your existing broker. Go direct. Skip the middleman, their excessive fees and their dicey practices.
A real US brokerage account
You can open a real US brokerage account which gives you direct access to the US market without all the shades of grey. It doesn’t matter if you live in Los Angeles or London, San Fran or Southampton, you can invest directly into the US market, with full control.
When you do that you’ll save yourself in a number of ways:
Save on FX fees
With a US brokerage account you can hold USD as long as you like. Trade 5 times or 5000 times without paying FX per trade. Don’t settle for FX on every trade. Please!
Trade the actual market
Go direct and bypass the market makers. Get the real price every time you trade.
Don’t be limited by the broker’s risk profile. When you trade into the actual market, you have infinite choice, which means you invest in what you want, when you want.
How to set up a US brokerage account
Thanks to technology, it takes about 5 minutes to have a real US brokerage account. A few details, some ID and you’re on your way.
Once you’re all set up, you’ll need to complete a US tax form (W8-BEN). Completing and filling out this form means your withholding tax on dividends goes from 30% to 15% and ensures you receive the whole settlement amount from share sales.
It’s imperative you do this. If your broker doesn’t get you to fill in this form or do it for you, you know you’re not trading in the US for real!
The US market is the largest and most dynamic in the world. Invest directly and unlock its access and opportunity on your terms.