How to Buy US Stocks 2023

Summary

It’s not as difficult to purchase stocks as many people believe. In fact, US stocks are the most requested stocks globally, with people from all around the world looking to get a piece of an American company. Although these stocks and other securities are regulated by the Securities and Exchange Commission (SEC), there are no citizenship requirements for purchasing them. This means that people who are not citizens of the US can legally purchase these stocks without any legal implications.

This guide aims at providing guidelines to traders/investors on how to buy US stocks online, outside the shores of the US. We will look at where to buy these shares, the pros and cons, the top exchanges you can buy them from, trading platforms, and other frequently-asked and highly important questions. 

How to Buy US Stocks Online

The easiest way to do this is to:

1. Select an Online Stockbroker,
2. Create an Account,
3. Fill W-8BEN Form,
4. Deposit Funds,  
5. Research the Stocks you want to buy, and 
6. Buy your stocks.

Pros and Cons of Buying US Stocks

Buying stocks from American companies have some obvious advantages and disadvantages, which we will list below. 

The Most Popular US Exchanges to Buy US Stocks From

A stock exchange is an exchange where interested parties can trade securities like shares, bonds, and so on. The most common stock exchanges in the USA are the New York Stock Exchange (NYSE), NASDAQ, and the Chicago Stock Exchange.

The New York Stock Exchange (NYSE)

The New York Stock Exchange is an exchange located in Lower Manhattan, New York City. It is by far the largest stock exchange in the world by market capitalization of shares sold, ahead of NASDAQ and the London Stock Exchange. The history of the NYSE can be traced back as far as 1792 when 24 stockbrokers signed the Buttonwood Agreement, an agreement on how to bring order to securities trading. Between 1817 and 1865, the location of the NYSE trading building changed a lot, until it settled in its current position in 1865.

Most of the biggest companies list their stocks on the New York Stock Exchange. The NYSE has a total of 2,578 domestic and international companies listed on it. Some of the most popular stocks on the exchange are Microsoft, Tesla, Amazon, Coca-Cola, Apple, Meta, Pfizer, Moderna, Berkshire Hathaway B, Boeing, PepsiCo, Nike, etc. You can buy these stocks on this exchange using any broker of your choice. The NYSE has a market cap of over $30 trillion dollars, with an average daily trading volume of over $170 billion.

NASDAQ

The NASDAQ is the world’s second-largest stock exchange. It is located in New York and has a market cap of about $19 trillion. The initials NASDAQ originally stood for the “National Association of Securities Dealers Automated Quotations”. It was founded by the National Association of Securities Dealers (NASD) in 1971. NASD is now known as the Financial Industry Regulatory Authority (FINRA), a body that regulates brokerage firms and exchange markets.

NASDAQ contains over 3,500 listings of securities from the largest companies in the world, including Nasdaq, Berkshire Hathaway, Apple, NVIDIA, Amazon, Tesla, Google, Coca-Cola, Meta, Pfizer, Moderna, etc.  

The Chicago Stock Exchange

The Chicago Stock Exchange, also known as CHX or NYSE Chicago, is one of the largest stock exchanges in the United States. Its market cap is well above $200 billion. It is also one of the oldest stock exchanges in the country, founded in 1882.

CHX helps provide routing to CHX Institutional Brokers and off-Exchange market makers. By doing this, it makes securities listed on the NYSE, NASDAQ, and other stock exchanges available to brokers who wish to trade them. 

Factors to Consider When Buying US Stocks

Before buying shares from American Companies as a foreigner, there are certain factors you must consider. Some of them are:

Commissions & Fees

The easiest way to buy US stocks is to find brokers who offer them. This often means paying some commissions and fees to these brokers to use their services. Depending on the broker, there are different types of fees you might be subjected to pay. Some of these fees include:

• Spread: This is the most common fee a broker will charge you. It is the price difference between the broker’s offered bid and ask prices.
• Deposit & Withdrawal Fee: This is a small percentage charge on the funds you are depositing or withdrawing. 
• Inactivity Fee: Some brokers charge a certain fee for leaving your account dormant for an extended period.
• Currency Conversion Fee: You will be charged a currency conversion fee if you trade stocks that have a value different from your account base currency. Although, some brokers do not charge this fee. 
• Commission: This is charged for using the broker’s services to access the stock market. The amount is different for most stock brokers. 

Exchanges like eToro and Capital.com have 0% commission stock trading and low spreads. Consider which broker has the lowest fees before you buy US stocks.

Stock Brokers Regulation

Ensure the stock broker is regulated by trustworthy financial regulatory bodies before buying through them. Every region has one or more financial regulatory bodies that monitor the activities of stock brokers operating within that region. The FCA regulates brokers in the UK, the ASIC regulates brokers in Australia, and in the US, bodies like the SEC, CTFC, and NFA do regulate brokers. 

Check that your stock broker is regulated by the financial regulatory body in your region.

Trading Platforms

The choice of trading platforms is important when buying US shares online. A trading platform is a piece of software used by the broker to place trades on the stock market. Most stock brokers have their own proprietary trading software, but there are other common ones like MetaTrader and cTrader, which many brokers offer. 

Leverage Availability

Leverage trading is a form of trading that involves borrowing money to open a wider position than your actual deposited funds would usually allow. Most regulated stock brokers offer leverages to traders, usually at the limit allowed by regulatory bodies. For example, most regulatory bodies allow maximum leverage of up to 1:20 for stocks.

Check if your broker offers leverages if you are interested in leveraged trading.

Stock Performance

The performance of a stock determines if it is worth buying or not. A stock should always be compared to its peers or similar stocks, so you can choose which stock is the best option for you based on their performances. You can also use tools like Google Finance to compare a stock’s performance with other similar stocks.

Shareholder Pattern

Do a background check to see the pattern of major shareholders of a share you wish to buy. Check if the majority of the shares are held by domestic institutional investors, foreign institutional investors, etc. It is important to always look out for shareholding pattern reports as this shows a lot about the financial health of the company and stock.

Company Size

The company size is often studied in terms of its market capitalization and market share. Changes in the industry could affect the market share of a company and affect the stock value, depending on whether the industry is a fast-growing industry or not. Check these factors and decide if you want to purchase a small company with the potential for growth or a large company with more stability.

Dividend

Companies like Tesla, Meta, Apple, Berkshire Hathaway, and Alphabet do not pay dividends on stocks to their shareholders. Some other companies like Verizon, AT&T, Best Buy, etc. do pay dividends. Before you buy a US stock, check whether it pays dividends or not, and look at the dividend history.

Volatility

Before you buy a share, look at the stock performance history and see the level of volatility of the stock. A volatile stock has the ability to make you lose profits before you can exit a trade. Confirm the price volatility levels of a share before you invest in it.           

Trading Platforms to Buy US Stocks

A trading platform is a piece of software that brokers use to place trades in the stock market. Different trading platforms come with their own features and characteristics that make them unique and preferable to different types of investors. 

Recently, it has become increasingly popular for brokers to create their own proprietary platform for trading, completely customizable with charts, news, real-time notifications, and other features that make technical and fundamental analysis easier. Brokers like eToro and Capital.com are examples of brokers that offer proprietary trading platforms for stock trading.

Generally, there are two major types of trading platforms you can use to buy US stocks: desktop platforms and mobile applications.

Desktop Platforms

As the name implies, desktop platforms are trading platforms available on desktop devices, like laptops and PCs. It often comes in software applications for Macbooks and Windows, so traders can install it on their desktop devices. Stock brokers with proprietary trading platforms offer their software in this format.

Also, there are common desktop trading platforms used globally, like MT4, MT5, and cTrader. Most brokers offer these platforms along with their own proprietary platform so that investors can choose the one they prefer. MT5 is the most preferred trading platform for stocks as it offers traders access to all the stocks available on the broker.

Mobile Apps

For people who enjoy trading on the go, using mobile apps on their smartphones is a great option. Just like on desktop devices, there is mobile application software that you can use on mobile devices like your Android, iPhone, tablets, iPad, etc. to trade. Many people prefer this method as it offers them access to real-time news and notifications while they are on the move. Some people do not prefer this trading platform because the size of the trading screen is often smaller than on a desktop.

Stockbrokers also offer their proprietary trading platforms on mobile devices, as well as common trading platforms like MT4, MT5, cTrader, etc. You can find mobile trading applications on app stores like the Apple Store or Google PlayStore.

CFD Trading Vs Buying Real Stocks

When buying US stocks, you often have the option of buying CFDs or real stocks. Choosing one or the other could drastically affect the outcome of your investment. CFD is an acronym for “Contract for Difference”, and it is a contract that allows you to trade on the future position of an asset, in this case, a stock from a US company. CFD trading uses leverage, while regular stock investing doesn’t require the use of leverage. 

When you buy a CFD, you don’t buy or own an actual stock, you just bet on the position the stock price will be at a contract time. In this instance, CFDs could work as good investments regardless of the direction you think a stock will go. You can benefit from the price of a stock going up or down if you trade with CFDs instead of real stocks.

On the other hand, buying real stock means buying and owning a piece of the company. In this case, you are fully invested in the growth of the company and can only see profits if the value of the company grows. Buying real stocks also means you own the stocks until you decide to sell them, not until a contract expires. 

CFD trading is not advised for rookie traders because it is complex and could lead to serious losses if done wrongly. Before choosing to invest in a US share, decide whether you wish to trade them with CFDs or buy them outright.

Can I Make a Profit When I Buy US Stocks?

As it is with any kind of investing, buying American stocks comes with a few risks. These risks can make it difficult for investors to make a profit. In fact, it is estimated that more than 70% of retail traders lose money when trading/investing due to excessive risks. Some of the factors that make it difficult for traders to make profits when buying US stocks are:

• Lack of knowledge: Many traders don’t study enough before they start investing. It is important to know about stock trading generally, and about the particular stock you are buying. Also, practice a lot with demo accounts before you start trading with real funds. 
• Poor Risk Management: Stock trading isn’t always “high risk, high returns”. Not knowing how to manage your risks and losses could cause you to lose more money while trading stocks.
• Emotional trading: Letting fear and greed dictate your trading decisions could have terrible repercussions when trading. The Fear Of Missing Out (FOMO) has made amateur investors buy stocks they shouldn’t have and lose money in the process.

There are many other factors that make traders unprofitable when buying stocks, but most of them can be distilled into these already listed points. 

It is possible to make profits by investing in stocks, however, it requires training, practice, discipline, constant access to knowledge, good money/risk management skills, and many other important skills. It is also important that traders understand that it is impossible to turn in a profit with every trade, so they need to learn how to manage risks and losses because they will always face them.

What Reddit and Quora Say About Buying US Stocks

It is always important to get diverse viewpoints from traders with some experience trading US stocks. Nowadays, many of these traders share their experiences on social platforms like Facebook, Twitter, Reddit, Quora, and a few others. We decided to go to Reddit and Quora to see what users have to say about buying US stocks.

Reddit

Reddit is a social network with over 500 million users. These users (known as Redditors) have forums (called subreddits) where they discuss everything, including finance and trading topics. We decided to go through a few subreddits to see what Redditors are saying about US stocks and where to buy them as foreigners.

One Redditor said that it was possible for foreigners to buy US stocks if they used a broker that offered those stocks. Examples of such brokers are Charles Schwab, Interactive Brokers, Tastyworks, Firsttrade, and DriveWealth. You would need to submit your proof of identification and proof of address for KYC verification, and you also have to pay taxes, depending on the tax treaty your country has with the United States.

Another Redditor said that while it was possible for foreigners to trade US stocks, they would need to get a stock broker that has experience handling foreign clients as not all brokers were experienced in that regard.

Quora

Quora is a social network similar to Reddit, where users discuss a wide range of important topics. Expert traders share trading experiences and advice and recommend great brokers for trading. 

When asked if it was possible for foreigners to buy US stocks, almost all the responses were affirmative. One Quora user said it was possible to buy and hold US stocks without ever traveling to the United States. In fact, he said he had been doing it for some years now. According to him, TD Ameritrade is the best stockbroker for foreigners since it doesn’t require physical verification in any of its branches. However, you may need to send some documents to them by post and receive money-remitting instructions from them the same way.

Another Quora user said you can buy US shares as a foreigner by opening an account with a stockbroker that offers US stocks. A good example is the US-based stockbroker, Charles Schwab. According to them, you have to fulfill the minimum requirements for opening a foreign account, including submitting important documents and depositing the minimum required amount for foreigners. The user also said that foreign traders would have to fill out the IRS W8-BEN form. The W8-BEN form is an IRS document used to collect information from non-residents for tax reporting. According to this Quora user, they didn’t have to pay capital gains tax, but they paid 5% on dividends.

Another Quora user said it was possible to do this without even using a US broker. According to him, he has been doing it for a while and now has 20 companies in his portfolio, even though he had never been to America.

Bottom Line 

The United States of America is the richest country in the world with the biggest stock market and some of the world’s biggest corporations. For this reason, many people all around the world want to know how to buy US stocks. Thankfully, that is easy to do if you are registered with a broker that has access to the NYSE, NASDAQ, and other US stock exchanges.

When choosing the broker you wish to trade US stocks with, you need to consider factors like the fees and commissions, leverages offered, regulation, and the trading platforms available. There are two main ways you can trade stocks: CFD trading or real share trading. CFD trading involves the use of leverages to trade the future position of a stock without owning the stock, while real stock trading means buying the stock as a piece of the company.

Traders from communities like Reddit and Quora recommend brokers like Interactive Brokers, TD Ameritrade, eToro and Charles Schwab for people looking to buy US stocks from outside the country. It is also important to remember though, more than the choice of broker, the trading strategy and risk management of a trader will increase their chances of success when trading US stocks.