Justin is an active trader with more than 20-years of industry experience. He has worked at big banks and hedge funds including Citigroup, D. E. Shaw and Millennium Capital Management.
Shares and stock markets grew out of the need for investors and companies to be introduced to each other. Each is attracted to the other. With this in mind, modern-day online brokers allow citizens of one country to invest in stocks of another. The ability to take part in cross-border trading is a real plus point, not least because the US stock market contains a range of exciting and profit-generating stocks. With this in mind, this article will cover the following:
Not only is it possible to buy US shares if you live in the UK, but some brokers are even offering commission-free trading. The popularity of US stocks is such that these special offers are a great way for brokers to attract new customers. It’s good for their clients too.
In terms of the process of buying shares, for a UK citizen, there is little difference between buying US shares and UK listed ones. The steps are as follows.
Finding the right broker for you is perhaps the most important part of the process. While you can buy US shares with most brokers on the market today, not all brokers are created equal. If you're ready to start trading, you'll need to use a broker that is FCA regulated, has low trading commissions and a reliable trading platform. Finding one can be an arduous and daunting task, which is why we've hand-picked favourites that tick all of these boxes to help you get started.
Trading US stocks is so similar to trading UK ones that there is also the question of whether to hold your position in CFD, Exchange Traded Funds (ETFs), or share format. All get the job done, just in slightly different ways.
CFDs have some additional functionality. Leverage and short-selling are two features that make them popular. They tend to be favoured by traders operating short-term strategies as marginal fees mean frictional costs add up in the long-run.
ETFs offer a convenient way to get exposure to a whole range of stock positions. By simply buying one ETF, for example, you can gain exposure to the shares of over 500 US firms. The ETF fund manager will do the hard work of buying and managing each position. You and other clients will share the fees involved and get the full exposure associated with a Fund style product.
ETFs are different from traditional funds in that they take real-time prices. You can trade them whenever the Exchange is open. There’s no need to wait until the end of a trading session to open or close a trade at the market closing price.
Buying shares outright is typically associated with up-front commissions and lower on-going running costs. This makes them more cost-effective for buy-and-hold investors. It should also be noted that brokers periodically run promotions where trading commissions are not charged.
It’s always important to check the small print, but below are some ideas of the kind of offers available.
The trailblazer for US shares has been Netflix. This report gives an in-depth appraisal of the streaming giant’s progress.
On a year-to-date basis, Netflix has at times posted a 79% return on investment. The shares, which listed on the Nasdaq in 2002 at $15, have often times during the last three months reached prices as high as $570.
An added attraction for UK-based investors is that these firms aren’t high-risk start-ups. They are major players with bright futures. In July 2020, the share price of Netflix was high enough to allow it to claim the title of the world’s largest entertainment/media company.
Stock choice will ultimately come down to investor preference. If you are looking to be an active trader and put on trades on a daily basis then the more volatile tech-stocks might be your target market. Getting in and out of a position and making a profit is easier if there are dramatic price moves.
Investors with a longer-term approach may still favour the tech stocks but can also post reasonable returns from shares found in lower-volatility sectors.
Proctor & Gamble, the consumer goods multinational firm may be associated with household items, but its share performance has been anything but boring. In 2019, its share price increased in value by 34%. It’s even managed to navigate the ups and downs of 2020 with the share price increase in value between Jan 2019 and November 2020 being greater than 55%.
Past performance is no guarantee of future returns, but US stocks have over several years outperformed UK listed names. Not only do the returns look more tempting, but there is also a wide variety of firms and sectors to choose from.
Online brokers have cottoned on to the trend and now offer their clients access to US shares. Some go as far as offering commission-free execution. Most also offer a one-stop-shop service, where with one single account, clients can get exposure to US shares using a combination of CFDs, share dealing and ETFs.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage . 75 % of retail investor accounts lose money when trading CFDs with this provider . You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money .