How To Buy Foreign Shares

How to Buy Foreign Shares

Buying US shares from the UK might seem a little daunting, particularly if you’re a relative newcomer to the stock market. But it really isn’t all that much harder than buying British shares.

There are a few things to watch out for, in particular taxes, currency movements, and additional dealing costs.

Here’s what we think you should know:

Buying US stocks in the UK

Most brokers allow you to buy and sell shares on the US market in the same account that you would normally use to buy UK shares.

The basic buying and selling process is very similar, with shares usually identified by their ticker codes, such as AAPL for Apple and MSFT for Microsoft.

You may find that a broker doesn’t cover every single share that is listed on the US markets as they tend to concentrate on those that are most popular with investors. Some brokers will add additional US stocks to their service on request so it’s usually worth contacting them if you can’t find a particular company that you want to buy.

Your broker will handle all the currency conversion for you when you buy US shares, normally for a small fee. You will see this listed in their charges section.

Some brokers also offer foreign currency accounts where you can buy and sell in US dollars, or other major currencies, should you prefer to do so.

The dealing costs for buying and selling US shares can be slightly higher than for UK shares, but it varies from broker to broker. Many charge the same as they do for UK shares.

However, if you think you’ll be buying US shares from the UK on a regular basis, any difference in the basic cost is obviously a key thing to look out for. To find the right one for you, check out our top-rated brokers in the UK.

What to know about the US stock markets

US shares tend to be popular among UK investors as the US markets are the world’s largest and they contain many of the biggest companies in technology, healthcare, and other sought-after industries.

In addition, many large companies based in Europe and Asia also list their shares on the US markets and this can be a convenient way for UK investors to buy them as well.

The main US stock markets to be aware of are the New York Stock Exchange (NYSE) and the Nasdaq. The latter is home to many of the newer companies in the technology sector.

In terms of indices, which show you how the whole US market is performing, the Dow Jones Industrial Average, the S&P 500, and Nasdaq 100 are the main ones investors follow. The Dow Jones and S&P cover companies on both the NYSE and the Nasdaq. You can probably guess which exchange the Nasdaq 100 covers!

Another quirk to be aware of is that the prices of US companies are often several hundred dollars for a single share, or even a few thousand. In the UK, most shares are priced between £1 and £20.

A higher share price does not necessarily mean a company is more expensive, but it can make it more awkward to invest smaller sums in US shares.

Thankfully, many brokers now allow you to buy so-called fractional shares, meaning it’s much easier buying US shares from the UK whatever the size of your portfolio.

Time difference when buying US shares

The main US markets are open from 9:30am EST to 4pm EST. That’s 2:30pm to 9pm UK time (although the US often changes its clocks on different weekends to the UK so, at times, that can shift things back or forward by an hour).

You can either wait until the US markets are open before putting in a buy or sell order or some brokers will let you place an order outside of US market hours and then execute it as soon as they can once they’re open.

If you’re taking this latter route, you might want to specify a maximum buy price you want to pay or a minimum sell price you’re prepared to accept. You should be able to cancel your order if you change your mind before the US market opens.

Another thing to be aware when buying US stocks in the UK is that most companies release their results shortly after the US market officially closes for the day. That’s in contrast to the UK, where most result announcements are made at 7am each morning.

US companies also release quarterly results whereas the usual practice in the UK is twice a year.

Extended hours trading on US shares

With some brokers, it is possible to buy US stocks in the UK outside of normal US trading hours.

Extended hours trading in the US takes place from 4am EST to 8pm EST. Before the market opens is called “pre-market trading” and after is referred to as “after hours trading”.

Trading volumes during extended hours trading tend to be a lot lower than they are during normal trading, so shares prices can be extremely volatile and especially so after a company releases its quarterly results or other important information.

Foreign exchange risk

If you hold assets quoted in US dollars or another currency then you’re exposed to foreign exchange risk.

This means that if the US dollar falls against the pound then the value of your US shares also falls. But this works both ways; if the pound weakens against that the US dollar then your US shares will be worth more.

Buying US shares in an ISA

Holding shares in an ISA is often a good idea as it can save you from paying income tax on your dividends and capital gains tax on any profits.

And the same principle applies if you’re buying US stocks in the UK.

If you hold US shares outside of an ISA, then you may have to complete additional Self Assessment forms regarding foreign income.

Complete a W-8BEN form

If you are buying US shares from the UK then your broker will probably ask to complete a US tax form known as an W-8BEN. Some brokers won’t let you deal in US shares unless you do so.

A W-8BEN is a one-page form where you have to list some basic personal details. Some brokers now allow to complete this form online, which tends to be a lot easier than printing it off, filling it out by hand, and then sending it back to your broker.

W-8BEN forms are valid for three years and it’s important to complete it. Once you have, if you have bought a US share that pays a dividend, only 15% tax will automatically be deducted rather than the standard rate of 30%.

W-8BENs remain valid until 31 December following the third anniversary of you signing the form. For example, a form signed in April 2021 should remain valid until 31 December 2024.

Most brokers will contact you when you need to provide an updated version and you also need to provide an updated form should you change your name or address.

Choosing which US shares you want to buy

The process of deciding which US shares to buy is much the same as selecting UK shares. Ideally, you will want a diversified mix of companies covering different industries and maybe of varying company sizes.

Because the US market is much larger than the UK, it has a much wider range of companies to choose from and has many businesses, particularly in technology, where there is no real UK equivalent.

So adding US shares to a UK portfolio can be a good way of filling in the gaps, so to speak, giving you a more rounded collection of stocks.

The investor relations section of a company’s website often provides plenty of information on how a company has performed and how it is planning to grow.

Most US companies host quarterly conference calls to discuss their results and provide detailed answers on how their business works.

In addition, a number of Fool UK’s investing services recommend US stocks as well as UK shares.

Buying US shares via funds, ETFs, or investment trusts

Another way of buying US shares from the UK is to do so via a fund. In fact, this can be a cost-effective way to get exposure to a wide range of companies, especially if you are investing a smaller sum.

Buying a fund means you can avoid having to deal with foreign currencies and taxes but obviously you won’t have direct control over exactly which US shares are bought and sold and when. There will also be a fee charged by the fund manager for their services.

And you will also still have the same currency risk due to movements in the exchange rate between the pound and the US dollar.

Some funds invest just in US shares, or even in certain sectors of the US market.

Others invest on a global basis, but as the US markets make up over half of the world’s total market value, they will usually have a significant proportion invested in the US.

CFD trading and spread betting on US shares

It’s possible to both CFD trade and spread bet US shares, just as you can do with UK shares.

CFD trading and spread bets are typically used to bet on price movements over shorter periods. In essence, you are speculating on price movements and you do not own the underlying asset, as is the case when you buy or sell shares.

Be aware that these forms of trading, allowing you to bet on share prices moving both up and down and trading on margin (effectively taking a larger position but only paying a small deposit) is inherently much more risky than buying US shares directly.

Benefits of trading US shares with IG

IG is a popular provider for buying US stocks in the UK as it has very competitive charges, particularly if you are a more active trader (which IG currently classes as making three or more trades a month).

IG also offers a wide range of investment options and very useful educational resource in its IG Academy.

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Frequently Asked Questions

Yes, most brokers allow you to buy US shares from the UK these days, often for the same dealing charge as for UK stocks.

Yes, you can buy US shares very easily and you can also put them into tax-protected accounts like an ISA or a SIPP.

Yes, non US-residents can buy and sell US shares. Most brokers require you to fill out a one-page US tax form before you can trade US shares but they make this process as simple as they can.

Yes, as one of the largest companies in the world, Amazon has become a popular holding for many UK investors. Most brokers will allow you to buy and sell its shares as easily as would for any UK-based company.