Investing in US market: Best Broker?

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19th Feb '18 by tony777x

23 comments 4789 reads

I am looking to invest in US equities. Does anyone suggest a suitable broker bearing in mind costs of currency conversion of the broker.

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Tony777x

Premium Member

23 comments

AnonymousUser192020

19th Feb '18

I've considered this from time to time but have been put off by the potential UK taxation hassle. To my simple mind:
1. Dividends and interest: convert from USD to GBP at official exchange rate at date of receipt
2. Capital gains/ losses: calculate in GBP using official exchange rates at date of purchase and sale
3. Fx gains/ losses on cash float held in US brokerage: this is where I'm confused - these will be significant on a material (USD 50k+) cash float but at what point should one crystallize the gain/ loss for hmrc reporting? And an active account is going to have many transactions into and out of cash during the year, further complicating the computation. I doubt that hmrc would disregard this - to do so would be inconsistent with the treatment of Fx gain/ loss in 2. above?

Perhaps someone who's been down this route could clarify how the process works in practice.

Thanks

AnonymousUser192020

23rd Feb '18

Brief follow-up. I mentioned this to a retired corporate tax accountant and he said the tax position is a little more complicated. Essentially (if I interpreted his comments correctly) each transaction into or out of the cash float account creates a potential tax reporting point. So if I deposited $50k in the brokerage account then a few weeks later applied $10k to make my first stock investment there would be a reportable Fx gain or loss on the amount so applied. The taxation of the gain/ loss on that investment would then follow point 2 of my thoughts in the preceding post. However, if i simply kept the $50k in cash there would be no reportable event at the end of the tax year (other than interest receipts).

The above sounds broadly logical and I guess this is all manageable if one keeps a clear head and good records, especially if making regular contributions to the USD account. Presumably a similar concept applies to a Brit who owns property overseas and maintains a foreign currency account for regular maintenance etc expenditure. I would stress that I have not looked at any official hmrc guidance on this matter - for me it's in the 'too difficult' box at this stage and would tilt the decision towards investing in US stocks through a UK brokerage, if a good exchange rate were available.

jonesj

23rd Feb '18

Thanks for the HSBC recommendation.
I checked through their charges sheet and there was no explicit mention of forex. From my experience of financial services providers, there is usually a charge unless they state it is zero, although perhaps this is the exception

Have you compared your HSBC overseas trades with the XE.com mid market rate to confirm the exchange rate and spread they are actually using on the overseas transactions ?
If they exchange your money at mid-market rates, that's an attractive option. OK, so their fees appear to be $29.95 per trade, but it's preferable to paying a 1.5% spread to TD Direct (now iii) on any reasonable trade size.

I would think for anyone trading outside an ISA, it's getting to the point where an offshore account must be good insurance against a future marxist governement fouling up the economy to the extent that currency controls need to be reintroduced. [To avoid political controversy, I am not mentioning which party that might be...].
Mine is in Singapore (all legal, above board & for as long as I reside in the UK, subject to UK tax).

dmjram

23rd Feb '18

I explicitly confirmed this with them as I was surprised as well - there is no forex spread charged by them which is unique I think.

I didn't go any further with them however as I need functionality that the platform doesn't offer such as buy stops and stop losses so can't help with the fx rate comparison.

DeGiro has a decent free comparison table here which you can use as a starting point for following up with the named brokers.
https://www.degiro.co.uk/fees/

Yes, I'm similar with the political position - a plague on all their houses at the moment - and have put the SIPP into 100% foreign currency holdings.

jonesj

23rd Feb '18

Thank you. That's a very good forex deal then.

Thanks also for the Degiro link. However, they quote 1% for the iii forex spread. It's actually 1.5% for trades under £25k and you need to spend over £50k to get to 1%. Bear in mind if in a Sipp, if switching from one US stock to another, it would be 3% lost in forex for a sub £25k trade, as the money is always converted back to sterling.

As for the political risk, something like 87% of my stocks are overseas, but held via London. I recently added a broking account in Singapore, as further insurance.

The UK had currency controls until Mrs Thatcher abolished them. Iceland had some form of restrictions for almost a decade after the financial crises. Some of our politicians seem to admire Venezuela. Even the current lot are borrowing money at an irresponsible rate.
What I'm suggesting is to consider if that extra trading account should be outside the UK,

Investor & Trader

23rd Feb '18

Hi - Commisions are the biggest cost for me.

Does anyone know or have an idea on the spread of UK shares in comparison to US shares.

Is it generally lower in the US? it seems to be on my general observation......

Rusty2

23rd Feb '18

It could be more to do with mcap, us companies tend to be larger than uk ones.

As for commissions, I would look at a Schwab account, they only chArge about $5 a transaction, no forex fee as your account is in us$ anyway. They were doing a deal last year if you opened an account with $50,000 you would get so many transacts free but I can’t see that now.

Smudger

28th Feb '18

Stock trades at Fidelity in the USA are $4.95 each. They have the cheapest trades and the best research. Wonderful screening tools, but you still need Stockopedia. Perhaps only Schwab matches price? Vanguard are close. Fidelity Site is excellent and usually gets first place in reviews. I also have small account at Ameritrade (they took over my Scottrade account) it's also OK. Also Vanguard have been famous for low costs. This was an answer I got from Fidelity in the USA where I currently have several accounts, but also luckily a US address. I was asking about UK residents setting up account (you have to travel to the States) "Due to International securities regulations, Fidelity associates are unable to assist clients physically located outside of the United States with establishing a new account at Fidelity. We are also unable to send sales literature, including account applications to a foreign address. If VISITING the United States, you would then be able to open an account by GOING TO A Fidelity branch which can be located by using the link listed below:"

https://www.fidelity.com/customer-service/branches/overview
I asked Fidelity if their companies in the USA and Europe were different - "yes" -
"We do have international affiliates to assist non-U.S. investors and you can find the different Web sites for Fidelity Worldwide Investment by accessing the following link:"

https://www.fidelityworldwideinvestment.com/global/default.page

"This may have a different logo because it is not the same as Fidelity Investments located in the United States." So don't bother using "Fidelity" in other parts of the world. There seems to be a firewall between them all.
Besides the cheap stock trades, there are several ETFs that are commission free to buy and have very low annual expenses (for example FHLC health care, 0.084% annual expense). These are from Fidelity and Blackrock. I have several of these and I happen to reinvest the dividends back in to the ETFs. I don't know if Schwab or Ameritrade or Vanguard have the same travel requirement.
I have not tried many UK brokers, I ended up with AJ Bell, but it's not even close to what I can get at Fidelity. At Fidelity, you can try some of the tools for free but you get more as a registered customer.
Since I deal as a US customers, I can't answer tax questions but previous answers in thread seem to be very helpful/ good starting place. Fidelity may be able to provide some information on taxes. I can ask them if you are interested. There used to be a deal where $50K got you 100 free trades for a certain time period, but not sure it that still applies after they dropped commissions from $7.95 to $4.95. By the way IRA's are similar to ISAs but you can't put money in them unless it's from a job "earned income". Good luck.

Logic

28th Feb '18

Interactive brokers are allegedly good, but you need to meet certain thresholds for them to accept you and higher yet to avoid quarterly fees.

Brigra

28th Feb '18

Interactive Brokers also support SIPPs.
Its costs a few hundred pounds per year more than an 'ordinary' one, but could be worthwhile if you want to be invested globally.

https://www.interactivebrokers.com/en/index.php?f=1212

Howard Adams

28th Feb '18

David

An excellent addition to this thread. Very useful thanks.

Regards
Howard

Smudger

2nd Mar '18

Thanks for the Feedback Howard. Here is a little bit more:
Wiring instructions for UK to dollars via Fidelity FOREX
http://personal.fidelity.com/accounts/services/forex.shtml

FAQs
https://www.fidelity.com/trading/faqs-about-account
note however the item about "no foreign accounts" is contradicted by two people I contacted at Fidelity this week.
They also said, when visiting bring UK passport and another form of government ID (which I take to mean a driver's license.)
All the best, Dave

Luthrin

3rd Mar '18

"I mentioned this to a retired corporate tax accountant and he said the tax position is a little more complicated. Essentially (if I interpreted his comments correctly) each transaction into or out of the cash float account creates a potential tax reporting point. So if I deposited $50k in the brokerage account then a few weeks later applied $10k to make my first stock investment there would be a reportable Fx gain or loss on the amount so applied."

This used to be the case, but several years ago HM Treasury recognised that the gains and losses on these transactions were broadly tax neutral and created a disproportionate burden for both HMRC and the individual taxpayer. As a consequence, currency gains and losses realised within an individual's foreign currency bank account became exempt from CGT from 6 April 2012. You can find guidance in the following links:

HMRC briefing note

HMRC Capital Gains Manual

Howard Adams

3rd Mar '18

David

That's useful input, many thanks.

Regards
Howard

Noodle Hat

10th Mar '18

I'm in same boat.

Pretty much come to the conclusion to use an IG Isa account, not spreadbet. Forex charge is 0.3% for the isa account so not bad and good dealing rates. £6 i think for half frequent trades. Much better than the frankly ludicrous 1.5% that many charge.

If your money is already in an isa it must be the most important thing to keep that tax advantage. if you choose say interactive brokers then any posi5ive from the 0% forex exchange will surely be dwarfed by any capital gains on a half decent account size?

mpjubb

11th Mar '18

Does anyone have any experience of dealing with III or James Hay? James Hay do the administration from IG SIPPS.

Cheers

Smudger

23rd Oct '19

UPDATE. Many large US brokerage firms now charging ZERO commissions on stock and ETF trades: eg Schwab, Fidelity etc

tgsteer

23rd Oct '19

used schwab for 10 years excellent . now no commission on dealing

willhampson

23rd Oct '19

Many thanks for this re Schwab etc. Probably a dumb question but how do they make their money then? I had a quick skim of the Schwab UK pricing guide and didn't find it particularly clear. Presumably there is a generic account management fee, or something akin to that.

Macro

23rd Oct '19

Among my investment buddies the names that keep coming up again and again are:

- Tradestation: Apparently very good and supports autotrading, pattern trader. Great software, too.
- Interactive Brokers: Supports autotrading, pattern trader, but the software is unforgiving of typos / fat fingers.
- Degiro: Apparently very good for for low fees.
- Thinkorswim / TD Ameritrade: Apparently very good for Options.

I really wish that one day they would all get together and do a group presentation / brain-dump to educate me!

But to my style of investing I can buy collective investments or ETFs easily from a UK account. And if you are spreadbetting are the spreads really so bad for an S&P500 company or a FANG stock?

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Tony777x

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