Step by step guide to investing in US (or overseas) stocks in Singapore
Having that option to invest in US or any other overseas stock can be seen as an opportunity or a risk at the same time. Local investors who have all along been taking profits through local stock investments may perceived this overseas venture to be risky as it might entail a complicated process along with other additional fees that may be imposed. Investors may feel that this journey might involve some tricky and complex process, but truth to be told, it only requires a couple of simple steps to be taken before you are able to own US stocks.
Times have changed and technology has made our lives so much easier. No longer do you have to be a US resident to be able to own US stocks. With just a couple of clicks at the comfort of your home, local investors are able to long or short foreign stocks even in Singapore!
Why the need to invest in overseas stocks?
Foreign stock exchanges such as the New York Stock Exchange (NYSE) provides more liquidity and volatility that are of a different scale as they are home to major companies such as Alphabet; the parent company of Google, Facebook, Apple, Coca Cola, and Mcdonalds. With the option and luxury to cherry pick from over 50,000 listed companies in the world, investors would be able to diversify and strengthen their portfolio globally. For retail traders/investors, who are veterans to the local SGX scene, depending on your style of trading and capital involvement, this may actually be in favour to them. Most dividend paying US companies are also offering decent returns if local investors are looking to diversifying their portfolio & higher returns.
Where to start from?
Picking The Right Brokerage
This is crucial as most retail investors will typically stick to a brokerage after settling down with them. With the right brokerage, you are able to save on transactional fees, cheaper custodian rates, smaller minimum deposits, a better user interface platform to monitor your charts, and easier withdrawals. Most local trustworthy brokers such as Philips Securities(Poems), UOB Kay Hian, May Bank Kim Eng, OCBC Securities and DBS Vickers are where you can open an account with. A general rule of thumb is to source for the right brokerage that would grant investors the access to the more popular and major stock exchanges worldwide.
Investors are given the option to trade independently or have a remisier to trade for them, which may include a minimum fee of $20 USD and a 0.3% of each trade transacted online. Every banks have their own percentile and minimum fee as they are getting a physical person to trade on behalf of an investor.
Mandatory Declaration Forms
Upon selecting a brokerage that fits your investment style, there are a couple of mandatory forms which needs to be filled and submitted. A W-8BEN form is a requirement by the US inland Revenue Service (IRS) for anyone who is a non-US resident who wishes to trade in the US stock market and to declare that you are the beneficiary owner of any amounts received coming for the US.. This form is to only be completed by non-US residents only. You will be asked by your brokerage to complete this form as long as you want to trade in the US stock market.
Other than a W8-BEN form, brokerages will typically require an acknowledgement form along with their terms and conditions just to make sure that all investors are aware of the risks that comes along with it.
Fees & Charges
No matter which brokerage you have an account with, there would be a small fee deducted that would be used to pay the US regulators when you let go your US shares. This small fee includes a Securities & Exchange Commission (SEC) fee of 0.00174% will be deducted off every trade value made.
There would also be local taxes depending on per trade or a monthly deduction from the overall profits in the form of GST. Other than that, investors should also be aware that of the difference in the currencies.
Custodian fees are usually imposed as long as you are in possession of any foreign stocks that you purchase through the brokerages here in Singapore. It is a fee that will be imposed to the investor if the stock is being held for over a period of time. But that being said, some brokerages will encourage investors to take on more trades to have that custodian fee waived.
Profits and Gains
Upon taking profit or dividends from any companies that you have successfully closed the transaction with, as long it is from the US, there will be a dividend withholding tax of 30% levied off from your eligible dividend amount, meaning to say, if you were to gain a dividend of $100 off your US shares of a certain X company, $30 will be deducted by the US government.
Compare and Choose The Right One
Make use of comparison sites such as ValuePenguin as they provide an overview of the several brokerage companies and their rates at a glance. With the help of such sites, you are able to make a better informed decision without opening several tabs going back and forth to compare commission rates, minimum fees, account deposits and so on.
Every different foreign or global brokerage in general would have access to most of the stocks that are in demand. Depending on the type of investor or trader you are, the strategy that you would adopt, and the capital, some may feel that a per trade commission is so much better than a monthly commissioned fee. Or a monthly minimum fee charged would be better if your capital is only a few thousands dollars. Every retail trader has their own go-to platform as it fits their capital requirement, investment style, and the kind of commission they are able to forgo. Make comparisons to see which fits you best.
In conclusion, there are only a couple of steps that needs to be taken in order to perform trades or invest in US or any other foreign stocks from Singapore.
- Compare among the few brokerages
- Choose a credible brokerage
- Open an account with them
- Complete a W8-BEN form
- Be aware of the commissions rates (e.g. per trade, per month, or flat fee)
- Start trading/investing diligently
Last but not least, investors have to be aware that the volatility of the US market is different as compared to SGX. Everyone has their own commitments, amount of capital they are comfortable to invest with, and how much time can they afford to commit. Hence, it is essential to pick the right brokerage that suits your current needs. Invest with what you can afford to lose and do your homework or even trade/invest in a demo account beforehand.