How To Invest In The US Share Market From The UK

In this article, we'll go through the essential steps of investing in US stocks from the UK.

Updated: December 7, 2023

Are you a UK citizen interested in investing in US stocks and shares, but not sure how to get started? Investing in US stocks is an excellent way to diversify and potentially increase your portfolio's growth rate.

While investing in US stocks from the UK can be tricky for many people, with the right approach, it can be achieved with relative ease.

In this article, we'll go through the essential steps of investing in US stocks from the UK, from opening an account to picking the right stocks and getting started. So, let's get started on understanding the basics of investing in US shares for UK investors.

*eToro Disclaimer: Your capital is at risk. Other fees apply. For more information, visit etoro.com/trading/fees.

**Plus500 Disclaimer: 81% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

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*1. eToro★★★★★Click Here
2. Robinhood★★★★★Click Here
**3. Plus500★★★★★Click Here
4. Interactive Brokers★★★★Click Here

Understanding the Basics of Investing in US Stocks

Investing in US stocks is an attractive and potentially lucrative option for UK investors. With many US stocks growing in popularity, it is important to understand the basics of investing in US stocks while also considering the complexities and inherent risks of investing in this market.

Here, we provide an overview of the basics of investing in US stocks and the considerations and risks associated with this type of investment.

Before you start investing in US stocks, you must consider whether you have the correct permissions, or ‘tax residency’, which allows you to access the US stock market. If you are a UK investor and do not have the correct permissions, you will need to open up a portfolio with a tax advisor or investment firm who can provide you with the necessary permissions.

Next, you will need to familiarise yourself with the different types of investments and classes. Broadly the US stock market is divided into 3 classes: Investing in stocks, which are shares of public companies; investing in mutual funds and ETFs, which are funds which own baskets of stocks; and finally investing in commodities, futures contracts, currencies, and other asset classes.

It is important to research the different types of investments available and understand the associated risks. You should also consider whether or not you are willing to inculcate a long-term approach to investing, as this is the best way to achieve a higher return on investment.

You must also pay attention to brokers’ fees, commission, and other fees related to investing in US stocks.

You may need to pay for a broker’s trading platform or for access to certain exchange traded funds (ETFs). Fees can add up, so it is important to weigh the costs versus the expected returns of the investment.

Finally, investing in US stocks requires you to keep abreast of the US stock market and the companies you are investing in. This includes staying informed on the current market trends, reading broker recommendations, keeping an eye on company developments, and tracking the performance of the stocks of interest.

The Benefits Of Investing In Overseas Shares

Taking Advantage Of Diversification & Growth Opportunities

When it comes to investing, the US offers a wealth of opportunities for those looking to diversify their portfolio. Investing with US stock exchanges provides access to a wide range of stocks from well-established companies, as well as new and upcoming businesses.

With a strong and diversified economy, coupled with a multitude of growth opportunities, investing in the US share market can be a wise way to diversify your investments.

As with investing in any foreign market, however, investors need to do their research before committing their funds. This involves assessing the potential risks, understanding the local regulations and understanding the currency exchange rate.

For UK investors, the US share market can offer significant benefits including the potential for strong returns, improved diversification and an opportunity to take advantage of US-based growth opportunities.

1. Improved Portfolio Diversification

By investing in foreign stocks, UK investors can diversify their investment portfolio, spreading their investments across different countries, industries and types of businesses. Having a portfolio which is spread across different sectors and locations can help protect investors from any single event or economic downturn.

In addition, the US market offers greater diversity than some other markets, allowing investors to find a wide range of options and gain exposure to different types of businesses.

2. Investment In High-Growth Sectors

The US share market is home to some of the world's most profitable companies, such as Apple and Microsoft. These companies have achieved huge growth and success, making them attractive investments for those looking for a long-term growth opportunity.

Additionally, the US has seen rapid advancements in the technology, healthcare and renewable energy sectors, providing opportunities for investors to invest in some of the most ground-breaking and innovative businesses.

3. Access To Expert Advice

Investors in the US share market can benefit from the advice of a Registered Investment Advisor (RIA). An RIA can provide knowledgeable and impartial advice on the best investments to make, as well as offering ongoing guidance and support.

This can be extremely beneficial for those who are not familiar with the US market, helping to ensure they make the right investments.

The Risks & Challenges Of Investing In The US Share Market From The UK

Getting Familiar With US Tax Implications & Foreign Exchange Risk

Before you take the plunge, it’s important to be aware of the associated risks and challenges of investing in US stocks from the UK.

The first thing to consider is the taxes that you may be liable for. Although the UK and the US have tax treaties in place that limit the amount of double taxation on income and investment gains, you may still be liable to pay taxes in the country in which you earned or made the money. Therefore, understanding how to pay capital gains tax in both countries is essential.

Additionally, US stocks may be subject to withholding taxes on dividend income and the rate of tax may be different than in the UK. Furthermore, the US Internal Revenue Service (IRS) requires all taxpayers who earn income in US dollars to file a foreign bank and financial accounts report. This means that even if US taxes are not payable, they may still have to be accounted for.

The foreign exchange fee is another risk to be aware of. When you purchase shares in a company listed in the US, you’re doing it in US dollars, but when you sell them, you’ll receive the proceeds of sale in GBP.

This means that you’ll be exposed to exchange rate risk, as the rate of exchange can vary and you’re unable to hedge against it. Therefore, changes in currency exchange rates can impact the value of your investment.

Ultimately, you should make sure you understand the trading, taxation and currency risks associated with investing in US shares from the UK, to ensure it’s a sound decision and to help ensure you protect your wealth.

Investing in a volatile and complex stock market should always be approached with caution, and careful consideration should be applied to your investments to ensure success.

Finding The Right US Brokerage Account For Your Needs

First and foremost, you’ll want to take your time and do your research. Make sure any broker you’re considering offers the services and products you need; you may even want to consult a financial advisor or appraiser to make sure. Different brokerages offer different services and products, so make sure it’s the right fit for you.

The next step is to look into the experience of the brokerage firm. How long have they been in the business, and what kind of reputation do they have? Are their customers satisfied? Be sure to read reviews and ask around for opinions before making a decision.

The final factor to consider when selecting a US broker is fees.

Take a close look at all the fees involved, and make sure they’re in line with what you’re comfortable spending. Different brokerages have different trade commissions, bank account minimums, and other fees, so be sure to compare these before selecting one.

Once you’ve done your research and have narrowed down your list of potential brokerages, it’s time to open an account. Fill out the necessary paperwork and make sure you have all the required documents. Once your account is open, you’ll be ready to start investing in US stock markets like the New York Stock Exchange.

Looking At Your Options

Naturally, investing in stocks can be fairly intimidating, especially for those new to trading. With the recent rise in apps that allow anyone to easily access the financial markets, the US brokerage platform market has experienced a surge of newcomers, making the process of selecting the right platform all the more confusing.

For UK investors who are looking to get their feet wet, we have compiled a list of the most popular brokerage platforms to buy US stocks with.

1. eToro

eToro is an easy-to-use and comprehensive trading platform that allows users to buy and sell stocks, commodities, and cryptocurrency.

It also provides sophisticated trading tools such as copy trading and copy portfolios, allowing investors to easily copy the strategies of other successful traders.

Other features include negative balance protection, social trading, and its built-in Virtual Trading platform, which enables users to experiment with different strategies with virtual money.

eToro logo

eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk.

2. Robinhood

Robinhood is a popular trading platform known for its unique commission-free trading offerings.

It’s also one of the only platforms that offers users the ability to buy and sell bitcoin. Robinhood also provides users with real-time market data, trading tools, and access to over 5,000 different stocks and ETFs.

3. Plus500

Plus500 is a global online trading platform that offers investors the ability to trade a variety of products, including indices, currencies, stocks, and more.

Its main draws are its user-friendly platform, real-time charting, and a variety of trading options, including stop loss, limit and market orders.

Plus500 also offers one of the lowest fees in the industry, making it an attractive option for investors.

Plus500 logo

81% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

4. Interactive Brokers

Interactive Brokers is a top tier trading platform that caters to experienced traders. It provides users with analytics, streaming news, and current market data.

It also offers a wide range of trading tools, including algorithmic trading, automated trading and portfolio margining. Its main downside is its high price, as it charges high fees for certain transactions.

There are a variety of US-based brokerage platforms available for investors in the UK to choose from. Each platform has a unique feature set and pricing structure, making it important for investors to find a platform that fits their individual needs.

We recommend investors take some time to explore the different platforms available on the market in order to find the one that works best for them.

Protecting Yourself Through Risk Management

Understand Your Tolerance For Risk

Investing comes with risk; there are no guarantees of a return. The key to managing your investment risk is understanding your own personal risk tolerance. Ask yourself questions such as, “How much money can I afford to lose in the markets?” and “How much risk am I comfortable with?” From those answers, you can begin to craft your investing strategy.

Diversify Your Investments

Diversification allows you to spread the risk across different types of investments. This means that if one investment does badly, the others may not suffer the same losses. Examples of diversification include investing in different asset classes, sectors, countries, and investment products.

Limit Leverage & Margin Trading

Leverage and margin trading can magnify potential profits, but they can also magnify potential losses. To limit your risk, set limits on the amount of leverage and margin you can use when investing.

Monitor Your Portfolio

Stay on top of your portfolio’s performance. Set up alerts so that you know when certain investments are showing signs of distress. Monitor your portfolio closely and look for opportunities to make adjustments as needed. This will help you stay ahead of any potential losses before they become too steep.

Set Targeted Exit & Stop Loss Points

You should have an idea of when you want to exit certain investments and what your acceptable loss level is. This will help you stay disciplined and reduce your overall portfolio risks.

Rebalance Your Portfolio Regularly

Rebalancing your portfolio regularly helps you ensure it remains aligned with your risk tolerance and goals. It also helps you minimise the risk of an overly concentrated portfolio. Regularly rebalancing can also help you stay disciplined and avoid making rash decisions.

Determine Your Investment Horizon

It is important to have an idea of how long you plan to hold each of your investments. Longer-term investments generally have a lower risk than short-term investments. You should be aware of the time horizon of each investment and adjust your strategy accordingly.

Review Your Portfolio Annually

At least once a year, take the time to review your investment portfolio and make adjustments as needed, based on your goals and risk tolerance. This will help you stay on top of any changes in your investments and make sure that your portfolio remains well-balanced and risk-adjusted.

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