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Trading US Stocks in the UK

The London Stock Exchange (LSE) lists a wide range of securities to include in your international portfolio. Also, if you’re based in the UK and plan on buying foreign stocks, such as popular U.S. stocks like Amazon or Apple Inc. for example, then you should be aware of the difference in transaction costs, taxes and other details before you start trading. 

Main Takeaways: How to Trade U.S. Stocks in the UK

  • Method 1: Trade GDRs on U.S. stocks
  • Method 2: Invest in ETFs on U.S. stocks
  • Method 3: Utilize an international broker
  • Method 4: Find a UK broker access to U.S. stocks

What You’ll Need to Know Before You Start Trading US Stocks

The main concern when buying U.S. stocks in a U.K. trading account involves currency conversion. Although some international brokers allow you to open an account with a foreign currency, most share dealing firms in the U.K. transact all business in pounds sterling (GBP).  

This means that every time you make a trade in a U.S. stock, you must convert pounds to dollars and vice versa, so your costs could increase considerably due to the need to constantly exchange currencies when buying or selling, in addition to the regular stock commissions you’ll need to pay. 

Another important consideration when trading U.S. shares in the U.K. involves potential tax implications. Many U.K. stockbrokers offer traders the option of buying overseas shares in an Individual Savings Account (ISA), a Self-Invested Personal Pension (SIPP) account or a regular dealing account. 

Furthermore, upon reporting dividend income in the U.S., you might have to pay taxes on that income, which could cause “double taxation”, although the U.K. has arrangements with other countries, including the U.S., to either prevent double taxation or provide a way to reclaim the additional tax you might pay. 

In order to trade U.S. stocks in the U.K. you’ll also need special paperwork to file with the U.S. Internal Revenue Service (IRS). If you trade in U.S. stocks from the U.K. and derive income from your trading, you will be required to file a W-8BEN form by the Internal Revenue Service (IRS).

This qualifies investors to pay a reduced U.S. tax rate on income derived from their U.S. shareholdings.  

How You Can Trade US Stocks in the UK

Ready to trade U.S. stocks in the UK? Here’s how you can do it.

Trade Global Depositary Receipts on US Stocks

Trading GDRs on the London Stock Exchange is a great way to trade U.S. stocks in the U.K. To begin with, you can trade GDRs through any U.K. share trading account with access to the LSE. 

GDRs consist of negotiable certificates issued by depository banks that represent ownership of a certain amount of shares in a foreign company.  GDRs can be traded independently from the underlying shares.   

The LSE lists GDRs either on the Main Market through a Standard Listing or on the Professional Securities Market. The GDR generally allows access to two or more markets, and in the case of U.S. stocks, it would be the LSE and whichever exchange the underlying securities trade on in the U.S.  

The U.S. element typically consists of a Rule 144(a) American Depository Receipt (ADR) that trades in the private placement market in the U.S., in addition to a public offering under Regulation S outside the U.S. The Rule 144(a) ADR provides an exemption and permits the public resale of restricted or controlled securities.

A less common option is for the GDR to include a more prestigious Level III ADR that lets a foreign issuer float a public offering of ADRs on a U.S. exchange to establish a trading presence and raise capital in the United States. 

GDRs on U.S. stocks traded on the LSE are typically traded in U.S. dollars on the LSE’s Electronic Trading Service International Order Book (IOB), so you will still have to exchange currencies to purchase them if you are sterling-based. 

Dividends on U.S. stocks are also paid in U.S. dollars, and trades are settled either through Euroclear Bank or through the Depository Trust Company (DTC). Several international brokers will also allow you to open accounts denominated in other currencies besides GBP. 

LSE partial list of international stock GDRs denominated in U.S. dollars showing the last sale price, change up or down, and percentage change on the day.
Source: lseg.com

Trade Exchange Traded Funds (ETFs) on US Stocks

For investors who prefer to have other people pick their stocks, ETFs could be a good option. An ETF basically trades much like a stock because you’re basically buying units of the fund. This form of investment means you’re buying a variety of stocks managed by the fund. 

An advantage of ETFs is that markets in the well-capitalized ETFs are extremely liquid, which can be useful if you want to employ short term trading strategies. In the UK, the major ETF dealers are Vanguard, iShares, ETF Securities and Lyxor. 

A partial list of ETFs with more than 99% U.S. stock exposure includes:

  • SPDR Dow Jones Industrial ETF 
  • Invesco S&P 500 Equal Weight Consumer Staples ETF
  • iShares U.S. Aerospace & Defense ETF
  • SPDR Dow Jones REIT ETF
  • iShares U.S. Oil & Gas Exploration & Production ETF
  • iShares U.S. Home Construction ETF
  • WisdomTree U.S. Earnings 500 ETF
  • Fidelity MSCI Consumer Staples Index ETF
  • Invesco S&P MidCap 400 Pure Growth ETF

The advantage of trading ETF shares is that you can just pick a certain industry sector and the fund picks the stocks in that sector to invest in. In addition, many ETFs with U.S. stocks can also be traded through international and U.K. based stock brokerages. 

Open an Account with an International Broker

Keep in mind that knowing how to trade is just as important as choosing the right broker. Several online brokers provide brokerage service in many foreign markets and allow accounts in various currencies. 

These brokers have oversight from the U.S. Securities and Exchange Commission (SEC) for equities, the Commodities Futures Trading Commission (CFTC) and the National Futures Association (NFA) for commodities, forex and futures trading. 

For example, Interactive Brokers is a U.S. based broker that caters to professional traders and has the widest access to foreign markets. Interactive Brokers lets you access over 120 world exchanges regardless of your location, since Interactive Brokers accepts clients from most countries. 

In addition to access to U.S. stock markets, Interactive Brokers provides an excellent trading platform, the Trader Workstation (TWS) that lets you consolidate different account types, thereby facilitating your ability to trade and monitor multiple assets in different markets. 

Interactive Brokers’ commissions and margin rates are some of the most competitive in the business, but you’ll need a minimum of $10,000 to open an account. Also, this broker charges an inactivity fee on idle accounts, so expect to do some trading if you pick this broker. 

Screenshot of Interactive Brokers’ Trader Workstation trading platform.
Source: interactivebrokers.com

Another U.S. based broker with a presence in the U.K. that offers trading on U.S. stock exchanges and lets you maintain a trading account in U.S. dollars is Charles Schwab UK. 

With a Charles Schwab U.K. account, you can access a wide range of U.S. investment products, and you’ll only pay a standard commission of $4.95 for each stock trade. You’ll need a rather large minimum deposit of $25,000 to open a Schwab UK account though. 

Schwab’s premier trading platform is called StreetSmart Edge, and it features an intuitive, customizable interface that aligns with your trading style. In addition to technical analysis tools, the platform includes a news feed and can be downloaded to your desktop or used online via the Cloud.

You can also use Schwab’s web-based platform and a mobile option for trading on the go.   

Open an Account with a UK Broker with Access to US Stocks

Award-winning Interactive Investor is a U.K.-based international broker that provides access to U.S. stock markets. This broker lets you invest directly in more than 40,000 U.S. and international shares on 17 global exchanges. 

In addition, you can manage your money in up to 9 different currencies in either a trading account or a Self-Invested Personal Pension account. Commissions at Interactive Investor start at £4.99 for online transactions with fees for shares traded on other international markets starting at £9.99. You can open a regular share dealing account with as little as £100.   

Since you can hold 9 different currencies in your account, you can also trade forex to a degree by deciding to buy or sell your foreign stocks when the exchange rate is favorable. Because this broker is based in the U.K., you can also open an Individual Savings Account to hold your stocks and funds in, although cash in this type of account can only be in sterling.

Interactive Investor offers excellent research provided by Morningstar and technical analysis by Recognia. 

As another option, Hargreaves Lansdown has helped U.K. investors with share dealing and other investments for 35 years. The broker has over £86 billion under management and services more than 1,000,000 clients who mostly live in the UK. 

The broker primarily uses the Vantage Service investment platform, and it gives U.K. investors access to trade more than 2,500 funds, corporate bonds, gilts, ETFs and investment trusts. 

Hargreaves Lansdown’s share broking services include shares in the U.K., Europe, Canada and the U.S.  In addition to the Vantage platform, you can open a Stocks and Shares ISA or a Vantage SIPP account for your investments. 

Commissions for stock trades vary depending on how active you are in your account. Costs for stock trades can be as high as £11.95 per deal, but commissions decline to as low as £5.95 per deal if 20 or more share transactions were made the previous month. 

If you want to save on commissions, then Trade 212 is a U.K. based broker that offers free stock trading on 1,900 stocks and ETFs traded on the London Stock Exchange, the Deutsche Börse Xetra, Euronext Amsterdam, the New York Stock Exchange (NYSE) and the Nasdaq exchange. The Trade 212 trading app has over 14 million downloads and is the leader in commission-free trading in the U.K. 

In addition, with a Trading 212 ISA tax-free account, you can make investments at the same zero commission rate as with their standard account, but would not have to pay capital gains tax on your profits. You can open an account with just £29, $29 or €29, and you’ll be charged 0.05% on currency conversions if you transact stocks that trade in currencies other than GBP.

Conclusion

When it comes to investing and trading U.S. shares from the U.K., you have a wide variety of choices depending on how much you wish to invest. International brokers tend to be the most expensive to open an account with, but they typically charge competitive commissions compared to brokers based in the U.K.  If you want to save on commissions though, Trading 212 offers the best no-commission deal and requires the least amount to open an account. 

Interested in investing in the UK? Check out Benzinga’s guides on how to buy cryptocurrency in the UK.

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