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Ep 148: How to Trade in a Foreign Account or as an International Trader

I want to share some insight on how you can trade stock if you’re living abroad or if you’re an international person.

That’s the topic of today’s lesson – Trading stocks as an international or foreign trader. I typically run into this question a handful of times every single month.

This is one usual scenario: Hey I’m living in Europe, I’m living in India, and I’m wondering how can I trade stocks.

The thing is that those countries and those areas have their stock market. But if you’re looking to trade on the US market and looking to trade on our market, there is a way for you to trade. But you do have to file and get the right paperwork in order. It is a lot easier if you’re a US citizen. That’s a lot easier.

Right now I’m going to share with you some insight into how you can trade on the stock market. I mean when you’re living abroad when you’re a foreign or an international person.

The simple answer: You can do it, but there are more complexities.

Disclaimers – Be Aware of These Facts

I am a US citizen here, so I do not have first-hand experience as far as getting and going through all the paperwork.

What I’ve done to give you the right information is I’ve contacted a couple of different brokers. I do that to get their insight and talk to them as far as the paperwork that you need to fill out.

I found out everything you need to go ahead and go through the process of setting up an account. Keep in mind that every country has different rules and regulations. Every broker also has specific rules that they follow in practice.

That’s because they’re associated in certain countries, or they have a brokerage in another country. If they have that with your country, then there might be some different rules and regulations.

The best bet is always to go ahead pick the phone give them a call and explain your situation. Tell them your case based on your documentation, your government IDs and where your country of citizenship resides.

Not every country is going to be accepted for trading. The reason is the rules, the regulations, the risk factors that are involved. I know a couple of countries (Nigeria, Iraq, Iran) that may have a little bit of trouble.

As far as many other countries go, you shouldn’t have too much trouble. However, it’s best to call your broker or contact a couple of different brokers to see their policy. That way you’ll see their rules and their regulations.

This Is What I’ve Found Out That Is Necessary

You’re going to need some of the paperwork. There’re some examples of that paperwork. Let me share with you some insights and wisdom of what I found out by contacting and calling these brokerage firms.

These are the questions you might want to know:

  1. What do you need to get yourself started?
  2. What are the key components?

You will have additional paperwork that I mentioned earlier. One of those main things is the W-8BEN form. This is for tax purposes so that you don’t have to file US taxes.

A passport or some government ID is also necessary. And you’ll also need to verify your address, country of residence and things like a utility bill, gas, water bill or electric. Maybe even a bank statement.

Important Note: This paperwork not only ensures that you are who you say you are, but it also protects the brokerage firm from the frauds. Also, it protects the brokerage firm from things that may happen since they may not reside directly in your country.

Which Countries Can Trade?

You might be wondering if your country qualifies or if you qualify to trade.

Most countries can trade on those US markets except a handful that I mentioned:

  • Iran
  • Nigeria

You’ll get an idea of which countries are going to be okay. Also, you’ll find out which ones you may have trouble with getting approval. If you live in one of those high-risk countries, it’s important to be aware of that.

One of the best places to sign up and get an international account is through Interactive Brokers.

Keep in mind they do have some conditions:

  • Account minimums $10,000
  • You have to trade a certain number of trades every single month. Otherwise, you get charged a small fee

There are a few minimums and other requirements that you will need to hit. However, you can take a look at some of the locations and client services that they have.

They have plenty of locations which means they’re very friendly for international clients. It allows you to trade easily if you’re international.

You get support in those foreign countries with those international phone numbers. When you open an individual account, you go through this process of application. After you give your email address, and your username it’s going to ask you for which country or residential country you’re in.

This is going to give you an insight into some of the countries that are covered. There is no Iran listed here. If you look at the map, you can see that Niger is accepted, but Nigeria is not.

Those are some things to keep in mind as you go through this application process. I’m not sure if they left those countries out specifically or there is some other reason.

Application from TD Ameritrade

What I’ve also done is get the application from TD Ameritrade for an international person. There’s a lot of PDF documents that they sent me.

This is a different broker, but it will give you some insights into some of the paperwork that’s required. Let’s start through the top and work our way down. If we look here at a foreign account opening, you can see here’s our form.

When you go through this process you can see things like this:

  • A completed account application (the application is enclosed)
  • W-8BEN form (please include your country’s tax identifying number)
  • Passport (must be current)
  • Proof of residence
  • Completed letter of explanation for a U.S. address and U.S. phone number

You can see they give you a lot of other things that you’re going to need. You’re still able to do it if you have a foreign address. And then what you’ll do is you’ll send these documents and forms.

There are also some basic things like a client agreement. This is a standard. Usually, they give this to you anyway to anybody if you’re signing up.

Here is a standard account as well. This is a general account application. In this form are things like your investment objectives, whether you’re conservative, moderate, aggressive or speculative investment time horizon for this account. There’re things like that, and that’s standard stuff.

There’s going to be a transfer form if you need to make any transfers from any other brokers. If you’re opening up a new account, you probably won’t need that. Then you have a welcome letter that you also get.

Here’s the W-8BEN Form

This is a certificate of foreign status of beneficial owner for United States tax withholding.

I’m not a tax professional or a tax expert. You may want to reach out to an accountant specifically and get more insights about this.

But what they do is withhold tax before they make payments out to you. That means that before you’re able to withdraw things they do the fees ahead of time rather than in the United States.

What happens is you make trades, and you make your profits, you can take your money out. Then you pay taxes at the end of the year. Here before you go into that account and can withdraw money they make those taxes even ahead of time for you.

That’s my understanding. It could be a simplified version of that, but that’s what this form appears to be all about. Anyway, that’s another primary form that you’ll need to fill out.

You may have the Commission’s and fees that you’ll get. That’s a standard starting point, but you can negotiate those rates as you do more trading.

Deposit Slip, Margin Disclosure (Non-IRAs)

You may want to take a look at this. There’s a deposit slip if you need to deposit sending a check, funding your account. And there are a margin disclosure forms.

This is something standard for their protection. You need to look at this as a foreign person who’s setting up an account in an international way is looking at this foreign account opening checklist.

Make sure you follow all these items and do your best to fill out that form. When you go through W-8BEN, you’ll need to fill this out as well. Go through this process, and these are the two primary forms that are a little bit different.

In either case, you can also set up entities if you want. I that case it would be W-8BEN-E form. That’s the primary starting point of what you need to get an international trading account.

Summarizing The Facts About Documentation

You can see that the process is not overly complicated. There are a few additional forms that you’ll have to fill out. Next, it’s a little bit of extra work than if you were just a regular US citizen.

However, you can get it done, and you can get it completed. And then you’ll have a trading account that you can use and trade stocks. Whether you want to do it actively or a little more passively. That’s going to be up to you.

What’s The Next Step To Do From Here?

You’ll probably want to do pick up the phone and call these brokers or call multiple brokers. That’s the case if you have any additional questions.

I would always say call a few rather than just one. And call multiple times because sometimes you get some additional knowledge and information that is shared with you beyond the first person.

It’s always good to call multiple time and that way maybe you get a second person. That person might be more knowledgeable about international traders, investors and foreign accounts. They will walk you through any additional paperwork that you may need to be compliant depending on your situation.

Keep in mind there may be a few hoops that you need to jump through to get things set up. At least once you’re set up, you should be good to go and that the end of setting up your account.

Some of the other additional problems and maybe issues you may experience is if you have account changes. Or if you’re moving from one country to another. Instead of filling out the forms online you may need to call them to make those changes.

I find that a lot of Internet services forms, the web things that you do adjustments with especially when things are more complicated.

It doesn’t function precisely 100%. When you have to report at the end of the year for taxes that may also create some other complications, that’s because of the paperwork that you may also need to submit.

Quick Note: In either case that is some insight that I gained between talking to a few different brokers and getting the knowledge and information. This is just research that I’ve done. I don’t have any experience doing it. But maybe this will give you a starting point to going out and opening up your account.

Something Practical For Canadian Citizens

You have things like Quest Trade. They have self-directed investing, and this is what they have for you:

  • Trade stocks for 1cent a share (min.$4,95)
  • Powerful trading platforms
  • Buy ETFs for free
  • Advanced active trader program

There’re certain brokers out there that are specific to your country. Here with Quest Trade, this is one that’s great for Canadians.

You have option trades. It’s a little bit higher price just merely because you’re in Canada. There’s also some active trading. That’s a little bit cheaper there for options which $6.95. The stock trades still basically $4,95 a trade.

Investing at TD, Qtrade and RBC Direct Investing

You could also do things like a TD Waterhouse. This is TD Ameritrade. It was TD Waterhouse in the past – they merged. A little bit more expensive on the pricing than the US. Then you have Q trade here as well, and then you have RBC Direct Investing.

You can see this is a broker specifically for Canadian. And if you go through the process of doing your research to finding a broker that you can work with locally, then you can do that as well.

Final Word

Go through the process of doing your research to finding a broker that you can work with locally. That is also one option. It may simplify your life and make things a lot easier to be able to trade on the stock market.

Sometimes they’re only able to trade directly in the market that you’re at. Meaning their geographic location and other times they could do an international market.

The best practice is to contact that broker and see what it is that they can do. Take a moment to do some of your research. Pick up the phone, call a few of these brokers and see what’s possible.

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