How to Trade US Stocks from Russia [Hint: Use a cheap, global Broker]
US Stocks. What could we possibly add that hasn't been said or written about them? The US Stock Market (mainly composed by the New York Stock Exchange and the Nasdaq exchange) is the result of hundreds of years of fulfilled American dreams, and a wannabe to the rest of the world. American Stock Markets experience an enormous influx of capital from the rest of the world, and it has grown significantly and steadily over the last 100 years (Despite 2 World Wars, financial crashes and more recently, pandemics). There are countless success stories, movies, series, and books about the American Stock Exchange and the companies that issue shares in it. This article attempts to explain (in plain English) how to buy U.S. stocks without being too cryptic or too simplistic. Without further introduction, let's get started.
5 Steps to follow when Investing in US Stocks
We start the article by detailing the five most important steps you need to follow when investing in US Stocks and Shares. Although we will name each step subsequently, we thought it was an excellent start to summarise the process's key points. So, here they are:
Set up your goals and the strategy you will follow to define if you are a long-term investor or a trader. Your plan should answer questions like: “Am I going to track the economy’s performance (via investing with an index-linked instrument) or am I going to pick each particular stock?”; “At what price am I going to cash in the investment?”. Your strategy shouldn’t be just a matter of buying one single share, no matter how profitable you believe it will turn, simply because that’s not a strategy.
Choose the Broker that best fits your strategy. This one is a crucial step, if opening an account with a Broker that you end up being unsatisfied with, although you may open an account with another one, you should do it right straight from scratch, right? We display a list of the best brokers available locally in the following section.
Open a Trading Account with the Broker (and fund it). Most Online Brokers will ask you to upload a few documents through their App, most certainly an ID and a proof of residence. Upload them, and they should take care of the rest. In 1-2 days, you are ready to go. Funding options range from credit cards to bank transfers and e-wallets. Before buying US Shares, the Broker will ask you to complete the W-8 form, a US Internal Revenue Service (IRS) form that foreign individuals and businesses must file to verify their country of residence for tax purposes.
Apply your Investment Strategy. Once the Broker confirms that your account is up and running, and you deposit cash, it’s time to apply your thoughts, investment ideas, and goals, in other words, your trading strategy.
Review your performance and calibrate the strategy as needed. You can't expect to get it right from the beginning. When investing, especially when starting, you will make mistakes. Learn from them, and improve your strategy. And remember: Investing is a journey that you probably do your whole life.
Top Brokers for US Stock Trading [Available in Russia]
4 Ways to Invest in US Shares
There are four basic ways to invest in US Shares, although the 4 of them are ultimately placing cash into Shares, the investment vehicle (and the level of diversification) differs.
A stock pick is when an investor concludes that a particular stock will turn into a good investment. Stock picking can be challenging because there is never an easy way to determine the future's stock price. Forecasting is not easy. Stock picking can be contrasted with passive investment management, where the investor buys a passively managed ETF or mutual fund. It is the way most of the investors start with, by saying things like: “I want to buy Apple Shares”, or “I’ve heard that the price of airline X shares will increase significantly once the pandemic is over”. Stock picking is, in essence, the purest form of investing in American Shares. However, it’s not the only (Nor the most recommended way).
Which are the most popular shares? Google, Apple, Microsoft, Facebook, Ford, GM, Walmart, and all other American Corporations.
Exchange-Traded Funds (ETFs)
Another way of investing in US Shares is via a diversified investment vehicle, for example, via exchange-traded funds, which are an investment fund that invests in a basket of stocks, bonds, or other assets. These baskets of stocks are index-based, such as the Dow Jones Index, or a sector, such as energy. ETFs trade at the stock exchange, just like stocks. Investors are drawn to ETFs because of their low price, tax efficiency, and trading ease. Like mutual funds, ETFs offer investors diversified exposure to a portfolio of securities, such as stocks, bonds, commodities, and real estate. ETFs are traded throughout the day at the current market price like a stock.
Which ETFs are recommended? If you wish to invest in a portfolio that fully represents the American economy, you need to buy an ETF that tracks the S&P500 index (more info on it later). The most popular ones are the ones issued by Vanguard, SPDR and iShares. If you wish to invest in a particular sector of the economy, you will find many more options.
Investors buy and sell mutual funds directly from a mutual fund company at the current day’s closing price, also known as the NAV (Net Asset Value). As well as the ETFs, a Mutual Fund is an investment fund that invests in a basket of stocks, bonds, or other assets. One big difference is that these baskets are usually not based on an index but on the Asset Management team's decision (Delimited by the Fund’s Strategy, which works as the Fund’s laws and rules). When acquiring units of a mutual fund, you may gain exposure to US Shares, as long as the Fund's strategy includes investing in this asset class.
Several indexes represent the US Stock Market, but let's refer to the S&P500. The Standard & Poor's 500 Index, also known as S&P500, is one of the top stock market indices in the United States (The other one is the Dow Jones). The S&P 500 is considered the most representative index of US’ real economy. The index is built on the market capitalisation of 500 large companies that issued shares on either the NYSE or the NASDAQ markets. The S&P500 represents approximately 80% of the entire capitalisation of the US Stock Market. It differs from other indices in the US financial markets, such as the Dow Jones Industrial Average or the Nasdaq Composite index, in the diversity of the items that make it up and its weighting methodology. It is by far the most invested stock index globally, and many people consider it the trend marker of the North American economy; that is, if the S&P500 goes up, the economy is doing well. Investing in a financial instrument that replicates the S&P500 Index is an excellent way to invest in a good portion of the North American economy through its corporate giants' shares.
Bottom line: There are many ways to invest in US Shares from the least diversified stock-picking way (e.g. “Buying Apple Shares”) to the most diversified way (e.g. buying an ETF).
Frequently Asked Questions about Investing in US Shares
What is the minimum amount to invest in US Shares?
The minimum amount will depend on the Broker that you invest with. The options that we have presented have a minimum investment amount of just a couple hundred US Dollars. It is indeed quite accessible, although, for obvious reasons, your overall performance won’t be very high if you choose to go with the minimum.
Which US Shares are hot right now?
We could provide you with a list including Google Shares, Tech shares in general, Energy, etcetera, but we won’t do it. Simply because, when a Stock is “hot” it is probably too late to invest in it. Always remember that financial markets price the "hotness" of financial instruments almost immediately. Use your common sense, investment ideas, and follow your investment strategy. Avoid the “Which Shares are hot right now?” type articles, because they were written long after the heat was priced on the stock; hence it’s too late.
Can Foreigners invest in US Stocks?
Of course, buying shares from American companies is not restricted to US citizens. It is essential though that you check how this will affect your local tax position.
Sorry, I’m a beginner, what are Shares?
Companies issue shares to access capital to fund their business growth. Company shares refer to an indivisible capital unit, expressing the ownership relationship between the company and the shareholder (if you buy the stake, you would be a shareholder). The denominated value of a share is its face value, and the total face value of issued shares represent the capital of a company.
Where do US Shares Trade?
US Shares trade in several Stock Exchanges across the US, however, the main ones are the New York Stock Exchange (NYSE) and the Nasdaq exchange. Based on the mythical Wall Street, the New York Stock Exchange is the #1 Stock Exchange in the world by market capitalisation where shares and bonds of the titanic North American corporations are traded. Nasdaq is the second one in importance, and it’s where the major Tech companies are listed.
What is a stockbroker?
In stock market jargon, a broker is a firm that executes 'buy' and 'sell' orders for an investor for a fee or commission. In short, a broker is an intermediary through which you can buy and sell stocks of American companies.
Why is it important to choose the right stockbroker?
To better explain why it is vital to choose the right stockbroker when buying US stocks, let us use an analogy. Think about going to the doctor. You want to go to the best one available; however, you may not be able to afford his/her fees. So, when you need medical attention while travelling, you have to find a professional doctor and one you can afford. Now, choosing the right stockbroker is similar. There are technical differences between brokers, but the critical point is that there are differences in the fees and commissions they charge. So, if you want to invest in a few US stocks, think about which one offers the lower costs. If you require more sophisticated financial instruments, you should consider other details.