Share dealing accounts that can buy US shares (in USD preferably)?

mrsaver11

Hi everybody.

I'm looking for a broker/share dealing account capable of trading shares on the US market. My question is: do you know any good ones that you can recommend with low fees for low volume/small traders?

I've done some research online and I found out that there are two types of these accounts:

• The first type:
  • keeps account balance in USD
  • allows trading in USD directly
  • you take care of exchanging the currency
  • Example: Schwab Brokerage Account
• The second type:
  • keeps account balance in GBP
  • allows trading in GBP by doing automatic currency exchange (with a fee) from/to USD at each buy/sell transaction
  • Example: Halifax Share Dealing Account

I'm planning to spend around 190-220 GBP to buy 10-15 shares of a single US company.
My preferred type of account would be one that lets you deal directly in USD, but if you think that my trading volume the fees are not likely to be huge, then I don't mind using the GBP conversion accounts.

Since I'm posting here for the first time, I'd like to say hello to everybody and say something about myself.

I'm 20 and I decided that I'd like to start investing in shares, with a plan to build a fairly stable long-term portfolio.
I intend to set aside a 500 GBP pool for all my investing for the short-term future. I'd like gain some more confidence and learn more about trading before I go for any bigger amounts.

My investment plan for now is to buy some shares of the US-listed company which I mentioned earlier. This will cost me about 190-220 GBP for 10-15 shares. Then I intend to invest the remainder of my pool into one or two UK blue chip shares.

bowlhead99

I use the first type of account (TD Direct, which lets you hold multiple currencies, trade international stocks, and invest in funds on their platform if you don't just want to hold individual stocks).

Problem is, you don't have anything like enough money to create a portfolio of shares.

Let's say you have £210 and convert it to USD to buy your shares (losing a bit as commission when buying the currency, but ignore that for now). You then pay a trading fee to buy the shares. Say the fee is a pretty competitive £10 so that (ignoring fx commissions), you get to invest £200 of your investment pot into these shares, although it has cost you £210 really.

After a year and a half, after growth of whatever the long term average for blue chip shares is (roughly 7% a year?) and assuming exchange rates don't worsen, your total investment of £200 might be worth about £220. You could then sell it, paying £10 to do so, and be left with £210. Which is where you started. After fx commissions you'd be down.

So, as you can see, you could make reasonable investment choices but if you're spending over 10% on dealing fees and fx expenses, you're killing your returns. Also, this assumes you're not paying some annual admin fee to your broker to maintain the account.

The possible with your approach is that it doesn't help you "learn about trading". The fees completely distort the returns. If you selected Amazon.com as an investment, you couldn't even buy two shares because it would cost you £400+, so you could never get experience of selling part of a holding. You would be better just having a virtual practice account for a year or two, where you don't need to make 10% on every trade just to avoid losing money.

The other factor is that even if you're successful in running a small virtual portfolio when all shares are broadly going up, as they have done every year since you were 15, it doesn't mean you'd be any good in a situation where markets fell rapidly like when you were 13-14 or 6-9.

So, while I agree "having a go" is generally a good way to get experience of something and we all have start somewhere, your idea to have a £500 portfolio including international stocks is misguided.

If you stick to UK stocks you can trade for lower costs, nearer £5 a go. Or set up a monthly investment plan where they buy your choice of FTSE 350 shares for you at £1.50 a trade on a set day once a month. But really the most sensible thing to do with £500 is to spend £20 on investment books and invest £480 (or maybe £50 a month) buying an investment fund that holds a whole portfolio of international shares and manages them for you.

ermine

I'm 20 and I decided that I'd like to start investing in shares, with a plan to build a fairly stable long-term portfolio.
I intend to set aside a 500 GBP pool for all my investing for the short-term future. I'd like gain some more confidence and learn more about trading before I go for any bigger amounts.

Crikey. Take a look at this

Then ask yourself why, on a small stake where forex costs and dealing costs will chomp a huge part of your funds as bowlhead described, you know better than others as to

• ignore everything about diversification
• buy into a stock market that is currently trading at high CAPE implying lower returns if bought right now (accepted your specific stock may be different)

If you are keen on the US market - why? - the fact it's gone up a lot is a particularly bad reason, BTW, you can buy a S&P 500 fund or ETF denominated in GBP and listed on the LSE without all that forex malarkey

When I buy single shares I buy at least £2500 because otherwise the costs eat me alive, and I keep thinking I should up this. The lowest amount of shares I bough was about £750 and that was only because the Royal Mail IPO was scaled down.

There is absolutely nothing wrong in starting out with a capital of £500 and you are well on your way to success if you start investing at 20, provided you have no consumer debts. But there is a lot wrong in choosing such a damned expensive way of deploying your £500, and you really must have a good reason for doing so. Valid good reasons would probably fall into the category of insider trading

All the best with your investing career. You have a lot right with your age, and reasonable size of the stake for starters. But a single US stock, bought in USD is not a good way to start. Unless you have that very good reason of knowing something that the market doesn't...

mrsaver11

@ermine: The stock I want to buy was covered on several investment/stock-oriented websites. It's a company that provides motion sensors to smartphone giants like LG, Samsung and Apple (iPhone 6, and soon likely Apple Watch). The company also appears to have quite a few patents to their advantage. One of these is for a technology to put multiple sensors on one chip (e.g. GPS receiver + maybe an accelerometer), which saves money during hardware manufacturing. Overall I think that this company may have a good growth potential in the long term, so investing even a small amount in them now may be worth it. If not, then not much problem.

@ermine and @bowlhead: The rest of my investment will be on the UK stock market. I'll probably invest in some cheap trackers or a few cherry-picked stocks from those or from FTSE top x00 lists. I fully intend to go as diversified as possible and hold for the long term in an ISA. This one stock is likely a one-off for the foreseeable future.
[EDIT] After reading some more on Moneyvator, I'll likely go for the funds first.

bowlhead99

mrsaver11 wrote: »

@ermine: The stock I want to buy was covered on several investment/stock-oriented websites. It's a company that provides motion sensors....


...Overall I think that this company may have a good growth potential in the long term, so investing even a small amount in them now may be worth it. If not, then not much problem.

I am going to take a guess that the share you're talking about is the one that Motley Fool have been pimping for the last 6 months or more as the next big thing? InvenSense Inc? Their share price stacks up with the number and value of shares you are talking about buying.

One thing to remember is that even if something has potential, and has a genuinely great chance of making money, if you've heard about it from any reputable source then everyone else in the stockmarket already knows about it. You will hear of things that are "a dead cert but barely on the radar"- but remember if you are hearing about them and you are not even an investment professional, they are most definitely already on the radar, and already priced according to what the market rates their chances at. The company has a variety of rivals and the tech hardware world moves fast. Therefore if they are still priced (at "only" $2billion) so cheaply that you might quadruple your money on them, it must be because you might also lose 90-100% of your money on them.

If 90% of your invested money is only £200, then no harm done I suppose. But with a £200 investment on a foreign stock, you've already lost 10% to fees before you start, so you're at a huge disadvantage to all the other people in the market who are playing for real sums of money. Their 90% loss is something they can bounce back from a little. Your 90% loss after the crazy percentage given up to fees, is 100%...

And also - £200 lost is no harm done, right? But say you strike it lucky and the £200 turns into £600, or £800, or £1000 instead. Looking ahead over your entire life of earning money from your job or investing or whatever - the next 60-90 years - you'd hope to easily have a million plus coming in, in today's money. So £600-1000 is a tiny fraction of a percent of that. So it doesn't move the needle on a gauge of how good your life was. But meanwhile you're giving up enough money for a nice little holiday now or half a games console now or whatever it is that you like to do with your time, or a cheap suit for your next job interview that gets you a £5k payrise or whatever. Just to have a gamble on a single share which was in some tip sheet.

After reading some more on Moneyvator, I'll likely go for the funds first.

While it sounds a really boring way to go, it's the smart move for most of your money. Many of us first got into investing by hearing about intriguing little companies that might make us big gains and even if they didn't, it would be fun to follow with a bit of money at stake, so we bought a few of them. There are not many of us that made real money that way other than by pure luck.

Most of us lose on the 'high potential' stocks - buy five, and one quadruples while the others fail so overall you're down. We come to realise that the smarter way to go is not to invest half your money in direct stocks and half in funds, but maybe just 10% in a portfolio of direct stocks to keep it interesting and 90% in a portfolio of funds that are much more certain to give you the long term gains.

And then taking that further, we know you can't make a decent portfolio of direct speculative stocks with a small amount of money (because of the massive percentage transaction fees) - you would need maybe £5k for that little 'direct holdings' pot. Meaning 90% of your portfolio, the bit that's in funds, would be £45k. So in total, if you're going to be sensible about it, you need £50000 before you assemble your little portfolio of tech stocks on the side of your main portfolio of funds. Not £500.

So generalising I would say if you wanted to learn from the collective wisdom, you wouldn't bother throwing £200 at a tech company. Of course, the best way to learn is from your own mistakes, as many of us did, so I wouldn't stand in your way. However, if you learn from someone else's mistake instead of making it yourself, you generally come out better.

ermine

@mrsaver I fear that this

The stock I want to buy was covered on several investment/stock-oriented websites.

on its own is about as poor a reason as possible for buying a stock as I can imagine. But I have been where you are, and TBH if you will learn the lesson for £200 then it's money well spent. It took me about £10,000 in today's money to learn to stop being a total muppet on the stock market in the dotcom boom/bust, tech has such a beguiling story, but I now regard that as money very well spent - on education in what not to do.

There are some things that can only be learned from experience. In general for me success on the stock market seems about avoiding being slaughtered and not bailing out at the wrong time, together with a decent slug of plain good luck rather than identifying the Next Big Thing.

So while I agree with bowlhead99's deconstruction, I'd say provided you haven't been put off by the logic of what he says go for it. Not because I expect it to be a terrific investment opportunity, but as a way to learn it's cheap There are some things you just have to get out of your system, sadly we humans are prey to all sorts of cognitive foibles that impair our investing success. You have to fight many of these cognitive biases down one at a time and then keep them down.

I salute your diligence in seeking knowledge, being open to new ideas and some criticism and starting in investing. These will stand you in good stead in the future and I wish you all the best for your investing career. I believe it is more art than science, so the potential for error will always be with us.

Thrugelmir

mrsaver11 wrote: »

@ermine: The stock I want to buy was covered on several investment/stock-oriented websites. It's a company that provides motion sensors to smartphone giants like LG, Samsung and Apple (iPhone 6, and soon likely Apple Watch). The company also appears to have quite a few patents to their advantage. One of these is for a technology to put multiple sensors on one chip (e.g. GPS receiver + maybe an accelerometer), which saves money during hardware manufacturing. Overall I think that this company may have a good growth potential in the long term, so investing even a small amount in them now may be worth it. If not, then not much problem.

The US markets are so highly researched that there's little chance of finding a share that's under valued on current events.