Net a share in US boom

By THIS IS MONEY
Updated:

 

Reitred engineer Barry Stuttard is one of a growing band of British investors trading American shares through online brokers. They find it easier and cheaper than traditional methods.

Barry, 69, began trading US shares when he lived in the States for three years and was granted share options in the company where he worked. 'I find the US market easier to grasp than the UK market,' says Barry, who lives near Newbury in Berkshire.

'There is certainly more data available. The downside is that I am effectively trading the currency at the same time.'

Investors like Barry have a wealth of financial websites to choose from. There are scores of online brokers willing to take their orders, and TV services provided by

CNBC and Bloomberg provide a stream of information about markets and companies throughout the day.

Discount US brokerage Charles Schwab and its smaller rival SureTrade - an online offshoot of Quick and Reilly Fleet Securities - say trading in American stocks from the UK is increasing.

Schwab says it has about 10,000 UK customers trading US stocks, which is about twice as many as this time last year.

SureTrade says that overseas customers seeking to trade US stocks make up between 5% and 10% of its customers and the number is rising.

According to Schwab, these customers tend to be wealthy individuals with more investment experience than the company's typical UK customers.

The attraction of the US market is twofold. First - the high returns from the long boom in the US stock market, fuelled initially by technology stocks and then by the new internet companies. The most popular American stocks among British customers are the obvious high-flyers - Microsoft, Intel, Cisco and Dell.

The second attraction is cost. Commissions are cheaper and there is no stamp duty, which is half a percent in the UK.

Stephen Eckett, author of the guide Investing Online: Dealing in Global Markets on the Internet, says the spread - the difference between buy and sell prices on a stock - is much narrower in the US and this helps to cut the cost of dealing.

Eckett is unusual in that he trades not only American stocks but British ones in the US, where foreign stocks trade as American Depositary Receipts (ADRs).

Though most people might think that there is an added layer of currency risk, Eckett says that through the ADR system it is possible to buy and sell stocks from all over the world, for example Sweden's Nokia or Ericsson, trading only in dollars. This minimises potential currency problems.

Eckett says the alternative - buying foreign stocks in the UK - is prohibitively expensive because of the commissions charged by UK brokers, foreign brokers and the cost of currency transfers and exchanges.

On top of that, once shares have been bought it is difficult to track them or get information about them in their local markets. By contrast, in the US foreign shares trade like any others.

However, there are pitfalls. Guy Knight, vice-president in charge of marketing for Schwab, says: 'Do research before you go into anything. Make sure that you're not paying two sets of custody charges.'

These arise if shares are held by a US broker but deals are conducted through a UK bank.

Knight adds: 'Look at the solidity of the brokerage firm, and look at what insurance it has in case it goes belly-up.'

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