How to buy US shares in Australia

Home to a seemingly endless list of globally dominant companies, it's little wonder many Aussie investors want a slice of the United States in their portfolios.

Here, we dive into everything you need to know about buying US shares from Australia — including how to do it and what to watch out for.

The quest for overseas exposure

The ASX is home to many companies Australians have invested in for generations. From 'The Big Australian' BHP Group Ltd (ASX: BHP) and the big four banks to Telstra Corporation Ltd (ASX: TLS), these names have become ingrained in our local investing popular culture.

But Aussie investors are no longer confined by the same geographic barriers that have historically limited our investing decisions. We are increasingly looking across the sea for exposure to the companies that dominate our daily lives. 

ASX-listed Australian shares are fantastic, of course. But most can't match the pervasiveness and scale of many American companies.

Think about it. Many of you will read this on an Apple iPhone or have one sitting next to you as you read. Alternatively, you might view this article on a Microsoft Windows computer after using Google, the ubiquitous search engine owned by parent company Alphabet.

When you got up this morning, you might have used a Gillette razor and some Old Spice deodorant, both made by Procter & Gamble Co. You might have enjoyed some breakfast cereal courtesy of Kellogg Company, then driven to work in a car made by Tesla Inc or the Ford Motor Company.

During your day, you might have also checked Facebook, Whatsapp, or Instagram, all owned by Meta Platforms. Or perhaps you glanced at your Twitter account. You might have paid for your morning muffin using your Visa, Mastercard, or American Express card.

These globally dominant companies are US shares and yet command a market presence in Australia that most ASX companies can only dream of.

And Aussies have taken note. Many ASX investors are now seeking to fish in this far larger pond and add international diversification to their share portfolios. And today, it's easier to invest in US shares from Australia than ever.

How are the US markets indexed?

Aussie investors would be familiar with our two primary market indexes on the ASX — the S&P/ASX 200 Index (ASX: XJO) and the S&P/ASX All Ordinaries Index (ASX: XAO). These are very simple in nature — the ASX 200 tracks the largest 200 companies on the ASX by market capitalisation. The All Ords tracks 500 shares rather than 200.

However, the US markets are not indexed so simply. Perhaps the most famous index in the US is the Dow Jones Industrial Average (INDEXDJX: .DJI). The Dow is the oldest share market index globally, and some investors criticise it for being a little outdated. 

It tracks 30 of the largest companies in the US but does so on an antiquated share price weighting system rather than the more popular market cap weighting method most other indexes use. Even so, the Dow remains an institution of Wall Street.

More recently, the S&P 500 Index (INDEXSP: .INX) has overtaken the Dow to become the most widely used (and tracked) index representing the US share market. It functions similarly to our All Ords, following the largest 500 listed US companies by market cap.

The other index ASX investors might be familiar with is the NASDAQ Composite Index (NASDAQ: .IXIC), whose top 100 holdings make up the NASDAQ-100 Index (NASDAQ: NDX). 

Many newer companies choose to list on the NASDAQ, the more recent of America's two stock exchanges; the other being the New York Stock Exchange. As a result, the NASDAQ indexes tend to be dominated by tech companies like Apple, Microsoft, Alphabet, and Meta. Thus, this index is attractive for investors looking for exposure to the tech sector.

ETFs that allow ASX investors to buy US shares

Many exchange-traded funds (ETFs) on the ASX offer simple and easy access to US markets. For example, the iShares S&P 500 ETF AUD (ASX: IVV) is an ASX-listed ETF that tracks the S&P 500 Index. 

A hedged version is also available that mitigates the effects of currency fluctuations between the Australian and US dollars — the iShares S&P 500 (AUD Hedged) ETF (ASX: IHVV). There's also an ETF that tracks the NASDAQ 100: the BetaShares Nasdaq 100 ETF (ASX: NDQ).

If you want broad exposure to the US markets, then there is nothing wrong with simply investing in these ETFs. It is a simple, cheap, and effective way to add overseas exposure to your portfolio. However, many investors want to go one step further and buy individual shares in specific companies they love, such as Apple.

Some basics for buying US shares in Australia

Buying US shares in Australia isn't all that different from buying ASX shares. You are purchasing individual pieces of a real company, which entitles you, as a part-owner, to a slice of the company's profits. But there are some extra things to keep in mind.

Firstly, you are dealing with a foreign entity rather than a home-grown investment. This can have different tax implications. For example, US shares aren't subject to our dividend imputation system, so don't expect any franking credits from your US dividends.

The US also has different rules regarding the taxation of dividends. You might have to pay the US Government a 15% withholding tax when you receive your dividends. This can usually be claimed back at tax time, but make sure you speak to your accountant or tax agent about this.

Secondly, US shares are also subject to Australian capital gains tax, just like ASX shares. If you sell your shares for a profit, you will have to declare the proceeds for tax, just like you would with an ASX share.

Finally, US shares are traded in US dollars. That means you will have to convert your Aussie dollars into greenbacks before you can buy your US shares. That can have consequences from a foreign exchange perspective, as the US dollar and the Aussie dollar pairing can be quite volatile. So expect your US shares to move around in value just from currency fluctuations alone.

Where to start buying US shares

Well, if you've invested in Australian shares through a brokerage, you're already halfway there. Most Australian online share brokers now enable their customers to purchase US shares and sometimes even global shares from other international markets. This makes international share trading more accessible than ever before.

The brokerages run by Australia's big four banks all offer access to international shares. These platforms may, however, charge you more for executing trades in US markets. This could include foreign exchange fees, as well as higher brokerage fees. Nonetheless, the facility is available when you're ready to buy US shares. 

But a big bank broker is just one option Aussie investors have at their disposal. Many other brokerage providers have recently come onto the market, enabling investors to buy US shares. Here is a breakdown of a few popular options (but this is by no means an exhaustive list):

The big four banks

All four major ASX banks allow ASX investors to purchase US shares using their brokerage platforms.

Commonwealth Bank of Australia (ASX: CBA) operates Commsec, the most popular trading platform. CommSec charges US$19.95 to US$29.95 in brokerage for trades of up to $10,000 and 0.31% of the trade's value above that amount. It also charges a foreign exchange fee of 0.6% in US dollars on the currency conversion.

National Australia Bank Ltd (ASX: NAB) has the NABtrade platform with similar charges. It will bill you between $9.95 and $19.95 for trades of up to $20,000 and 0.11% after that. A foreign exchange fee of between 0.5% and 0.8% will also be charged.

Westpac Banking Corp (ASX: WBC) has a similarly priced platform, with trades up to US$10,000 costing between US$19.95 and US$29.95 (0.31% for amounts above US$10,000), plus a foreign exchange fee. 

Australia and New Zealand Banking Group Ltd (ASX: ANZ) offers a more expensive platform. A trade of up to $10,000 worth of shares will set a customer back $59 in brokerage (0.59% above $10,000), plus a forex fee of up to 0.6%.

Other trading platforms

The ASX banks are on the expensive side compared to other offerings. 

However, many ASX investors like to keep all of their investments 'in-house' with one broker, so one of these trading platforms might suit some investors better. This would especially be true for an investor who might buy just one or two parcels of shares a year.

Stake

Stake is a Sydney-based start-up that offers free brokerage on US shares and access to almost every listed company. However, Stake charges a foreign exchange fee of 1% on all deposits and withdrawals (and an additional 0.5% for instant deposits). Unlike the ASX banks, the 1% foreign exchange fee only applies to money you convert into US dollars on the platform, not on each trade.

Users can also opt to pay US$9 a month for the premium Stake Black, which has additional features like analyst ratings. Stake also offers fractional share purchases. This allows customers to buy portions of shares rather than an entire stake and can come in handy for stocks like Berkshire Hathaway Inc Class A (NYSE: BRK.A), which have traded north of US$400,000 apiece since April 2021. 

Charles Schwab

Owned by Charles Schwab Corporation (NYSE: SCHW), Schwab is another brokerage option Australian investors can consider. It also offers zero brokerage and allows fractional shares, but investors must bring a minimum of US$25,000 to the table to open an account.

If you can rustle up this cash, Schwab offers more options than most other brokers. In addition to having most Canadian and US shares available for trade, you can also trade US mutual funds, options, bonds, and futures, as well as stocks in any other foreign market (for an additional fee). Expect some currency fees with Schwab, but they are relatively small.

eToro

eToro is a newer platform in Australia that allows free brokerage and fractional shares for ASX investors and a 0.5% currency conversion fee. One of eToro's major drawcards is that it also facilitates the trading of cryptocurrencies like Bitcoin.

But eToro's flagship offering is its CopyTrader feature. CopyTrader allows any investor to automatically 'copy' the market moves of other eToro users. Investors can search for other traders based on their previous market performance and direct the broker to make the same trades as that person.

SelfWealth

This brokerage is run by the ASX-listed company SelfWealth Ltd (ASX: SWF), and offers a flat US$9.50 per trade for US shares, with a currency conversion fee of 0.6%. US stock, ETFs, and mutual fund trading are also available, but no options or futures.

CMC Markets

Owned by CMC Markets PLC (LON: CMCX), CMC Markets allows trading across the US, Canadian, UK, and Japanese stock markets. This broker does not charge a brokerage fee on trades in these markets. However, the trade volume needs to be above $1,000 in value, and CMC does charge a currency conversion fee of 0.6%. 

Investors can also choose to upgrade to a 'Pro' version. Pro charges a monthly fee of $49 in exchange for advanced trading tools, analyst research, and increased customisation.

Saxo Markets

Saxo Markets offers access to more than 22,000 international shares on 50 exchanges worldwide (including in the US). You can buy stocks, bonds, commodity futures, options, foreign currencies, and cryptocurrencies. Fees vary depending on the type of account you hold, but start at 0.08% for a classic account (with a minimum fee of US$8 per trade). You will need a minimum of $1,000 to open an account here.

IG Share Trading

Owned by IG Group Holdings PLC (LON: IGG), IG Share Trading offers shares in the US, UK, German, and Irish stock markets. Brokerage is free across these markets, but IG will charge a currency conversion fee of 0.7%.

All these platforms offer Australian investors the ability to buy and sell US shares, so if you wish to pursue this avenue, it's probably a good idea to thoroughly examine each one's pros and cons.

Some things to watch out for

Remember, each broker is a business making a crust somewhere along the way, even if 'zero brokerage' is on the table. Getting on top of the costs that each one might impose is very important. Here are some other things to watch out for:

1. Brokerage: As we discussed earlier, some brokers (especially those offered by the big four banks) have not yet embraced zero brokerage for trading US shares. That means you can pay as much as $59 for each trade you make. You might find the joys of keeping everything under one roof worth these fees, but you should be aware of them all the same.
2. Foreign exchange fees: Forex fees are also something to keep an eye on. Be careful, as many platforms won't openly advertise the cut they are getting from foreign exchange fees. Since you must buy US dollars before buying US shares, your broker will often charge you a fee for this conversion. Make sure you aren't getting ripped off here.
3. Bells and whistles: Some brokers might provide a more polished or extensive service than others. Some might offer options trading, a mobile app, or up-to-the-minute charting features, while others offer market and limit orders. Often (as with most things), you will have to pay more for more features, perhaps through a recurring monthly fee. So, make sure you find the right product for your needs.
4. Account inactivity fees: Some brokers will charge users a fee if a trade isn't made within a set time frame. This is often 12 months but can be less. Make sure you check for these hidden costs.
5. The W8BEN form: The W8BEN form is another thing to watch out for. This form is a requirement of the US Government for investors outside the US who want to buy US shares. It is a tax form that allows foreign investors to claim a special tax status. Without this form, all foreign investors would have to pay a 30% tax on any share sale, plus a 30% withholding tax on dividends. A valid W8BEN form eliminates the US tax for selling US shares and reduces the withholding tax on dividends to 15%. Most brokers offering US share trading will have a facility that helps you fill out the W8BEN form, but make sure you follow up on this if you don't want to donate extra tax to the US Government.