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How to Invest in US Stocks from Australia (2022 Guide)

Will Ellis
Last Updated on February 4, 2022
US Stocks Image

The United States stock market is the greatest hub of trading in the world. Combining trade of east Asia, Western Europe, and just about every interest in between, there is almost nothing that cannot be bought or sold there.

But the US stock market is not just special for bringing regions together.

But as much wealth as there is in the US stock market, there is one group that has sometimes felt left out: Oceania, particularly Australia. 

So, how is an Australian citizen supposed to invest in US stocks? Luckily, you do not have to be personally on the floor of the New York stock exchange. 

There are actual multiple ways of going about buying stocks, some of them complicated and some of them simple.

With that being said, there are two ways for an Australian to buy US stocks: Using a broker and using an app or service. We will then go over the different ways you can buy US stocks.

Table of Contents:

Using a Broker to Buy US Stocks 👨‍💼️


Stock Broker

Here are the steps to hiring a broker to buy US stocks on your behalf:

  1. Find brokers either online or near you that have the ability to buy from the US stock market.
  2. Establish a contract and investment strategy with the broker.
  3. Pay the broker their commission, as well as the money they are going to use to invest.
  4. Check back with them regularly to see how your stocks are doing.

Make Sure the Broker can do What They say They Can


Make sure to examine the track record of your broker. Make sure that they are making their clients money and that they keep records of their transactions. 

There will be brokers that say that they can trade on the US stock exchange when they actually cannot. 

They will then spend your money personally, and then report back to you that they lost your money to market volatility. This is a scam.

This is also illegal, but if a broker does not keep records (usually because the contracts they offer do not obligate them to keep records) then it can be very hard to catch them. 

With all that being said, scammers are massively in the minority in Australia. It is unlikely that you will run into one, so do not be discouraged by the possibility. 

Just be aware that when you are looking to invest in US stocks, you become a target for people who know you are willing to risk your money.

Using an App to Buy US Stocks 📱️


Mobile Stock Trading App

Here are the steps to using an app or online platform to buy US stocks yourself:

  1. Research a platform that can buy from the US and meets your needs.
  2. Make an account and deposit your investment funds.
  3. Establish a strategy by researching your available options.
  4. Start investing.
  5. Stick to the plan!

The second method of buying stocks in the US is using a stock trading app or service. These can range from phone apps to websites that have been around since the late 90s. 

One of the advantages of these apps is that they rarely care that you are situated in Australia. If you are using Australian dollars, then they will automatically have their value converted to the American dollar.

Because you can make use of your own money, you can evaluate and buy stocks on your own time with your own knowledge. 

Of course, you will have to research the stocks yourself to know what is worth buying. But as many stock traders tell it, putting your intellect to the test like that is part of the fun.

Some Platforms are Better Than Others


A good example of a platform that allows for international stock trading is eToro. While this risks sounding like an ad for the platform, it has been around for a long time, so you know it is reliable. 

It trades in markets all over the world while being centered around the US market. And to top it all off, it has no commission fees. Though that last point can count against it as much as it can count for it.

A “commission fee” is a fee levied by a stock trading platform. These platforms cost money to run, and they keep the lights on by charging fees for every transaction that you make on the platform. 

Other platforms charge subscription fees, while others charge you to use them.

Now that you know all of that, you can make a more educated decision on what kind of trading platform you wish to buy your US stocks on. 

Just be wary of platforms that are a little too “free”, as they are the places where you are likely to be harassed by bots offering you seemingly nonsensical trades.

The Different Types of Stocks ➡️


Short Stock

Now that you know about the risks and methods of both stockbrokers and stock trading apps, it is time you learned about the different types of stocks you can invest in. 

You might be expecting “different types of stocks” to refer to whether a stock is an Apple stock or a Tesla stock. That is not the case. “Different types of stock” are the different ways that you can invest.

Investing on Margin


This is the most important way of investing in a stock, as it is by far the most common. When you invest in a stock using “margin” you are taking a loan to invest in a stock, and then paying back that loan later.

Whenever you invest in a stock, you are giving a company an amount of money. Then, that company uses that money for their business. Doing their business makes that company “profits”, which is even more money than what you gave them. 

After the company has made their profits using your investment, they will keep a portion for themselves and give a portion to you. This is called a “dividend”. Investing on margin relies on this dividend.

Every month after you take the loan, you will have to pay it back. Ideally, you invest in something that makes you enough money to pay off the loan with the dividends, while at the same time keeping some of it for yourself.

Pros

  • Easy to do on low capital
  • Lots of resources teaching you how to do it well
  • Lets you invest in expensive stocks

Cons

  • If you mess up, you have to pay off the loans yourself

Investing in Options


When people imagine investing in a stock, they usually picture themselves buying it and taking it home like an appliance. But stocks are interesting because they are less physical than that. 

You do not have to actually buy a stock in order to invest in it and profit off of it. You can instead buy the “option” of a stock. A stock option is the potential to buy it. 

Whenever you invest in a stock, you are obligating your money to the owner of the stock in exchange for the stock itself.

But when you buy a stock option, you are basically buying the possibility to buy the stock while other people are disallowed from buying the stock. 

That means that if you spend a little more money, you can actually buy the stock. Or you can sell the option, usually recouping more of your cost in the process. The thing is that an option can have a more volatile price than the stock itself. This is because selling the stock option can sometimes mean selling for what the stock might be priced at in the future.

Pros

  • Versatile, allowing you to make money or hedge your bets in an uncertain market
  • Can be cheaper while making more money than normal stock

Cons

  • Incredibly complex
  • Hard to fit into a strategy

Investing with CFD 💰️


CFD Trading

Another way of investing in the US stock market for Australians is with “CFD” or what are known as “Contracts for differences”. 

These are contracts where a “buyer” and a “seller” often end up pitted against each other. 

A contract for differences is a contract between someone who has a stock (the “Seller”) and someone who is looking to buy that stock (the “Buyer”). 

The Buyer offers the Seller an amount of money at a future point in time. Imagine that the Buyer offers to buy a Tesla stock at $100 six months from now.

Why would the seller take this contract? Tesla is likely worth far more than that. True, but they are only worth far more than that right now. The seller must consider, “Does the Buyer know something I don’t?”

Trading with CFDs means trading for the future. The buyer is trying to get something for cheaper than it is worth, while the seller is trying to sell something for more than it is worth.

This creates a situation where you can buy a $100 stock for $50, and then resell the contract for $100 to someone that is convinced the stock will not become less valuable in the intervening time.

Pros

  • High reward
  • Does not require an industry to be doing well
  • Can have a low initial investment

Cons

  • High risk
  • Sometimes making a profit means scamming people

Investing in Mutual Funds


Mutual Fund

Of all of the investment options listed here, this is definitely the most secure. In the case of CFDs, margin, and options, you have to be learned in the ways of the stock market in order to profit. 

With a broker you need to find someone that will not scam you that you can also build a trust with.

Mutual funds are highly appealing to retail investors because of their accountability. Accountability is a hard thing to gauge when it comes to investment, as everyone is going to claim to have it. 

Accountability in investment can be measured by one’s contractual obligations. A broker is not accountable if they only take your money and promise to invest it and give it back later. 

A broker is accountable if they sign a contract that obligates them to do all of that.

The Fund Manager is the individual or group of individuals responsible for investing the cohort’s money into stocks so that the cohort’s money increases.

As the cohort’s money increases, the cohort then all make an amount of money decided by the contract.

Mutual Funds Use More Than Just Your Money

Some of the time, that amount of money is a fixed percentage of the total dividends of the fund’s investments. Most of the time, it is negotiated by each individual member and based mostly off of the amount of money that they are contributing to the mutual fund. 

Mutual funds will usually focus on investing in normal stocks, but they can also specialize in investing in foreign currency, cryptocurrency, NFTs, CFDs, options, or even margin if you feel like playing risky.

The reason why mutual funds are more secure than other forms of investment is that the fund manager, who is essentially a broker, is equally obligated to each member of the group. 

If they try to swindle one member of the group, then they will offend every member of the group.

Doing that will land them in the middle of an intense legal dogpile that no broker wants to go into.

Pros

  • Low risk
  • Lots of ways in and out
  • Easy to find reliable mutual funds

Cons

  • Low immediate reward
  • You usually get out only a little more than you put in

Conclusion 🤔️


Businessman

An Australian investing in the economy of the biggest market the world has ever seen can feel scary. You are so far away from both the interactions of the market themselves, as well as the culture surrounding it.

But if you remember to cover yourself with contracts, knowledge, and an enthusiasm to research and understand, then it becomes much more likely that you come out of the market with a profit.


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