In the last six months we have seen an extreme uptick in the number of investors in the stock market, not only in India’s domestic market but also in overseas stock markets. Just to give an example, Robinhood in U.S has blown past its competitors adding millions of users in a few months and reaching an average daily revenue trades (DARTs) of 4.32 million in June alone. Other big names like TD Ameritrade and Interactive Brokers are also seeing increases in customer numbers.
Retails brokers have mushroomed in every part of the globe and have many offerings to lure new traders. In the UK, tax free savings account opening at Interactive Investor jumped 238% for investors between 25 and 34 years of age in April and May. In Malaysia individual buyers are partially responsible for giant rallies in medical glove makers, some stocks seeing gains of more than 1,500% in a year. Japanese retail investors have boosted some biotech ventures with extreme optimism for unproven coronavirus treatments. India is not far behind the surge in market to highs, evident even though the FDI flows are stagnant. The surge in interest in investing has seen the number of retail participants increase threefold during this lockdown period
As electronic trading and research via mobile apps and other methods are available to everyone, new investors are more aware of the potential for investing in overseas markets. Indians do have an option of investing in oversea markets under the liberalized remittance scheme (LRS) with a limit of $250,000.00 annually. Most Indians can use the clause S001 A for investment in equities abroad. After remitting the funds overseas trading which is limited to on exchange equities only and not for other financial instruments which require margin like forex and futures.
As interest in online trading continues to grow the craze to invest in FAANG stocks has reached India, what are FAANGs you ask? It is the acronym for leading tech companies Facebook, Amazon, Apple, Netflix and Google. People know the potential of these companies and want to invest in them. Not only the FAANGs popular, but other names such as Alibaba, PayPal, Visa, Nvidia, Starbucks & Tesla etc. have been exciting investors to take a piece of the big pie.
This new adrenaline for investing in overseas markets is being tapped by brokers in India. In the last few months, we have observed many brokers and investing platforms jumping on the bandwagon to offer overseas trading facilities, names such as ICICI securities & HTC securities. Other brands such as motile Oswal and Zerodha will be in the arena soon with their platforms offering exposure in US market.
So how can you dive into this action?
As a retail trader you can open an account with any of the broker of your choice, domestic or US based.
“Sterling Trader, and Metatrader 5 for on exchange equities, connect to the US market, and are some of the most widely used trading platforms…“
For domestic brokers, sub brokers or new companies who want to introduce their clients to US markets can also do that by partnering with an overseas broker. A white label is a good option which is more cost effective when it comes to setting up this venture.
Online trading platforms and trading applications are the key to get more investors and traders onboard. Sterling Trader, and Metatrader 5 for on exchange equities, connect to the US market, and are some of the most widely used trading platforms. Tradeview Markets gives you access to these trading platforms and their Rhino Trader multi-market platform gives you access to 135 markets in 33 countries.
The best part is you can test these trading platforms with the demo version and get yourself familiar with the markets before investing.
Important Points one should note:
- There is always risk investing in any financial market. When investing in overseas markets currency fluctuation is going to be a risk factor.
- As overseas trading account are $ denominated one must bear the currency conversion charge from the bank and charges if applicable. Currency conversion could work in your favor or against you.
- The brokerage fees or charges will vary from broker to broker. But that’s not the only important aspect to note, you also need to see which trading platforms and services you get with each broker.
- Tax implications are also different between domestic and overseas brokers.
- Long-term capital gains arising for Indian shares are different from those of overseas shares. While an investor will be levied tax only in India depending on whether it is a long-term gain or not.
- The dividends coming from US stocks are subject to withholding tax in the US, although Indian investors can claim a tax credit in India.
- Indian residents are not subjected to US tax capital gain when they sell the US stocks. However, the dividends may be subject to U.S. withholding taxes.
- The US – India tax treaty provides a withholding tax rate for 25% for dividends paid to individual Indian resident shareholders by a US corporation.
For more details on this subject and other queries feel free to reach out to me.
Account Manager India