Many Japanese investors know that few brokers allow them to purchase foreign securities directly from overseas markets as they do with domestic ones. In some cases, they know this is because buying from overseas markets might involve specific fees, which may be difficult to pass onto their customers – however, in other instances, it can simply be due to antiquated rules preventing them from legally doing so. It often leads investors to look for brokers who will let them buy US stocks.
There is one main complication for Japanese investors looking to purchase American stocks: the vast majority of international brokers only provide their services to clients who permanently reside in their home country, and Japan requires foreign-based stockbrokers to either establish a physical presence there or otherwise partner with a local firm if they wish to solicit business from Japanese citizens. It means that many foreign companies which might seem like an attractive choice do not have any capability in Japan.
The benefits of owning shares in overseas markets are numerous, including greater diversification and access to companies that might be unavailable in Japan.
This list is by no means exhaustive, but any company which fails on these points may be worth avoiding:
The number of fees charged can vary widely depending on the type of service provided; some brokers charge an account fee, while others charge transaction fees and currency conversion charges (this article does not address brokerage-assisted trades).
If Japanese investors plan to trade US stocks, they should avoid brokers that offer per-share trading fees – this is likely to result in them paying substantially more than if they used a broker who charges flat rates.
Similarly, they should avoid brokers, which provide an incentive for high monthly trade volumes; this might seem like a good idea at first glance but can lead to them getting overcharged. Combining these two factors is why most Japanese investors will end up with trading costs around ¥5,000-¥10,000 per trade if they use the cheapest brokerage available (even with no account or withdrawal fees).
The speed of equity trades varies significantly between different brokers and regions – however, some brokers may take several days to complete routine transactions. It can lead to issues if the market moves too quickly or makes it difficult to take advantage of specific arbitrage opportunities.
Many brokers are unwilling to provide the standard level of service in Japan; this may be due to language barriers and a lack of knowledge about Japanese financial markets and laws. In some cases, Japanese investors will have trouble answering questions on essential topics such as different types of equity classes or why their bank declined a transaction.
It can be mitigated by simply doing more research before opening an account. However, it’s still worth prioritizing brokers who seem likely to answer questions promptly even if they aren’t experts on Japanese law – though some basic understanding on this topic is still desirable.
Investors who are not residents of the United States should not risk their money with companies not registered to legally solicit business from American citizens – even if they offer low fees or other incentives.
The Financial Industry Regulatory Authority (FINRA) lists qualified brokers and allows users to search for firms that require them to be American citizens. Japanese investors who need information about what types of financial products they can invest in should also visit FINRA’s website.
Finally, any brokerage selected by the reader should offer ways to diversify investing options and reduce market exposure. For example, it might be possible to purchase American depositary receipts (ADR), representing a foreign firm’s stock traded on an American stock exchange or investing in mutual funds instead.
Some US brokers may even be willing to buy and hold individual stocks for their clients, though transaction fees can be high enough that this is unlikely to be worthwhile unless they plan to make “set it and forget it” investments.
To learn more about choosing the right broker from Japan, visit Saxo Bank.