How To Buy US Stocks

In this guide, we explain, what US stocks are, the different ways to invest in them, the best accounts for buying them, and the pros and cons of buying US stocks.

What are US stocks?

US stocks are stocks that are traded on American stock exchanges such as the New York Stock Exchange (NYSE) and the Nasdaq Stock Market. Stocks, or ‘shares’ as they are often called, are investments that represent ownership in a company. When you buy a stock, you become a part-owner of the underlying business, and are entitled to a share of its profits.

US stocks tend to be popular with UK investors due to the fact that the US stock market is home to some of the world’s most dominant companies, including the likes of Apple, Amazon, and Microsoft. And investing in US stocks can be a good way to diversify an investment portfolio geographically.

In the past, it was quite costly for UK investors to buy US stocks. However, thanks to advances in financial technology over the last few decades, the costs associated with buying US shares have come right down.

Which brokers offer access to US stocks?

To buy US stocks in the UK, you will need an account with a stock broker or investment platform. Most brokers allow you to buy and sell US stocks in the same account that you use to buy UK shares.

Some UK brokers that enable you to buy US stocks include:

• Hargreaves Lansdown. Hargreaves Lansdown is one of the most popular providers of investment accounts in the UK. In 2021, the company won the Good Money Guide award for Best Full-Service Stockbroker. Hargreaves Lansdown’s standard fee to trade US stocks is £11.95 plus foreign exchange (FX) fees of 1.0% (lower FX fees apply to larger trades).

• Interactive Investor is a low-cost investment provider that offers investors access to over 40,000 shares. It won the 2021 Good Money Guide award for Best Investment Account. Interactive Investor’s standard fee to trade US stocks is £7.99 plus an FX fee of 1.5%.

• AJ Bell Youinvest is an award-winning, low-cost online investing platform for the UK do-it-yourself (DIY) investor. Its aim is to make the process of investing as easy as possible. AJ Bell Youinvest’s standard fee to trade US stocks is £9.95 plus an FX fee of 1.0%.

• IG. IG is a UK investment provider that allows users to buy shares, spreadbet, and trade CFDs. Through its platform, you can trade over 17,000 markets. IG’s standard fee to trade US stocks is £10 plus an FX fee of 0.50%.

• Saxo Markets is a financial technology company that has been operating in the UK since 2006. It is aimed at more experienced investors and traders. Saxo’s standard fee to trade US stocks is $0.02 per share (minimum $10) plus an FX fee of 1.0%.

It’s worth noting that to buy US stocks, you usually have to complete a US tax form known as an W-8BEN. Most brokers won’t let you trade US shares until you do so.

For more information on the above providers, you can compare the best investing apps here

Different ways to buy US stocks

There are several different ways of investing in US stocks from the UK including:

• Buying regular shares. This is one of the most straightforward ways of investing in US stocks. The advantage of this approach is that you are the direct owner of the stocks you buy. The disadvantage is that you need to pay the full value of the trade upfront. You also need to pay trading fees.

• Investment funds. Through platforms such as Hargreaves Lansdown and AJ Bell Youinvest, it’s possible to invest in funds that are focused purely on the US stock market. Examples include the Baillie Gifford American fund, which is an actively-managed fund (meaning it’s managed by a portfolio manager who picks individual stocks), and the Legal & General US Index, which is a passive fund that tracks the performance of the FTSE USA Index. The main advantage of funds is that they provide a high level of diversification. On the downside, they can be relatively expensive. Actively-managed funds, for example, can have annual fees of more than 1% per year.

• Exchange-traded funds (ETFs). ETFs are passive funds designed to track the performance of specific stock market indexes or assets. They are traded on the stock market in the same way that regular stocks are. Examples of US stock-focused ETFs include the iShares Core S&P 500 ETF (ticker: IVV), which tracks the performance of the S&P 500 Index, and the iShares NASDAQ 100 UCITS ETF (ticker: CNDX), which tracks the performance of the 100 largest companies on the Nasdaq Stock Market. The advantage of ETFs is that they offer diversification and tend to have low annual costs. A disadvantage of ETFs is that you have to pay trading fees to buy and sell them.

• Contracts for Difference (CFDs). CFDs are financial instruments that enable you to profit from a stock’s price movements without actually owning the underlying stock. With CFDs, you can trade in both directions, and also use leverage to increase the size of your trade. The advantage of trading CFDs is that, using leverage, you can potentially invest more money than you have in your account. This can potentially increase your profits. On the downside, losses are magnified if you use leverage, meaning it’s possible to lose a lot of money.

• Spread betting. Spread betting is a form of trading that enables you to profit from a security’s price movements without actually owning the underlying security. As with CFDs, you can trade in both directions and also use leverage to increase your exposure. The advantage of spread betting is that you can use leverage to invest more money than you have in your account. Profits are also exempt from Capital Gains Tax. On the downside, leverage can result in heavy losses if your trade doesn’t go to plan.
• Fractional shares. Fractional shares allow you to buy a fraction of one share. This can be useful if you wish to buy shares in a company that has a very high share price, such as Amazon. At the time of writing, its share price is over $3,000. With fractional shares, you could potentially buy half a share or a quarter of a share if you didn’t have the capital to buy one share. At present, there are only a few companies in the UK that offer fractional shares. 

What are the major US stock exchanges?

The two major US stock exchanges are the New York Stock Exchange (NYSE) and the Nasdaq Stock Market. Together, these two exchanges account for the bulk of stock trading in North America.

The New York Stock Exchange, which is the oldest exchange in the US, is the largest equities-based stock exchange in the world, based on the total market capitalisation of its listed securities. This exchange is owned by Intercontinental Exchange, and based in New York City.

At present, there are over 2,400 companies listed on the New York Stock Exchange across sectors such as financial services, healthcare, consumer goods, technology, and energy. Some of its more famous companies include Berkshire Hathaway, JP Morgan, Visa, Walt Disney, and Johnson & Johnson.

The Nasdaq, which is also based in New York City, is the second largest exchange in the world behind the NYSE. Created by the National Association of Securities Dealers (NASD) in 1971, it was the world’s first electronic stock market.

Compared to the NYSE, the Nasdaq has more of a technology focus. Companies that are listed on this exchange include Apple, Microsoft, Alphabet (Google), Amazon, and Meta Platforms (formerly known as Facebook).

What are the costs of buying US stocks?

There are several costs associated with buying US stocks.

The three main costs to be aware of are:

• Trading commissions. These are the fees you will pay to make a trade, and they vary from broker to broker. Full-service brokers such as Hargreaves Lansdown, for example, tend to charge around £8 to £12 per trade. However, some of the newer investment platforms, such as IBKR and IG, offer zero-commission trading.

• Foreign exchange fees. When you buy US stocks in the UK, you usually need to pay foreign exchange (FX) fees on top of trading commissions. These fees vary from broker to broker. For example, Hargreaves Lansdown, and Interactive Investor charge FX fees of 0.45%, 1.0%, and 1.5% respectively, for US stock purchases under £5,000. Some brokers, including Hargreaves Lansdown and Interactive Investor, offer lower FX fees for larger trades.

• Platform fees. Most investment platforms in the UK charge an annual account fee. This varies from provider to provider, and also varies depending on the type of investment account you have (i.e. regular share dealing account vs a Stocks & Shares ISA). Some providers, however, offer basic share dealing accounts that have no annual fees. Providers that offer basic accounts with no fees include IG and Hargreaves Lansdown. Another fee to be aware of is withdrawal fees. 

It’s worth pointing out that while a commission-free investment platform may seem like the cheapest way to buy US stocks from the UK, it may not necessarily be the case. That’s because zero-commission brokers often charge significant FX fees and sometimes have withdrawal fees. Furthermore, zero-commission brokers don’t always offer the best prices for US stocks. Ultimately, you need to consider all fees if you’re planning to buy US stocks.

What are the best US stocks to buy?

The best US stocks to buy will depend on your own personal goals, circumstances, and risk tolerance.

Most popular US stocks to buy

Some of the most popular US stocks among UK investors include:

• Apple (NASDAQ: AAPL). Apple is a multinational technology company that specialises in consumer electronics such as smartphones, personal computers, tablets, and wearables.
• Tesla (NASDAQ: TSLA). Tesla is an American electric vehicle and clean energy company that is very popular with growth investors.
• Amazon (NASDAQ: AMZN). Amazon is the largest e-commerce company in the world as well as the biggest player in the cloud computing space.
• Microsoft (NASDAQ: MSFT). Microsoft is a technology company that operates in a number of industries including business productivity software, cloud computing, and video gaming.
• Meta Platforms (NASDAQ: FB). Meta is the owner of Facebook and Instagram.

US dividend stocks to buy

US dividend stocks that are popular with UK investors include:

• Coca-Cola (NYSE: KO). Coca-Cola is a multinational beverage company that owns a range of brands including Coke, Fanta, and Sprite.
• PepsiCo (NASDAQ: PEP). PepsiCo is a multinational food, snack, and beverage company that owns a range of brands including Pepsi and Doritos.
• McDonald’s (NYSE: MCD). McDonald’s is the largest restaurant chain in the world by revenue.
• Johnson & Johnson (NYSE: JNJ). Johnson & Johnson is a multinational company that develops medical devices, pharmaceuticals, and consumer packaged goods.
• Pfizer (NYSE: PFE). Pfizer is a pharmaceutical and biotechnology company that develops and produces medicines and vaccines for immunology, oncology, cardiology, endocrinology, and neurology.

Largest US stocks to buy

At the time of writing, the five largest US stocks by market capitalisation were:

• Apple (NASDAQ: AAPL). Market cap – $2.7 trillion
• Microsoft (NASDAQ: MSFT). Market cap – $2.2 trillion
• Alphabet (NASDAQ: GOOG). Market cap – $1.7 trillion
• Amazon (NASDAQ: AMZN). Market cap – $1.5 trillion
• Tesla (NASDAQ: TSLA). Market cap – $886 million

Best performing US stocks to buy

Over the last five years, the best performing US stocks (out of those with a market capitalisation of at least $50 billion) have been:

• Tesla (NASDAQ: TSLA). 5-year share price return – 1,400%
• Atlassian (NASDAQ: TEAM). 5-year share price return – 905%
• Shopify (NYSE: SHOP). 5-year share price return – 885%
• Nvidia (NASDAQ: NVDA). 5-year share price return – 745%
• Advanced Micro Devices (NASDAQ: AMD). 5-year share price return – 710%

Past performance is not an indicator of future performance.

Advantages of buying US stocks

The benefits of buying US stocks include:

• Geographic diversification. The composition of the US stock market is very different to that of the UK stock market. For example, while the largest companies in the UK are Shell, HSBC, and AstraZeneca, the largest companies in the US are Apple, Microsoft, and Alphabet (Google). This means that the two markets do not move in lockstep. As a result, owning stocks in both markets can reduce overall portfolio risk.

• Higher returns. Over the long run, the US stock market has generated higher returns than the UK stock market. For example, since 31 December 1999, the UK’s FTSE 100 index has risen about 10% in price terms while the US’s S&P 500 index has risen nearly 200% in price terms. The FTSE 100 has traditionally had a much higher dividend yield than the S&P 500 over that period, however, even when dividends are factored in, the return from US stocks has been far higher than the return from UK stocks.

• World-class companies. Many of the world’s most dominant companies are listed in the US. Examples of highly dominant companies listed in the US include Apple, Microsoft, and Alphabet.

• The US stock market is home to many innovative companies including large-cap tech companies such as Apple, Alphabet, Amazon, Tesla, and Nvidia, and smaller players such as Roblox, Coinbase, and Teladoc Health. These companies are all enjoying strong growth as the world becomes more digital.

Disadvantages of buying US stocks

The disadvantages of buying US stocks include:

• Foreign exchange (FX) fees. Most brokers charge FX fees to buy US stocks. Hargreaves Lansdown, for example, charges 1.0% per trade for trades under £5,000, on top of regular trading fees. These FX fees can add up.

• Foreign exchange risk. This is the risk that a change in the GBP/USD exchange rate could impact the value of your investment. If you buy US stocks and the British pound strengthens against the US dollar, your investment is going to lose value in sterling terms. For example, let’s say you bought one share in Amazon for $3,000 when the GBP/USD exchange rate was 1.30. Ignoring trading commissions and FX fees, this would have cost you approximately £2,308. Now let’s say Amazon’s share price remains at $3,000 but the GBP/USD FX rate rises to 1.40. As a result of this move in the exchange rate, your Amazon position would be worth approximately £2,143 in GBP terms.

• Higher volatility. US stocks can be highly volatile at times. Technology stocks, in particular, can see their share prices fluctuate wildly. Amazon stock, for example, has regularly had pullbacks of 20% or more in the past.

• W-8BEN forms. To buy US stocks in the UK, you usually have to complete a W-8BEN form for your broker. This is a one-page form that requires you to fill in some personal details. Most brokers won’t let you trade US stocks until you have completed this form. Once you have completed a W-8BEN, only 15% tax is deducted from the dividends you receive from your US stocks, rather than the standard 30% withholding tax.

• Capital Gains Tax. As with UK stocks, gains from US stocks are subject to Capital Gains Tax (CGT) in the UK. However, you can minimise CGT by buying US stocks in a tax-efficient account such as a Stocks & Shares ISA.

Buying US Stocks FAQ:

Here we answer some of the most frequently asked questions people have when condisering buying US stocks.

What time does the US stock market open?

The main US markets are open from 9:30am Eastern Standard Time (EST).

What time does the US stock market close?

The main US markets close at 4pm EST.

Can you hold US stocks in an ISA?

Most ISA providers, including Hargreaves Lansdown, AJ Bell Youinvest, and Interactive Investor, allow you to hold US stocks in an ISA.

Companies that do not let you hold US stocks directly within an ISA include Nutmeg and Wealthify.

Can you hold US stocks in a SIPP?

Most SIPP providers, including the likes of Hargreaves Lansdown, Interactive Investor, and AJ Bell Youinvest, allow you to hold US stocks in a SIPP.

Companies that offer managed pension products, such as Nutmeg and PensionBee, don’t allow you to own US stocks directly in your pension.

Can you buy and sell US stocks out of normal market hours?

With some brokers, such as IG and Interactive Brokers, it’s possible to trade US stocks outside of normal US trading hours. This is known as ‘extended-hours trading’ and it takes place between 4pm EST and 8pm EST.

It’s worth noting that trading volumes during extended-hours trading tend to be significantly lower than they are during normal trading, so shares prices can be very volatile. Share price volatility can be particularly high after a company releases its quarterly results.

Can you buy US stocks from the UK?

Yes, it’s easy to buy US stocks from the UK today. To buy US stocks, you will need to have an account with a stock broker or investment platform.

What is a W8-BEN form?

A W8-BEN form is a form that UK brokers usually require you to complete before you can trade US stocks. It is a one-page form that requires you to fill in your personal details.

W-8BEN forms are valid for three years. Once you have completed the form, withholding tax on dividend payments from US stocks is reduced from 30% to 15%.

How many stocks are there in the US?

On the New York Stock Exchange and the Nasdaq Stock Market, there are around 5,500 stocks in total.