The financial turbulence of 2022, marked by rampant inflation and skyrocketing interest rates, took a heavy toll on stocks, triggering the second bear market in three years.
But since late 2022, the market has gotten white-hot. It spent 2023 erasing all of the prior year’s losses, and it has spent 2024 climbing to continuously new heights. In fact, the S&P 500 notched 31 all-time closing highs in the first half of 2024 alone!
Continued economic strength, a considerable slowdown in inflation, and hopes that the Federal Reserve will finally begin to cut benchmark interest rates have built up investors’ and traders’ confidence. Unsurprisingly, more and more Americans are being lured back into the market.
Many of those people will be using online trading apps, which have become a staple for accessing the stock market. Consider this: As of 2016, roughly 29 million Americans used an online trading app. Just five years later, that number had more than quadrupled to 137 million people.
However, accessing these apps outside the U.S. remains a challenge for many Americans. In this article, we’ll explain why that is, and what people can do about it.
A Matter of Due Diligence
While the NYSE and Nasdaq are open to all eligible investors, many brokers and online trading platforms operate under strict know-your-customer (KYC) rules—a set of measures used by financial institutions and businesses to verify information about prospective customers, including who they are, the suitability of investments, and risks posed by specific investments to their financial circumstances. These measures seek to eliminate or minimize illegal activities, such as fraud and money laundering.
The key issue for online trading platforms is the requirement for ongoing monitoring of accounts for unusual or suspicious activities. That can include using U.S.-based accounts for activities outside the country.
As such, Americans opening accounts in the U.S. and using them outside the country may trigger alarm bells. That may lead to restrictions or closures of accounts if the activity does not align with regulatory expectations or if the institution cannot adequately verify the user’s identity and intentions. Financial institutions can suffer reputational damage if they fail in their due diligence or have accounts suspended for suspicious activities.
Residency Requirements
Opening brokerage accounts with U.S. brokers may have different requirements, particularly for residency. Non-U.S. individuals must do more paperwork, have a U.S. residential address, and disclose their residency status at the time of submitting a new account application with the broker. This may also be another hassle, although this is part of their KYC rule.
Tax Matters
Due to tax concerns, many U.S.-based trading platforms, brokerage companies, and dealers may not accept foreign accounts. Even American expats may have a hard time getting their applications approved. Congress’s Foreign Account Tax Compliance Act (FATCA) has made trading companies and platforms reluctant to deal with the IRS.
Filing foreign account taxes can be complex for companies. Also, non-U.S. resident traders may have an easier time evading capital gains taxes, jeopardizing the app and the broker.
This law makes blocking a suspicious business easier and cheaper than investigating it. And many U.S.-based trading apps won’t like that.
Localization Challenges
Beyond the regulatory hurdles, U.S.-based stock market apps often face localization challenges. These include translating language and adapting to local financial terminologies, tax systems, and investment attitudes.
What might be a common investment strategy or financial product in the U.S. could be unfamiliar or even non-existent in other markets.
Geolocation and Access Restrictions
Many U.S.-based stock market apps use geolocation to determine user access and available features. Developers typically use technologies like a reverse geocoding API. These APIs allow apps to convert latitude and longitude coordinates into specific addresses or regions, helping to accurately determine the user’s location.
While these APIs are great for address verification, U.S. residents traveling abroad might suddenly find themselves locked out of their accounts or need help accessing certain features.
Additionally, some users may use virtual private networks (VPN) or other tools to mask their actual location, potentially circumventing regional restrictions and creating compliance issues for the app providers.
Data Privacy and Security Concerns
Different countries have varying laws regarding data privacy and security. For example, the European Union’s General Data Protection Regulation (GDPR) imposes strict requirements on collecting, storing, and processing user data.
U.S.-based apps not designed with these international standards may violate local laws, risking fines and reputational damage.
How to Ensure Hassle-Free Trading Abroad
Selecting the right trading app is crucial to ensure a seamless and secure experience abroad. Here are some key features to look for in a trading app that can enhance your experience:
1. Global Accessibility
Ensure that the trading app functions smoothly across various countries. It should be adaptable to different regions and not suffer from connectivity issues or geo-restrictions. An app that also offers support in different languages can help break barriers and improve user experience.
2. Robust Security Measures
Opt for trading apps that use high-level encryption to protect sensitive data from threats. Two-factor authentication and regular security updates are also important. These measures add security to your trading account while guarding it against the latest threats and vulnerabilities.
3. Reliable Customer Support
Choose an app with 24/7 customer support to help you with issues or questions, regardless of your time zone. For greater convenience, look for apps that offer support through various channels, such as live chat, email, or phone.
4. Transparent Fee Structure
Evaluate the app’s fee structure to ensure it remains competitive, even when used internationally. Look for apps that offer transparent pricing without hidden charges. Check if the app offers favorable currency conversion rates, as these can impact your overall trading costs.
5. User-Friendly Interface
A user-friendly interface can make a significant difference, especially when trading in unfamiliar environments. Ensure that the app is simple to use and understand. Additionally, look for apps that allow customization, such as personalized alerts and watchlists, to tailor the trading experience to your preferences and time zone.
6. Range of Trading Options
To diversify your trading portfolio, ensure the app gives you access to various markets, including stocks, forex, commodities, and cryptocurrencies. Also, choose apps that offer advanced trading tools like technical analysis indicators and real-time data, to help you make informed trading decisions even while outside the U.S.
When you prioritize these features, you can select a trading app that not only meets your needs but also enhances your trading experience abroad. A well-chosen app allows you to focus on your trading strategies without unnecessary hassles.
Bottom Line
Stock market apps from the U.S. face hurdles when used globally. However, these obstacles also present opportunities for innovation and adaptation in the fintech industry.
For traders and investors operating in an increasingly interconnected world, the key lies in selecting platforms that prioritize global accessibility and reliable customer support, among other things.
And, ultimately, the future of stock market apps will likely be shaped by providers who can successfully maneuver through the complex maze of international finance while offering users worldwide smooth, secure, and regulation-compliant services. As investors become more globally minded, the demand for genuinely borderless trading platforms will only continue to grow, driving further innovation in financial technology.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.