How international share investors can save a fortune on fees

Those looking to invest in overseas shares such as Apple and Facebook should open a separate online brokerage account if they want to minimise fees.

New research from financial comparison site Canstar suggests the average brokerage fees for online trades in the US and UK are both more than double the fees for Australian trades, based on Canstar's tests using 100 hypothetical $15,000 trades.

The average cost from these 100 test cases for $15,000 trades in Australia was $21.92, whereas the average cost for a trade of the same value was $45.10 in the US and $48.35 in the UK.

Canstar has highlighted three brokers that provide "outstanding value": IG Markets Share Trading, Interactive Brokers Australia PL Share Trading, and Saxo Capital Markets (Australia) SaxoTrader.

The average brokerage fees of a $15,000 trade with these three brokers was $13.34 for UK trades and $5.91 for US trades, a saving of $35.01 and $39.19 respectively.

Canstar has previously rated online share trading brokers for domestic shares, but none of the top-performing domestic brokers, which included CommSec, nabtrade and Westpac, received a 5-Star rating for trading offshore.

"It became clear [doing the research] that there was much more value from a cost perspective using international brokers as opposed to using domestic brokers to trade internationally," said Canstar's investment specialist Josh Callaghan. "We'd encourage people to consider having a second broker for the purpose of trading internationally."

Investing offshore provides the opportunity to invest different industries from those represented on the Australian Securities Exchange, which is dominated by banks and mining companies. It also provides geographical diversification, since the ASX only represents 2 per cent of listed stocks globally..

However, there are also drawbacks, such as transaction fees or risk of losing money from foreign currency conversion, different taxation rules and foreign policy affecting investments.

Mr Callaghan said the big difference between the best-value brokers and the domestic brokers was that the domestic brokers typically charged brokerage fees as a proportion of the amount invested, while the international brokers charged an amount per share. This means it is important for any potential investors to take the price of the shares they plan to purchase into consideration.

If investors plan to purchase high-value shares, a broker that charges fees per share will most likely offer the best value, but costs could balloon if the value of the shares is lower. Many Australians invest overseas to get exposure to US tech giants that typically have a very high cost per share: for example, Alphabet (Google) and Amazon shares both trade at more than $US1000 each, while Facebook and Apple are in the $US170-180 mark.

Canstar's research took this into account by producing their average from tests involving the purchase of 100, 300 and 750 shares.

This story How international share investors can save a fortune on fees first appeared on The Sydney Morning Herald.