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Home to the two largest exchanges worldwide, the US stock market can seem particularly daunting to Australian investors looking to get a slice of the action.

Entering the US market doesn’t necessarily have to be as convoluted as one would think, however. Josh Gilbert, Market Analyst at the online trading platform eToro, explains that once you’ve got a foot in the door, there are some perks that lie exclusively with the American market.

We spoke to Gilbert to clear up some misconceptions and outline the advantages and disadvantages involved with US stock trading.

What are some pros and cons of entering the US market from here in Australia?

The US market will offer investors a way to diversify their portfolio outside of Australia and the US market is a great way to do this with the abundance of stocks available. The NYSE and the Nasdaq are the two biggest exchanges in the world by market capitalisation alone meaning you have access to some of the world’s leading companies.

A common misconception of US stocks is that they must be expensive to buy. A range of platforms offer 0% commission investing in US Stocks meaning that brokerage fees are much more competitive than ever depending on which broker you use. These brokers often allow you to invest with fractional shares, meaning you can buy a percentage of a share, such as investing $50 to $100.

A negative would be the currency fluctuations. When investing in US stocks, you will always be investing in USD meaning your investment is tied to the US dollar. This is something investors need to take into account when looking at the US market.

The market opening hours can also be a bit frustrating, often the markets open late and close early in the morning. This means investors may have to stay up late to trade the US markets. However, most brokers offer the option to set ‘orders’ meaning you don’t always have to be awake at 1 am!!

Are there any traps that investors can easily fall into (and easily avoid) when making the leap?

The US market is a much larger market than the Australian market, meaning there is a much broader range of stocks available. Investors can sometimes fall into the trap of moving too fast too quickly. Investing in an industry or sector you haven’t come across before isn’t a good idea unless you’ve done your research. I would always recommend investors start slow and build their knowledge over time. Don’t overwhelm yourself too quickly, investing is a marathon and not a sprint.

What are the main benefits of trading in the US stock market?

The main benefit that stands out is the overall performance of the US markets. In the last 10 years, the S&P has returned over 200 per cent.

As mentioned earlier, the diversification aspect is also key for any portfolio. Investing outside of Australia into some of the world’s largest companies is imperative for any investment portfolio. Even large Australian companies such as Atlassian have preferred to list on the Nasdaq due to the size and maturity of the US markets.

What would you recommend to investors just starting out?

You need to establish what you’re trying to achieve, such as returns and how you want to invest. Investing in individual stocks will require a lot of time and research, especially if it’s a new market for you.

If you don’t have the time nor the inclination, then ETFs are a great place to start. A US ETF can give you exposure to an index of US shares. An ETF is an exchange-traded fund that will purchase every single stock from an exchange such as the Nasdaq giving you a diversified portfolio. Your returns will track the performance of the Nasdaq.

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