In the summer of 2018, I took interest in the financial markets and personal investing. It took me a really long time to find the best way to invest in US/UK stocks as an international student with (almost) no taxable income. So here’s a quick beginner’s guide based on my experience.
This guide assumes:
1. You only buy stocks & bonds (no options, CFDs, etc.).
2. You earn <£12,500/year so you pay 0% in UK taxes.
There are two types of brokerage accounts, a Stocks & Shares ISA (Individual Savings Account) and a normal brokerage account. So what is an ISA and why does every forum encourage you to open one?
With an ISA, you can buy £20,000 of stocks per tax year and not pay any taxes (on capital gains & dividends) when you sell them. In a normal brokerage account, you are liable to pay taxes on capital gains and dividends. Your first £12,300 of capital gains and £2,000 of dividends are tax-free, after which it will be taxed depending on your income level.
If you’re a student looking to try out investing, it is unlikely that you’ll be liable for any taxes.
But why not go for an ISA if it guarantees you no taxes, independent of income? The answer is that ISA’s generally have higher management & trading fees. If you’re buying £200 worth of stock through a the UK’s most popular ISA provider, Hargreaves Lansdown, you would be down 6% straight away. Transaction cost is the biggest enemy of small capital retail investors.
So who should you open an account with? Here’s a quick comparison table of the three lowest-cost UK brokerage firms. (Robinhood has not launched in the UK as of today.)
| Freetrade | Trading212 | DEGIRO | |
| Share Dealing Fee | End-of-day execution: £0 Market order: £1 | £0 | UK: £1.75 + 0.014% (£5 max) US: ~$0.50 + $0.004/share |
| Currency Conversion Fee | 0.45% | 0% | 0.1% |
| Withdrawal Fee | Same-day: £5 Otherwise: £0 | £0 | £0 |
| ISA | £3/month | Free | No |
| Limit Orders / Stop Loss | No | Yes | Yes |
| Fractional Shares | Yes | Yes | No |
| Mobile/Web Features | Mobile only | Mobile & Web | Mobile & Web |
| Available Shares | 952 Stocks/ETFs | 2459 Stocks 395 ETFs | Pretty much everything |
| Time to Create Account | 15mins | 15mins | ~1 week |
For 90% of small capital student investors, Trading212 is the best choice as it’s the cheapest and wins Freetrade on every aspect. They are also adding ~200 stocks every week.
Many speculate that ‘commission-free’ stockbrokers charge hidden fees through a wider bid-ask spread for stocks, but apparently they don’t. It should be noted that Trading212 has a wider FOREX spread so you’re still paying extra when converting your currency to buy a stock denominated in USD.
How are they not bankrupt if they charge almost nothing for their services? The answer: Freetrade is still burning through VC cash and Trading212 is earning from its CFD (similar to options you hear about from r/wallstreetbets) arm.
Downsides of Trading212? The historical price data starts from the date that Trading212 added the stock to their platform, so I’d recommend doing your research elsewhere. Also, there have been many reports of errors when reverse stock splits occur and transactions freezing when crypto/stocks were too volatile. However, it works fine 99% of the time and in any case, it’s protected under FSCS so if the company goes bust, up to £85,000 of your investment/cash will still be compensated.
So the choice is fairly straightforward. If you would rather pay a premium to have better data, complete charts and charting tools, I’d recommend DEGIRO. If you’re in it to be a long-term professional trader and want access to literally every product you can think of, go for Interactive Brokers (£6 per transaction).
So that’s it, simple enough – just open a Trading212 ISA (if you haven’t opened an ISA this tax year yet) and get started with investing!
And if you only have time for one book, I’d highly suggest Burton Malkiel’s A Random Walk Down Wall Street before starting your investment journey. If you decide to buy index funds instead of individual stocks after reading it, that’s a story for another day. Feel free to pm me if you have any questions!
Tze Donn 