A comprehensive guide to custodial trading: Essential knowledge for Taiwanese investors entering the US stock market

Looking to enter the U.S. stock market through a cross-border agency account but confused about how it works, fee structure, and account opening process? This article starts from investors’ actual needs, systematically analyzes the core points of the cross-border agency account, helping you determine whether this is the right investment method for you.

What exactly is the operation mechanism of a cross-border agency account?

The formal name of a cross-border agency account is “Trustee Buying and Selling of Foreign Securities Business.” Simply put, it means domestic securities firms act as your agents. When you place an order for U.S. stocks via a domestic broker’s app, your order is not directly sent to the U.S. exchange. Instead, it is first sent to the domestic broker, then forwarded to their overseas partner broker, and finally executed on the U.S. market.

Why is it called a “cross-border” account? Because the order goes through two layers of transfer—first from you to the domestic broker, then from the domestic broker to the overseas broker. This “layered transfer” is the origin of the term “cross-border agency account.”

Cross-border agency account vs overseas broker: how to choose?

Main advantages of a cross-border agency account:

• Settlement in TWD throughout, no need to open overseas bank accounts or handle international remittances
• Overseas dividends are directly credited to local bank accounts, with tax matters handled by professionals
• Familiar operation interface, Chinese customer support, more reassuring psychologically
• Suitable for basic investment products like stocks, ETFs, bonds

Obvious disadvantages of a cross-border agency account:

• Higher handling fees, usually 0.1% to 1% per transaction
• Limited tradable products, no margin trading or short selling
• Cannot set automatic dividend reinvestment
• Orders may have delays, no support for market orders

Advantages of overseas brokers:

• Lower fees, U.S. stock trading fees around 0 to 0.1%, some even zero commission
• Wide range of investment products: stocks, futures, options, derivatives
• Support margin trading, short selling, conditional orders, and other advanced features
• Fast order execution, support for market orders

Practical barriers to overseas brokers:

• Must open accounts online, process is more complex
• Need to handle foreign currency accounts and international remittances yourself
• Interfaces mostly in English, initial learning curve high
• Tax issues require self-research

Investment strategy suggestion: If you are a long-term buy-and-hold investor, trade less than 10 times a year, and have large single transactions, a cross-border agency account suffices. Conversely, if you trade frequently or want to try advanced tools, overseas brokers are more cost-effective.

Detailed fee structure of cross-border agency accounts

Transaction-related fees

Order handling fee is the main cost:

• Fee range: 0.1% to 1% of transaction amount
• Minimum fee: usually $25 to $50 per order
• Recent trends: some brokers have lowered or eliminated minimum fees

Exchange taxes and fees collected by U.S. authorities:

• SEC fee: 0.00278% on sales
• Exchange fees: about 0.00565% for buy and sell (varies by market)
• Trading activity fee (TAF): $0.000119 per share, capped at $5.95

Currency exchange and withdrawal fees

• Cross-border agency accounts use fixed exchange rate settlement, which involves exchange rate spreads
• International remittance fees vary by bank, confirm in advance
• Account pre-deposits are usually higher than actual transaction amounts to cover exchange rate fluctuations

Tax costs

Overseas dividends involve a 30% withholding tax, but tax refunds can be applied for (process is complicated). Basic tax calculation considers only if the total income exceeds 6.7 million TWD and taxable amount exceeds regular income tax.

Cross-border agency account operation process: four steps to understand the full transaction

Step 1—Place order: You input trading instructions (stock code, quantity, limit price) via the domestic broker’s app

Step 2—Transfer order: The domestic broker receives the order and immediately forwards it to their overseas partner broker (which is usually registered with the U.S. exchange)

Step 3—Execution: The overseas broker finds a counterparty in the market, executes the trade, and reports the result back to the domestic broker

Step 4—Settlement and custody: The purchased stocks are held in custody by the overseas broker in a broker name account. You hold all rights (dividends, voting rights, etc.), but the registered ownership appears as the broker, which is standard practice in international markets.

Important rules and restrictions for cross-border agency trading

Investors must understand the following when using a cross-border agency account:

1. Only limit orders are supported; market orders are not supported
2. Sufficient funds required: insufficient pre-deposited funds will cause order failure
3. Floating funds: due to exchange rate fluctuations, pre-deposits are often higher than actual transaction amounts
4. No margin trading or short selling allowed; most brokers permit day trading
5. Trading hours: U.S. stock market operates from 09:30 am to 4:00 pm U.S. time, which is approximately 21:30 to 04:00 (summer) or 22:30 to 05:00 (winter) Taiwan time
6. Settlement time: buy transactions settle on T+1, sell transactions settle on T+3 (market settlement date is T+2)
7. Business hours: follow overseas market trading days; bank forex trading days are separate

Complete account opening guide: two accounts are essential

To invest in U.S. stocks via a cross-border agency account, you need to apply for both a domestic broker cross-border account and a foreign currency settlement account.

Required documents:

• Identity proof: ID card (original), passport, residence permit
• Supporting documents: health insurance card, driver’s license, or other valid IDs
• Seal/stamp: if applying in person, used for signing documents
• Bank account proof: passbook or bank statement for fund verification

Account opening steps:

Visit any branch of a domestic broker or log in to their official website, sign the cross-border agency agreement. During the process, inform customer service of the broker code and specify the settlement currency (TWD or USD). After signing, the system will allocate an account number, and you can start transferring funds for trading.

Once successfully opened, all funds and stocks are managed and held by the broker.

Major Taiwanese brokers’ cross-border agency fee comparison table

Using electronic orders as an example, the fee comparison among major brokers:

Market dynamics: The fee ranges are similar across brokers; discounts are often negotiable. Overall, cross-border agency account costs are higher than opening directly with an overseas broker. Recently, some reform-minded brokers have eliminated minimum fees, lowering entry barriers for small investors.

Cost analysis: Total costs consist of domestic broker fees plus overseas exchange fees. For U.S. stocks, costs are relatively low; for mainland stocks or Hong Kong stocks, fees may rise to 1-2%.

Other ways to invest in U.S. stocks besides cross-border agency accounts

Option 1: Direct trading through overseas brokers

You can register accounts directly with U.S.-based brokers to buy stocks, futures, options, ETFs, and U.S. bonds. The main advantage is zero commission on U.S. stock trades, with trading costs only the exchange fees, which are negligible.

Disadvantages include more documentation, primarily English interfaces, and the need for self-research on tax planning, making it more challenging for beginners.

Option 2: CFD trading

U.S. stock CFDs use U.S. stocks as underlying assets, allowing two-way trading, leverage, and small capital requirements.

Advantages include a wide range of investment targets, low fees (0.01-0.015%), and zero commissions, only charging spreads and overnight fees. Suitable for high-frequency traders or those needing leverage and advanced features.

Who is suitable for cross-border agency accounts? The ultimate guide

Ideal customers for cross-border agency accounts:

• Trading less than 10 times a year
• Larger investment amounts (over 50,000 TWD per transaction)
• Prefer long-term holding strategies
• Mainly invest in stocks and ETFs
• Do not require margin trading or advanced tools
• Prefer settlement in TWD without currency exchange

Summary of advantages: Simple process, psychological reassurance, tax simplicity, friendly customer support

Summary of disadvantages: Higher costs, limited products, less flexible trading

Conclusion: Cross-border agency accounts provide a low-risk entry point for Taiwanese investors into the U.S. stock market. As trading activity or investment amounts grow, switching to overseas brokers or other tools becomes more cost-effective.

Key terms you must know about cross-border agency accounts

ETF (Exchange-Traded Fund): A basket of stocks packaged into an index fund, e.g., a tech sector ETF holding leading tech companies weighted accordingly, periodically rebalanced to track the index.

Lot (Trading Unit): The standard trading size in each market. U.S. stocks are traded per share; Hong Kong stocks vary by company; mainland stocks are standardized at 100 shares per lot. Trading must be in whole lots.

In-transit funds: Funds from stocks sold on the same day but not yet settled can be used immediately for new purchases in the same market and currency, similar to “sell then buy” liquidity. For withdrawals, settlement must be completed first.