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Most stock exchanges around the world are geared to the leading U.S. exchanges, which often set the direction of the stock markets in general. For German investors, it is recommended to trade U.S. securities through the stock exchanges in Germany.
When the stock exchanges for U.S. stocks open in New York at 9:30 a.m. local time on weekdays, investors' eyes around the globe turn to the start of trading on the world's largest exchanges: the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ). NASDAQ is also referred to as the technology exchange, as it is often preferred due to historically lower requirements and costs.
In Germany, investors have their eyes on the U.S. stock exchanges. When trading begins in New York at 9:30 a.m. (local time), many stock market participants have to pay attention at 3:30 p.m. (local time). After all, the markets of the world's largest economy often set the pace for the direction of stock markets around the world. If, for example, the U.S. stock markets are trending upwards, the signs on the European stock markets are also generally pointing to price gains. The same principle also applies when markets are falling. American and European stock markets have a high correlation with each other.
If you want to get an idea of the direction in which the stock market is heading, you can take a look at the leading indices in the USA. In contrast to Germany, where primarily only the DAX with the 40 most important listed companies in the country is significant, the US has three important stock market barometers: S&P 500, Nasdaq 100, and Dow Jones 30. The S&P 500 measures the value of the 500 largest companies on the NYSE. It is considered the broadest representative of the entire U.S. stock market. The Nasdaq 100 contains the 100 largest non-financial companies on NASDAQ. These are mainly securities from the technology sector - the most prominent include Alphabet (Google), Apple, Amazon, and Microsoft. But companies from other industries are also included. The Dow Jones 30 is made up of 30 of the largest US companies.
It is a pure price index, i.e. dividend payments are not included in the index calculation. The Dow Jones is a price-weighted index. This means that the higher the share price, the greater the weight in the index. In the case of Nasdaq 100 and S&P 500, the shares are based on the free float market capitalization, which is the market value of all freely tradable shares. The index levels published in the media generally refer to the price index of the two market barometers.
How to trade US stocks in Germany? U.S. stocks can be traded not only on the home exchanges in the U.S. but also on German stock exchanges. Investors in Germany need a broker and securities account for this purpose - as is usually the case for stock exchange trading. Those who trade U.S. stocks in Germany via a German stock exchange benefit from several advantages. In contrast to the US home exchange, share prices on German exchanges are also traded in euros. The conversion of the price takes place directly from the trading center at current exchange rates. In addition, the purchase of U.S. stocks on German exchanges is accompanied by lower order fees than on the home exchanges in the United States. If private investors wish to transfer their securities purchased in the U.S. to Germany and sell them there, additional fees may be incurred depending on the depository and type of securities. Investors from Germany can avoid this by trading U.S. stocks directly on exchanges in their home country. However, there is one disadvantage for those who trade U.S. securities through German exchanges: For special individual U.S. stocks that are not offered on German exchanges due to a low trading volume, buying on the home exchange in the U.S. is advantageous.
Even though U.S. stocks are converted on German exchanges into euros, investors run a currency risk in their country, since U.S. securities are generally quoted in U.S. dollars. However, this also creates currency opportunities. The principle: If the greenback gains in value against the euro, investors from the eurozone make currency gains. If the dollar loses against the euro, they incur currency losses.
Usually, the banks in Germany charge higher fees for the service of trading U.S. stocks than online brokers. So investors can buy and sell U.S. stocks cheaply and in seconds through Trive's trading platform. U.S. stock trading opens at 9:30 a.m. Monday through Friday and closes at 4 p.m. local time. (In Germany, this corresponds to 3:30 p.m. to 10 p.m.).
Owners of U.S. stocks must pay a flat 30 percent withholding tax on dividend payments to the U.S. Treasury. Before the dividend payment, German investors can apply for a reduction of the US withholding tax to 15 percent. The difference of 15 percentage points can be claimed, but this requires a special tax return, which can only be backdated for one year. However, if the custodian bank has "Qualified Intermediary" (QI) status with US tax authorities, only the reduced rate (15%) is generally withheld. This 15% can be offset against the German capital gains tax (25%). Since investors have already paid 15% tax in the USA, they only have to pay 10% in Germany.
Trive has the QI status and can, therefore, as a broker, settle US dividends directly with the - according to the double taxation treaty - valid US withholding tax rate.