Brokerage Accounts – Investing in Japan and Overseas

For people who are looking for a high level of control over their investments with low cost, an online brokerage account is a great solution. In a way it’s a little sad that people no longer call their broker and instruct him to place orders for them, but it is very convenient to be able to do this yourself online. It also lowers the cost for the brokerage firm, which in turn lowers costs for investors. Today we will take a look at how these accounts work.

Let’s start with a definition: “A brokerage account is an arrangement between an investor and a licensed brokerage firm that allows the investor to deposit funds with the firm and place investment orders through the brokerage. The investor owns the assets contained in the brokerage account and must usually claim as income any capital gains he/she incurs from the account.” (from Investopedia)

If you live in Japan and are looking for a local brokerage, there is plenty of choice. Some well known ones are Rakuten Securities, SBI Securities and Matsui Securities. However their interfaces are not available in English, so you will have to be able to work through the application and use of the platform in Japanese. I have an account with SBI, so will use them as a reference in this post.

If you are looking for an account in English, then Interactive Brokers is probably the best option. IB have a Japan office and offer both a local Japan account for investing in the Japanese market and also a US account, which can access not only US, but also European and other global markets. The US account is completely separate from the Japanese company and is administered in the US, although you can apply through the Japan office.

Other overseas brokerage firms may or may not accept investors based on the country they live in. Japan residents will find they are not eligible to open accounts with most of them. In fact I think Interactive Brokers may be the only option available at present. (please correct me if I’m wrong on this)

SBI allows trading on both the Japan market and also overseas markets, namely the US, China, Korea, Russia, Vietnam, Indonesia, Singapore, Thailand and Malaysia. Once you get used to the interface it is fairly easy to navigate and execute transactions. Google translate does a reasonably good job these days if you get stuck.

Security – nothing is 100% safe, but as long as you are using a recognised broker you can expect them to be heavily regulated. You retain ownership of the assets in the account at all times. Obviously, because we are talking about online accounts, you need to be careful with your personal online security. Your brokerage should be using high-end encryption, but you need to make sure your login details are kept safe and that you change your password regularly.

Investment options –  A brokerage account gives you access to direct stocks, bonds, ETFs and mutual funds. Many also offer FX trading, options, and margin trading.

Cost – costs vary from one broker to another. Some may charge a fixed fee per transaction, and some may have a sliding scale depending on volume and how often you trade. Here is a breakdown of costs for Interactive Brokers and SBI.

Tax – As noted in our definition, these are taxable accounts. If you reside in Japan and use a local brokerage, you will receive a summary document each year you can submit to your tax office. If you use an overseas account, you will be responsible for reporting on this account in the country or countries you are tax resident in.

Drawbacks – Interactive Brokers has an account minimum of $10,000 for the US account. I think it’s ¥1,000,000 for their Japan account. (SBI doesn’t have this minimum so it’s easy to get started with a small amount and build up over time) Obviously the lack of an English interface for the Japan accounts can be a problem. For some investors this kind of account could simply be too “hands on”. You have to make all the investment decisions and execute them yourself. Hopefully this blog will make that easier! (see the section on Asset Allocation)

Account opening – information on opening an Interactive Brokers account is available here. For SBI, the process is as follows:

1. Fill in some personal information on the website and request the account opening documents.
2. Account application documents are mailed to you.
3. Complete account application documents and return along with a copy of your residence card and tax ID number. (My Number)
4. The securities company then notifies you that the account is open, either by mail, or via login to their website.

Hopefully this gives you an idea of how brokerage accounts work. If you are new to this it may seem a little daunting at first, but if you start with a small amount of money and study as you go, you may find it is not so hard to get the hang of. As always, let me know if you have any questions or comments.

Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.