To invest in US stocks, understand the omnibus account first! A must-have account opening and trading guide for Taiwanese investors

Want to invest in overseas stocks through a Taiwanese broker? Sub-accounts are a popular choice for many beginners, but before opening an account, you need to understand how they work, their fee structure, and trading rules. This comprehensive guide will help you determine if sub-accounts are suitable for you.

The Essence of Sub-accounts: Delegating the Delegation

The full name of a sub-account is “Trustee Buying and Selling Foreign Securities Business”, which simply means that a domestic broker acts as an agent for you to place orders with overseas brokers. When you place a buy order through a Taiwanese broker, that broker will forward the order to a registered overseas partner broker for execution. Because the order goes through a “second delegation,” it is called a sub-account.

This method allows you to invest in overseas markets such as the US, Japan, Hong Kong, and China, purchasing stocks, ETFs, bonds, and other products. In Taiwan, buying US stock ETFs via sub-accounts is the most traded method for overseas investments.

Sub-accounts vs Overseas Brokers: Balancing Cost and Convenience

Should you choose a sub-account or open a direct account with an overseas broker? The key depends on your investment habits and cost considerations.

Advantages of sub-accounts: Safe and convenient, settled in TWD, dividends directly transferred to local accounts, tax issues handled by specialists. Disadvantages: Higher fees, limited investment products, no margin trading.

Conclusion: If you are a long-term investor, trade infrequently, and have large capital, a sub-account is sufficient. If you trade often or have limited funds, an overseas broker may be more cost-effective.

Fee Structure of Sub-accounts: More Than Just Commissions

While sub-accounts seem simple, their fee composition is complex. You must understand:

Commission Fees

Domestic brokers charge about 0.1%-1% of the transaction amount, with minimum thresholds often between $25 and $50 USD. Recently, some brokers like Cathay Securities have eliminated minimum charges.

Exchange Fees

• US SEC fee: 0.00278% on sales
• Exchange fees: 0.00565% on buys and sells
• Transaction Activity Fee (TAF): $0.000119 per share, capped at $5.95, usually charged on sales

Tax Costs

Dividends are subject to 30% income tax, with possible tax refunds but complicated procedures. Overseas income is taxable if it exceeds a basic threshold of NT$6.7 million.

Other Fees

Cross-border remittance fees vary by bank; some banks (like Taishin Bank) waive these fees.

Comparison of Brokerage Fees (US Electronic Orders)

How Sub-accounts Work: Four-Step Trading Process

Sub-account trading is not a one-step process. Understanding the workflow helps you anticipate execution times and possible delays:

Step 1: Local Order Placement — You place buy/sell orders via the Taiwanese broker’s app or website.

Step 2: Order Forwarding — The domestic broker receives your order and forwards it to the registered overseas partner broker in the US.

Step 3: Overseas Execution — The overseas broker executes the trade in the market and reports the result back to the domestic broker.

Step 4: Settlement and Holding — The domestic broker updates your account with the trade result. Stocks are held in the broker’s overseas custody account, and you, as the beneficiary, enjoy the rights (it’s standard legal practice for brokers to hold securities on behalf of clients in international markets).

Important Rules for Sub-account Trading

Before investing, you must understand trading restrictions and special regulations:

1. Limit Order System: Orders can only be placed at pre-specified prices; market orders are not available.
2. Fund Deposit: Sufficient funds must be deposited; otherwise, trades cannot be executed.
3. Pre-deposit Amounts: Due to exchange rate fluctuations, pre-deposits are usually larger than the actual transaction amount; excess funds are refunded after settlement.
4. Day Trading: Allowed by most brokers (margin trading is prohibited).
5. Business Hours: Not aligned with foreign holidays, but unavailable during bank foreign exchange holidays.
6. US Trading Hours: 09:30 am - 4:00 pm US time; Taiwan summer time 21:30 - 04:00, winter time 22:30 - 05:00.
7. Exchange Rate Risk: Settlement uses fixed broker rates, which may differ from market rates.
8. Funds Settlement Period: T+1 deduction for purchases, T+3 deposit for sales (market settlement date T+2).

How to Open a Sub-account: Two Accounts Are Necessary

You need to prepare: A sub-account + a foreign currency account (bank)

Eligibility

Taiwanese residents aged 18 or above.

Required Documents

• Dual ID: Original ID card + health insurance card, driver’s license, or second ID
• Personal seal (required for in-person applications)
• Bank account copy (to prove funds capability)

Opening Process

Choose Method: In-person or online application

Sign Contract: Visit the broker’s branch or apply via their website, provide broker code, and select settlement currency (TWD or USD).

Account Activation: After approval, transfer funds into the sub-account to start trading.

Other Ways to Invest in US Stocks: Sub-accounts Are Not the Only Option

Direct Overseas Brokers

Open accounts with US-based brokers like FirstTrade, which offer commission-free US stock trading, only charging exchange fees. Downsides include high account opening thresholds and mostly English interfaces.

US Stock CFDs

Trade contracts for difference (CFDs) based on US stocks, with rates of 0.01%-0.015%, zero commissions, only spread and overnight fees. Suitable for high-frequency traders or leveraged investors.

Investment Decision Guide for Sub-accounts

Suitable for sub-accounts:

• Low trading frequency
• Large investment amounts
• Long-term holding tendency
• Preference for TWD settlement
• No margin trading needs

Not suitable for sub-accounts:

• Frequent market entry/exit
• Small trading amounts
• Need for leverage
• Seeking the lowest transaction costs
• High demand for diverse investment products

The value of sub-accounts lies in convenience and peace of mind, but convenience comes at a cost. Before choosing, evaluate your investment style and capital to find the most suitable solution.