Taiwan Investors Must Know When Buying US Stocks: Complete Guide to Sub-Brokerage Accounts

If you are a Taiwanese investor looking to enter the US stock market, one of the most commonly heard terms is “sub-brokerage” or “discretionary account.” This investment method is the most popular in Taiwan in terms of trading volume and is also the easiest entry point for many beginners. But is a sub-brokerage account really suitable for you? How much are the transaction fees? What’s the most cost-effective way to open an account? This article will delve into these key questions.

What exactly is sub-brokerage?

Simply put, sub-brokerage means you entrust a domestic broker to place orders on your behalf with an overseas broker. The official name is “Foreign Securities Business of Trust Buying and Selling,” but everyone simply calls it sub-brokerage or Sub-brokerage.

The specific operation logic is as follows: You open an account with a Taiwanese broker qualified for overseas sub-brokerage, place orders via their app or system, and after they receive your instructions, they forward them to an overseas partner broker registered on a US exchange, who then executes the trade in the US market. The trade results are returned to your Taiwanese broker, and you can see your holdings in your account.

Through this method, you can invest in stock markets in the US, Japan, Hong Kong, China, and other regions, purchasing stocks, ETFs, overseas bonds, and other products. Especially US stock ETFs, which have become the most popular investment tool for Taiwanese retail investors entering the US stock market.

Sub-brokerage vs overseas brokers: how should investors choose?

Is this the best choice for beginner investors? Sub-brokerage is the safest and most hassle-free way to get started. You don’t need to handle foreign currency accounts or international remittances, and tax issues are also managed by professionals. However, if your trading frequency is high and the transaction amounts are large, over the long term, overseas brokers may be more cost-effective.

Complete trading process of a sub-brokerage account

When investors buy US stocks via sub-brokerage, the entire process involves four steps:

Step 1: Investor places an order
You place an order through the Taiwanese broker’s app or web system, specifying the stock, quantity, and price to buy or sell.

Step 2: Broker forwards the order to overseas trading
The Taiwanese broker receives your order and immediately forwards it to an overseas partner broker, which is usually registered on a US exchange and authorized to place orders directly.

Step 3: Overseas market executes and settles
The overseas broker matches the buy/sell orders on the exchange. After execution, they send the results back to your Taiwanese broker, who updates your account information accordingly.

Step 4: Stock custody and ownership rights
After execution, the stocks are stored in the broker’s overseas custody account, held in the broker’s name. But importantly, you hold full rights and dividends of the stocks. This system is fully legal and common in international markets.

What fees are involved in sub-brokerage? What investors need to know

While convenient, sub-brokerage fee structures are relatively complex. The main costs investors need to pay include:

Commission Fee

Domestic brokers’ sub-brokerage commissions are usually 0.1%-1% of the transaction amount, with a minimum consumption threshold, generally between USD 25-50. However, recent reforms by some brokers, like Cathay Securities, have eliminated the minimum threshold, making it more friendly for investors.

Transaction-related costs

In addition to broker fees, US stock trading involves the following costs:

• SEC fee: 0.00278% of the transaction amount when selling stocks
• TAF (Trading Activity Fee): USD 0.000119 per share, capped at USD 5.95 per transaction, charged when selling
• Exchange fees: About 0.00565% for buy and sell, with transaction levies around 0.0027%

( Tax costs

• US stock dividends are subject to 30% withholding tax, which can be reclaimed from the IRS, but the process is complex
• For Taiwanese investors, overseas income is taxed only if the total exceeds NT$6.7 million
• Basic tax calculation: ) (Basic income - NT$6.7 million) × 20% (
• Investing in Hong Kong stocks counts as overseas investment; investing in mainland China stocks counts as domestic investment

) Currency exchange costs

• Sub-brokerage uses the broker’s fixed exchange rate for settlement, which may result in exchange rate differences
• Cross-border remittance fees vary by bank; some banks (like Taishin Bank) may waive fees
• After buying, settlement occurs T+2; funds are deducted T+1 after purchase, and credited T+3 after sale

Important rules you must know about sub-brokerage trading

When using sub-brokerage for trading, investors must understand the following rules to avoid transaction issues:

1. Only limit orders are accepted – You must set a price in advance; market orders are not allowed
2. Account pre-deposit rules – Sufficient funds must be pre-deposited to execute trades; the deposit usually exceeds the transaction amount (to account for exchange rate fluctuations), with excess refunded after settlement
3. Margin and short selling are prohibited – Sub-brokerage accounts cannot use leverage, margin, or short selling; some brokers may allow day trading
4. Business hours restrictions – Follow the overseas market calendar; if banks are closed for forex, transactions cannot be processed
5. US stock trading hours – 09:30am-4:00pm US time, which corresponds to summer 21:30-04:00 or winter 22:30-05:00 Taiwan time
6. Exchange rate risk – Fixed exchange rates used for settlement carry exchange rate fluctuation risks

How to apply for a sub-brokerage account? Complete account opening process

Taiwanese investors need to prepare two accounts: a domestic sub-brokerage account and a foreign currency account. You can choose to apply in person at a branch or online directly.

Preparation before opening an account

✓ Double ID documents (original ID card + passport or residence permit)
✓ Second ID (health insurance card, driver’s license, or other proof of identity)
✓ Seal (needed for signing account opening documents in person)
✓ Bank account copy (proof of funds)
✓ Must be a Taiwanese citizen aged 18 or above

( Account opening steps

Step 1: Choose the application method
Visit any branch of a domestic broker in person, or apply online via the broker’s website, which is more convenient.

Step 2: Sign agreement documents
Whether online or in person, you need to sign a sub-brokerage service contract. During the process, inform the staff of your broker code and select the settlement currency (TWD or USD).

Step 3: Fund transfer
After successful account opening, transfer your investment funds into the sub-brokerage settlement account. Your funds and stocks are held in custody by the broker, which is standard and secure.

Cost comparison of major Taiwanese sub-brokerage brokers

Below is a comparison of fees among major Taiwanese sub-brokerage brokers (using electronic order placement):

How should investors choose? The fees among these brokers are similar, but most offer room for negotiation to get higher discounts. Currently, Cathay Securities, having eliminated the minimum consumption threshold, is considered the most cost-effective choice. Note that US stock sub-brokerage fee structure includes two parts: fees charged by the Taiwanese broker + fees charged by the overseas exchange (and possibly the overseas broker). Buying US stocks generally incurs lower fees, but for mainland China stocks or Hong Kong stocks, costs can reach 1%-2%.

Other ways to invest in US stocks besides sub-brokerage

) 1. Open an account directly with an overseas broker

By opening an account with US-based brokers like FirstTrade, you can buy US stocks, futures, options, ETFs, US bonds, etc. Commissions are completely free, and trading costs only involve exchange fees (which are minimal), but the account opening threshold is higher, and the interface is mostly in English.

2. Trade US stocks via CFDs

US stock CFDs are contracts for difference based on US stocks, similar to futures trading, supporting two-way trading, leverage, and shorting. The advantages are low capital requirements for opening accounts, very low fees (0.01%-0.015%), zero commission, only paying spreads and overnight fees. Suitable for high-frequency traders and those needing leverage.

Is a sub-brokerage account suitable for you? The ultimate investor’s guide

Best suited investors for a sub-brokerage account: Infrequent traders, those seeking stable long-term holdings, wanting simple TWD operations, and willing to accept higher fees for convenience.

Core advantages: Simple process, no need to handle foreign currency accounts or international remittances, Chinese-speaking support, tax issues handled by professionals.

Main disadvantages: Higher fees, limited product types, no leverage, possible order execution delays.

Final advice: If you are a beginner investor, a sub-brokerage account is indeed the safest and most convenient choice. But as your experience grows, and if your trading becomes frequent or your investment amount increases rapidly, consider switching to an overseas broker, which can save you significant trading costs in the long run.

【Investment Terminology Quick Reference】

ETF (Exchange-Traded Fund)
In sub-brokerage, refers to index-based securities investment trust funds, which bundle a basket of stocks into an index fund. For example, a certain broker issues a FANNG ETF, selecting FANNG and five well-known Chinese tech companies, with weights periodically adjusted to track the tech sector leaders.

Lot (Share Unit)
Hong Kong stocks have variable lot sizes depending on the company, from as few as 200 shares to tens of thousands; mainland China stocks are standardized at 100 shares per lot; US stocks are traded per share. All trades must be in whole lots.

On-hold Funds
Funds from stocks sold on the same day but not yet settled can be used to buy again in the same market and currency. It’s like selling and immediately buying back, but withdrawal requires actual settlement completion.