Want to invest in US stocks but stuck on opening an account? A guide to custodial accounts to clear up confusion, a must-read investment shortcut for beginners

What exactly is a Discretionary Account, and why do so many people choose it?

Are you interested in investing in US stocks but deterred by the complicated process of opening an overseas account? Actually, there is a simpler way — through a Discretionary Account.

In simple terms, a Discretionary Account means you open an account with a Taiwanese broker, and the broker places orders for you overseas. The official name is 【Foreign Securities Trading Business under Trust】，sounds complicated but the operation logic is straightforward: you place an order → Taiwanese broker forwards it to a partner overseas broker → overseas broker executes the trade on a US exchange → results are reported back to your Taiwanese account. It’s called “Discretionary” because the order is “entrusted twice” — first to the Taiwanese broker, then to the overseas broker.

With a Discretionary Account, you can invest in stocks, ETFs, and bonds in overseas markets like the US, Japan, Hong Kong, and China, paying in TWD, with dividends directly transferred back to your domestic account, and tax issues handled by professionals. Buying US stock ETFs via Discretionary Accounts is also the most mainstream overseas investment method in Taiwan.

Discretionary Account vs Overseas Broker: Which is more cost-effective?

At first glance, the handling fee for a Discretionary Account is indeed higher than directly using an overseas broker. But it depends on how you use it:

Advantages of a Discretionary Account:

• Settlement in TWD, saving cross-border remittance hassle
• Dividends automatically transferred back to your domestic account
• Full Chinese customer support, responsible for issues

Disadvantages of a Discretionary Account:

• Fees range from 0.1% to 1%, significantly higher than overseas brokers’ 0.01%–0.1%
• Limited investment products (only stocks, ETFs, bonds; no futures or derivatives)
• No margin trading or short selling, and no automatic dividend reinvestment

Advantages of overseas brokers:

• Cheaper fees, wider product range (stocks, futures, options, derivatives)
• Margin trading, short selling, conditional orders available, more flexible trading
• Real-time order execution, no lag

Disadvantages of overseas brokers:

• Complex account opening process, requires an overseas bank account, involves international remittance fees
• Mostly English interfaces, easy for beginners to make mistakes
• You need to handle tax issues yourself

Conclusion: If you are a beginner just starting out, with limited funds and low trading frequency, a Discretionary Account is the most convenient; once trading becomes more frequent or your capital grows, an overseas broker becomes more cost-effective.

4 Main Steps of Operating a Discretionary Account

Imagine this scenario: you decide to buy a US stock, what do you do with a Discretionary Account?

Step 1: Place an order via Taiwanese broker’s app
Select the US stock, set price and quantity, then submit.

Step 2: Taiwanese broker forwards the order to an overseas partner broker
After receiving your order, the Taiwanese broker immediately transmits it to the registered overseas broker in the US.

Step 3: Overseas broker executes the trade in the US market
The overseas broker carries out the buy/sell based on your instructions, then reports the result back to the Taiwanese broker.

Step 4: Settlement and custody
The Taiwanese broker updates your account, and the stocks are temporarily held in the broker’s overseas custody account. Don’t worry, this system is common and legal in international markets — you hold all rights to the stocks, just in the name of the broker.

Discretionary Account Fee Checklist: Don’t Get Trapped by Hidden Costs

Although Discretionary Accounts are simple and convenient, fees can be quite diverse. Be sure to clarify before opening an account:

1. Commission (main cost)
Taiwanese broker’s commission is about 0.1%–1% of the transaction amount, with a minimum fee of around $25–$50 USD. Good news: Cathay Securities has eliminated the minimum fee, making them very competitive.

2. Exchange Fees

• US SEC charges 0.00278% on sales
• Some exchanges charge 0.00565% for both buy and sell, with transaction fees of 0.0027% each
• Hong Kong stock trading foreign exchange fee is 0.00015% per side

3. TAF (Transaction Activity Fee)
Charged on stock sales, at $0.000119 per share, with a cap of $5.95 USD.

4. Taxation

• 30% withholding tax on dividends, refundable but complicated
• Overseas income tax applies only if the basic income exceeds 6.7 million TWD and the basic tax exceeds the regular income tax
• Basic tax = (Basic Income – 6.7 million) × 20%

5. Bank remittance fees
Taishin Bank offers free cross-border remittance on the same day; other banks should be checked individually.

Tip: Fees among brokers are similar, but negotiation for discounts is often possible, especially for larger transaction amounts.

Discretionary Account Opening Guide: 4 Easy Steps

Ready to invest? Opening a Discretionary Account isn’t that complicated.

Eligibility: Taiwanese residents aged 18 or above

Step 1: Prepare documents
✓ Double ID: Original ID card + Passport or Residence Permit
✓ Second ID: Health insurance card or Driver’s license
✓ Seal: Needed for in-person application
✓ Bank statement: Proof of funds

Step 2: Apply at the broker
You can apply in person or online, fill out the forms, and sign the discretionary agreement. Remember to specify your settlement currency (TWD or USD).

Step 3: Choose settlement currency and broker code
Confirm whether to settle in TWD or USD, which affects exchange rate costs.

Step 4: Deposit funds and start trading
Once the account is approved, transfer funds into the Discretionary settlement account, then you can start placing orders.

Major Taiwanese Discretionary Brokers Fee Comparison

Below are the electronic order fees of major brokers for your reference:

Fees mainly consist of: Taiwanese broker’s fee + overseas exchange or broker’s fee. Buying US stocks is usually cheapest, but for mainland China or Hong Kong stocks, fees can reach 1% or even 2%.

8 Key Rules for Trading with a Discretionary Account

Before trading, these rules are essential:

1. Use only limit orders — market orders are not allowed; you must set a price beforehand

2. Ensure sufficient funds in the account — otherwise, even if the order is successful, it won’t settle, and funds will be frozen

3. Pre-deposited funds are usually greater than the transaction amount — to account for exchange rate fluctuations; excess will be refunded after settlement

4. Margin trading and short selling are not allowed — but day trading is generally permitted

5. Order acceptance follows international market hours — trading is possible when markets are open; bank holidays or forex market closures will prevent processing

6. US stock trading hours (Taiwan time):

   • Summer Time: 21:30 – 4:00 (next day)
   • Winter Time: 22:30 – 5:00 (next day)

7. Exchange rate is fixed — brokers provide a fixed rate, so there is a currency spread risk

8. Settlement days:

   • T+1 for buying stocks (funds deducted)
   • T+3 for selling stocks (funds credited)
   • Market settlement date is T+2

Besides Discretionary Accounts, How Else Can You Invest in US Stocks?

Option 1: Use overseas brokers directly

Open an account with US-based brokers like Firstrade, which allows trading US stocks, futures, options, ETFs, and US bonds. No commissions on US stocks, only exchange fees (negligible). The downside is high account opening barriers and mostly English interfaces.

Option 2: US Stock CFDs (Contracts for Difference)

CFDs are similar to futures, using US stocks as underlying assets for two-way trading, with leverage, long and short positions, and low capital requirements. Fees are very low (0.01%-0.015%), with no commission, only spreads and overnight fees. Suitable for high-frequency traders or those with special leverage needs.

Who Should Use a Discretionary Account?

Discretionary Accounts are most suitable for investors who:

• Trade infrequently, prefer long-term holding
• Have limited investment targets (stocks, ETFs, bonds suffice)
• Want settlement in TWD to avoid remittance hassle
• Desire Chinese customer support

If you fit this profile, a Discretionary Account is convenient and cost-controlled. But once you need lower costs, more product variety, or higher trading frequency, consider upgrading to an overseas broker.

Quick Glossary of Common Discretionary Account Terms

ETF (Exchange-Traded Fund)
A basket of stocks packaged into a fund. For example, Taiwan’s FANG ETFs include FANG and five Chinese tech giants, with weights adjusted periodically to track the tech sector.

Lot
Trading unit. Hong Kong’s lot size varies (from 200 shares to tens of thousands), mainland China standardizes at 100 shares, US stocks are traded per share.

In-Transit Funds
Funds from securities sold on the same day but not yet settled can be used to buy again in the same market and currency, i.e., sell and buy immediately, but withdrawal requires actual settlement.