A foreign broker is a firm that lets you buy and sell shares listed on an exchange in another country. Before you open an account, you should be able to answer four questions: who regulates the firm, who holds your money, what happens if the firm fails, and what a trade will really cost you. This guide shows how to answer each one using sources you can check yourself.
None of these checks needs insider knowledge. Most take under an hour, and the answers are usually in public registers, in the broker's legal documents or in a written fee schedule. A broker that will not answer these questions in writing is telling you something useful. The checks do not tell you whether a share is a good buy. They tell you whether the firm is who it says it is, and whether your money has a route back to you if something goes wrong.
Is the firm licensed, and is it the right legal entity?
A broker that serves you should hold a licence from a financial regulator in the country where it is based or where it offers its service. Search the regulator's public register by the firm's exact legal name, not its brand. A licence logo on a website is not proof on its own.
Brands often sit on top of several companies. The firm you sign up with may be a subsidiary registered in one country while the brand belongs to a group in another. Read the terms and conditions, find the legal name of the entity that will hold your account, and search that name in the register. The entry should show whether the firm is authorised, which activities it may carry out, such as trading or giving advice, and whether any warnings or disciplinary notices are recorded. If the entity is not on the register at all, stop there and do not deposit.
Check the regulator's own warning list as well. Regulators publish alerts about firms that copy the names of authorised ones, and a copycat can have a convincing website and still hold no licence. Type the web address yourself rather than following a link in an advert or a message. A genuine firm will not object to a careful check, and a firm that discourages one has told you something.
Who actually holds your money?
Client money should be held in accounts kept separate from the broker's own funds, usually at a bank or a custodian. Ask which entity holds your cash and shares, whether they sit in your name or in a pooled account, and what happens to them if the broker fails. Those answers decide how easily your assets could be recovered.
Segregation is a rule in many regulated markets, and it is one of the most important protections a broker can offer. Under a pooled, or omnibus, arrangement, your shares may sit in one account alongside other clients' holdings, with your entitlement shown on your statement rather than in a separate name. That is common and can be legal, but you should know which model applies. Ask for the answer in writing and ask for the custodian to be named. Nominee accounts are also common. In those, the broker or its nominee appears as the holder on the company's register while you hold the economic interest. Both models can work. What matters is that the rules are clear before you deposit anything.
The example below is illustrative. It uses invented fees to show why a charge that looks small can matter once money moves between currencies and back out again. It is not drawn from any real broker.
| Step | Amount | What it means |
|---|---|---|
| Deposit in your currency | 500 | Your starting money |
| Conversion spread at 1.0% | minus 5 | Lost when the money is converted |
| Balance in the foreign account | 495 | What you can trade with |
| Custody fee for the year | minus 12 | Charged whether or not you trade |
| Balance before withdrawal | 483 | What is left to take out |
| Conversion back at 1.5% | minus 7 | Charged when the money leaves |
| Money back, before any gain or loss | 476 | About 4.8% of the deposit gone in costs |
In this example the investor has lost about 24 of the original 500 before a single share moves. A stock that rises 5% would need to earn back that whole gap before the account is in profit. Ask for the real schedule and run the same arithmetic with the broker's actual figures, because the result can be very different from the commission on the front page.
What protection applies if the firm fails?
Some countries run investor compensation schemes that pay part of a claim when a licensed firm cannot meet its obligations. Coverage varies by who is eligible, by the maximum amount and by whether losses from falling prices are included. Find the scheme that applies to the entity you will sign with, and get its terms in writing before you deposit.
Compensation schemes protect against a firm's failure, not against a fall in the market. If a share you own drops 40%, no scheme will refund that drop. Some schemes treat cash differently from securities, and some set per-client limits. In the United States, SIPC covers customers of failed member brokers, and its job is to help recover assets held by a failed firm within set limits. It does not insure investment losses. Other countries have their own arrangements, and some have none for a particular type of firm. Do not assume that a protection in your country follows you to a broker licensed somewhere else, because the scheme that applies usually follows the entity that holds your account.
Which costs should you check?
The costs that hurt most often sit outside the headline commission. Look for currency conversion spreads, custody or inactivity fees, withdrawal charges, data fees and any exchange fees the local market adds. Ask for the complete fee schedule in writing, then work out what one full round trip costs in your own currency, from deposit through to withdrawal.
A good schedule lists the charge for each action: opening, funding, buying, selling, holding, converting and withdrawing. Ask how the broker's quoted exchange rate compares with the mid-market rate, because that gap is often larger than any stated fee. Some brokers show zero commission and earn their income from the spread. That is not automatically worse, but the total is what matters, so compare totals rather than headlines. Also ask what happens after a long period with no activity, and whether any charge applies to dividends or to corporate actions such as rights issues. Keep a dated copy of the schedule, since terms change and you will want to know what you agreed to.
Common mistakes
Trusting the brand instead of the entity. Read the terms, find the legal name of the company that will hold your account, then search that name on the register.
Depositing before reading the custody terms. Once money has left your bank, getting it back can take time. Answer the custody questions first.
Ignoring the conversion rate. A broker can look cheap on commission and still take a large share of every conversion in and out.
Checklist
- Write down the exact legal name of the company that will hold your account.
- Search that name on the regulator's public register and save the entry with the date.
- Confirm in writing which institution holds client cash and shares, and whether they sit in a pooled account.
- Find the investor compensation scheme that applies and read its limits.
- Request the full fee schedule and work out the cost of buying, holding and withdrawing in your own currency.
- Check whether your country's rules allow residents to open accounts with a foreign broker, and whether you must report the account.
- Wait at least a day after reading the terms before you deposit.
Key takeaways
A foreign broker should be licensed, should hold your money separately, should sit inside a compensation scheme where one applies, and should show every cost in writing. Check the legal entity rather than the brand, and get the answers on paper. These checks do not tell you which share to buy. They tell you whether the firm is real and whether your money has a route back if something goes wrong.
This guide is for general information, not financial advice. See the disclaimer.