Comprehensive Guide to Fractional Investment in US Stocks: From Operating Mechanisms to Risk Management Essentials

What Is Sub-Account Delegation? Understand the Core Concept Once

Many Taiwanese investors want to venture into the US stock market but feel overwhelmed. In fact, through domestic brokers’ sub-account delegation services, you can easily invest in overseas markets. The full name of sub-account delegation is “Agency Buying and Selling of Foreign Securities Business,” which simply means you entrust a domestic broker to place orders, and the broker then forwards your orders to overseas partner brokers to execute in the local market.

Rather than saying direct delegation, it’s more accurate to call it indirect delegation. Because your order passes through the domestic broker before reaching the overseas exchange, this “passing through” process is the origin of the term “sub-account delegation.” Through this method, investors can access stock, ETF, and bond markets in countries such as the US, Japan, Hong Kong, and China, with buying US stock ETFs being the most popular.

How Does Sub-Account Delegation Work? The Full Process from Order to Holding Shares

Understanding the operation mechanism of sub-account delegation helps you grasp the entire trading process:

Step 1: Place an order via a local platform
Investors select the overseas stock they wish to buy on a Taiwanese broker’s app or website, input the quantity and price, then submit the order.

Step 2: Domestic broker forwards the order
After receiving your order, the Taiwanese broker forwards it to a registered partner broker in the overseas stock exchange, which has direct operational rights in the local market.

Step 3: Overseas transaction and reporting results
The overseas broker matches the order in the market; after execution, the result is sent back to the Taiwanese broker, which then updates your account page accordingly.

Step 4: Stock custody and settlement
The executed stocks are held in the broker’s name and managed in an overseas custody account. Although the holdings show in the broker’s name, you hold full beneficial rights. This arrangement is standard and legal in international markets.

Sub-Account Delegation vs. Overseas Brokers: How to Choose the Most Suitable Method for You

Different investors have different needs; each method has its advantages:

For beginners entering overseas investment, sub-account delegation is the most burden-free option; but for frequent traders or larger capital, overseas brokers offer lower costs.

Cost Structure of Sub-Account Delegation: Full Disclosure of Hidden and Explicit Fees

Investors should carefully calculate the actual costs of sub-account delegation to avoid hidden charges.

Main fee items

Commission Fees
Domestic brokers charge about 0.1%-1% of the transaction amount, often with a minimum fee (around $25-$50). Some brokers like Cathay Securities have eliminated minimum fees, making their fee structure more friendly.

Exchange and Regulatory Fees
The US Securities and Exchange Commission (SEC) charges 0.00278% on stock sales, only at the time of selling. Transaction Activity Fee (TAF) is charged at $0.000119 per share with a cap of $5.95.

Exchange Rate Costs
Sub-account delegation uses the broker’s fixed exchange rate for settlement, which involves some spread. Bank foreign exchange transaction fees vary by bank; confirm in advance.

Tax-Related Fees

Dividends are subject to a 30% withholding tax, which can theoretically be reclaimed, but the process is complicated. Overseas income is only taxed if the annual basic income exceeds NT$6.7 million and the basic tax exceeds the regular income tax; the basic tax is calculated as (basic income - NT$6.7 million) × 20%.

Hidden Risks of Sub-Account Delegation: Investors Must Take Them Seriously

While convenient, sub-account delegation involves several risks that require vigilance:

Execution Risk and Price Slippage
Sub-account delegation only accepts limit orders; market orders are not available. During volatile market conditions, your set price may become invalid during order forwarding, leading to failure to execute at the desired price or inability to execute altogether.

Liquidity Risk
Your account balance must be sufficient to execute trades. Even if the order is accepted, insufficient funds will cause rejection. To account for exchange rate fluctuations, the pre-deposited amount is often larger than the actual required amount, leading to funds being frozen.

Time and Liquidity Delays
Sub-account delegation involves time lag—orders take time to transmit from Taiwan to overseas, and execution reports are not instant. This is disadvantageous for investors needing quick responses. Additionally, sub-account delegation does not support margin trading or short selling, limiting strategies for bearish markets.

Exchange Rate and Settlement Risks
Using a fixed exchange rate means you cannot benefit from real-time currency fluctuations, and you bear the spread costs. After buying US stocks, settlement occurs on T+1 (deduction) and T+3 (credit), with T+2 being the market settlement date, resulting in lower liquidity compared to overseas brokers. If banks adjust foreign exchange business hours, it may affect processing.

Product and Investment Scope Limitations
Compared to overseas brokers, sub-account delegation offers limited product types—no futures, derivatives, options, etc. It also lacks automatic dividend reinvestment; manual reinvestment is needed for compound growth.

Regulatory and Custody Risks
Stocks are held in custody by the broker, but technically owned by the broker. If the broker faces financial issues, investors’ rights may be at risk. Different market rules and holiday schedules can also cause operational difficulties.

How to Open a Sub-Account and Preparation Checklist

Pre-application Preparation

Document Collection

• Original ID card and passport or residence permit
• Second ID (driver’s license, health insurance card, etc.)
• Seal (required for in-person application)
• Bank account copy to demonstrate funds

Application Steps

Option 1: In-person Application
Visit any branch of a domestic broker, bring the above documents, inform staff of your intention to open a sub-account, choose settlement currency (TWD or USD), and sign relevant agreements.

Option 2: Online Application
Log into the broker’s website, fill out the application form, upload scanned documents, sign electronic agreements, and wait 3-5 working days for review.

Post-Approval

After opening the account, transfer funds into the sub-account settlement account to start trading. All funds and holdings are managed by the broker; investors do not need to handle them separately.

Major Taiwanese Sub-Account Delegation Brokers Fee Comparison Table

Below are the common electronic order fees (US stocks) for Taiwanese sub-account brokers:

Fees vary slightly; most are negotiable for discounts, but costs are still higher than overseas brokers. Cathay Securities, having eliminated minimum fees, currently offers the most attractive fee structure in the industry. Actual costs include local broker fees plus overseas exchange fees; buying US stocks is cheapest, while China/HK stocks may cost 1%-2%.

Who Is Sub-Account Delegation Suitable For? Investment Style Compatibility Analysis

Sub-account delegation is most suitable for:

• Investors with low trading frequency and long-term holdings
• Conservative investors preferring TWD settlement to avoid currency exchange complexity
• Moderate-sized, steady capital investors
• Investors troubled by tax reporting who prefer professional代理

Not suitable for:

• Active traders requiring frequent, real-time execution
• Investors needing leverage or short selling
• Professionals seeking futures, options, or complex derivatives

Other Ways to Invest in US Stocks: Comparison

Option 1: Direct account with overseas brokers

US-based brokers like FirstTrade offer commission-free US stock trading, with costs only for exchange fees (negligible). However, account opening has higher thresholds, interfaces are mostly in English, requiring financial knowledge and language skills.

Option 2: US Stock CFDs (Contracts for Difference)

CFDs track US stocks with leverage, similar to futures, supporting both buy and sell. Fees are as low as 0.01%-0.015%, with zero commission, only spreads and overnight fees. Suitable for high-frequency traders or those needing hedging/shorting strategies.

Option 3: Hybrid use of sub-account delegation and other methods

Investors can combine different methods based on goals—using sub-account delegation for long-term holdings, CFDs for short-term flexibility, and overseas brokers when capital reaches a threshold—achieving optimal portfolio allocation.

Key Rules and Precautions for Sub-Account Delegation Trading

1. Order Type Restrictions: Only limit orders are accepted; market orders are not available. You must set buy/sell prices manually.

2. Account Funds Requirement: Insufficient funds will prevent order execution. Pre-deposited funds are usually larger than needed (considering exchange rate fluctuations) and excess will be refunded after settlement.

3. No Leverage Allowed: Margin trading and short selling are prohibited; leverage mechanisms are unavailable.

4. Trading Hours: US stock trading hours are 09:30am-4:00pm EST, which translates to 21:30-04:00 (summer) or 22:30-05:00 (winter) Taiwan time.

5. Settlement Cycle: T+1 deduction after purchase, T+3 credit after sale; T+2 is the market settlement date, resulting in lower liquidity compared to overseas brokers.

6. Fixed Exchange Rate: Uses broker’s fixed rate; no real-time FX fluctuation benefits.

7. Business Hours: No holidays for sub-account delegation, but if the bank’s forex department is closed, FX transactions cannot be processed.

Professional Terms Explanation

ETF (Exchange-Traded Fund)
A basket of stocks packaged into a single investment product, tracking an index. For example, some Taiwan ETFs include major tech giants like FANNG and leading Chinese tech companies, with periodic rebalancing to follow sector leaders.

Trading Units
US stocks are traded per share (unlike Taiwan’s “lot” system). Hong Kong stocks are traded in “lots,” with each lot varying from 200 to tens of thousands of shares depending on the company; mainland China stocks are standardized at 100 shares per lot.

In-Transit Funds
Funds from stocks sold on the same day but not yet settled. These can be used for buying in the same market and currency but cannot be withdrawn until actual settlement.

Summary: Choosing the Right Investment Method for You

Sub-account delegation offers an effective solution for those seeking a simple and safe way to invest overseas, especially suitable for long-term, low-frequency investors with stable capital. However, higher fees, limited investment scope, execution delays, and associated risks should not be overlooked. Investors should make rational choices based on their trading habits, capital size, and risk tolerance, whether it’s sub-account delegation, overseas brokers, or CFDs. Fully understanding the operation mechanisms and potential risks is essential before proceeding.