US order types: stops and time in force
US brokers and the foreign stock order screens of Korean brokers offer orders not found for Korean stocks (what is offered differs by broker).
| Order | How it works | Watch out |
|---|---|---|
| Stop | Becomes a market order when the price reaches a set value (the stop price) | In a plunge or gap it can fill far below the stop price |
| Stop-limit | Becomes a limit order when the stop price is reached | If the price jumps past the limit it won’t fill, and the loss can grow |
| Trailing stop | Triggers a stop when the price falls a set amount (dollars or %) from its high | In volatile stocks it triggers on small wobbles |
| MOC and LOC | Filled in the closing auction (market or limit) | Cancellation may be restricted after the set cutoff time |
Orders also carry a time in force. DAY lasts until the end of that day’s regular session; GTC (good till canceled) lasts until you cancel it (up to a maximum period set by the broker). It is common to forget a GTC order and have it fill weeks later on a day of sudden moves.
When a stop order meets a gap
The risks of trading outside regular hours
- Thin books: with few participants, spreads are wide and even small orders move the price a lot.
- What the price means: after-hours prices right after earnings are made by a handful of trades and can differ a lot from the next day’s regular session.
- Order restrictions: outside regular hours often only limit orders are allowed, and stop orders often don’t work.
Currency exchange: a cost paid twice
Buying US stocks with won means exchanging twice: won → dollars when you buy, and back to won when you sell. Banks and brokers add a margin (the exchange spread) to the base rate, and a “90% preferential rate” means 90% of that margin is waived.
Brokers’ “order directly in won” features are convenient, but check at what rate and preference, and when (at order or settlement), the automatic exchange happens.
Exchange costs paid twice when buying and selling (round trip, based on a 1% exchange spread)
Commissions and regulatory fees
- Commissions: generally higher than for Korean stocks; online sample values around 0.25% are common, but they vary a lot by broker and promotion. Some have minimum fees.
- Regulatory fees: very small SEC fees (Section 31 fee) and the FINRA trading activity fee (TAF) may be charged on the sale amount when you sell. The rates change every year (needs confirming).
- No Korean transaction tax: US stocks carry no Korean securities transaction tax.
ADR custody fees and PTP withholding
ADR custody fees
Shares of non-US companies such as TSMC and ASML may trade in the US as ADRs (American depositary receipts). The bank that manages the ADR charges a custody fee (depositary fee) of a few cents per share, usually deducted from dividends or billed separately. If a dividend arrives smaller than expected, this fee or the home country’s withholding tax may be why.
PTP withholding
For stocks that are legally partnerships (PTPs), such as some energy companies (MLPs) or commodity ETPs, the rules changed in 2023 so that the US withholds 10% of the sale amount (the whole amount, not the profit) when a foreigner sells. Some Korean brokers block purchases of such stocks. Check the structure when choosing a product (needs confirming).
Dividend withholding
Under the Korea–US tax treaty, dividends on US stocks arrive with 15% withheld in the US (if you have submitted proof of residence through your broker). That is higher than the Korean dividend tax rate (14%), so you usually pay nothing more in Korea, but if your financial income exceeds ₩20 million a year it enters the comprehensive taxation calculation (chapter 4).
Filing capital gains tax on foreign stocks in practice
For profits from selling foreign stocks, you add up all foreign stock gains and losses for the year (January–December), subtract ₩2.5 million, and file and pay 22% (including local income tax) yourself in May of the following year. The biggest difference from Korean stocks is that the broker doesn’t withhold it for you.
- Calculated in won: the sale and purchase amounts are each converted to won at the base exchange rate on their settlement dates. So even if you lost money in dollars, a rise in the exchange rate can create a gain in won and a tax bill.
- Netting gains and losses: gains and losses on different stocks in the same year are netted. They are not carried over to the next year.
- Deductible expenses: commissions and similar costs can be deducted as expenses.
- Filing service: many brokers offer free filing on your behalf, but if you use several brokers you need to combine the gains and losses, so check them yourself.
Steps for calculating capital gains tax on foreign stocks
- 1Add up the yearJanuary–December, gains and losses
- 2Convert to wonBase rate on each settlement date
- 3Deduct ₩2.5 millionAlso subtract costs such as commissions
- 4Calculate 22%Including local income tax
- 5File next MayYourself or via your broker
Korean-listed ETFs vs US-listed ETFs
Even when tracking the same US index, costs and taxes differ depending on where the product is listed and which account you use (summary; check detailed conditions).
| Item | Foreign ETF listed in Korea (regular account) | ETF listed in the US |
|---|---|---|
| Currency and hours | Won, Korean market hours | Dollars, US market hours |
| Tax on trading gains | 15.4% withheld as dividend income, counts toward comprehensive financial income tax | Foreign stock capital gains tax: 22% after a ₩2.5 million annual deduction, taxed separately |
| Distributions (dividends) | 15.4% withheld | 15% withheld in the US |
| Netting gains and losses | Each product taxed separately | Netted with other foreign stock gains and losses for the year |
| Tax-advantaged accounts | Can be held in ISA and pension accounts | Can’t be held in Korean tax-advantaged accounts |
| Currency exchange | Handled by the fund manager (cost reflected in fees) | You exchange yourself and bear the spread |