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I would like to begin trading online but, as a total beginner, I have the most stupid doubts. Given the huge amount of brokerage platforms accessible online, I don't know how to figure out how to choose one. In particular, I have the following main question:

I actually live (I'm resident) in Italy. Does this put some legal restriction on the trading platforms I can choose or can I just select the platform which best suits my needs without any problem?

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Disclaimer: I'm not from Italy but from Germany - I've been living for a while in Italy in the past but for tax purposes was (fortunately! - as being German I know much better how to deal with the German tax authorities and their forms) still classified as German, so my insight into the Italian banking system is limited.

Firstly, I'd distinguish:

  • whether the broker is domestic or foreign, and
  • whether they offer trading at domestic and/or foreing exchanges

For a beginner, my recommendation is regardless of whether you are legally allowed to use foreign online traders to go with a domestic one. It doesn't hurt to look around whether you can find a suitable one that also offers trading at foreign exchanges.

The reason for this is that (at least in Germany, but I expect the same in Italy) the broker will already deduct due taxes and will give you formal declarations which may even tell you where in your tax declaration you enter those numbers. This very much reduces the risk of making stupid mistakes with your tax declaration and also lowers the work you need to put in to fulfil your legal requirements.

Before moving on to having also a foreign broker, there's the intermediate step of owning foreign shares/bonds/... and finding out which foreign paid taxes you can deduct from your domestic declaration (tax treaty is the magic word) and how to do this.

Trading on a foreign exchange via your domestic broker really isn't that much different from choosing at which domestic exchange your order is to be placed.

Once you have experience with all this, you can find out about foreign brokers. From my Germany-based experience, it is allowed in general (and I very much expect that this is the same for Italy, due to EU regulations) but there are certain regulations to be fulfilled. Here, even the necessary declarations for sending money to foreign accounts are done automatically by broker/bank as long as both sending and receiving account have the same owner (they notify you that they send the required notification to customs).
I'd not be surprised to find more burocracy about this in Italy, though. (Also from the recent experience of an Italian customer coming along with financial transparancy declarations paperwork in order to pay my bill)

The important thing to keep in mind is that you'll probably have to make sure yourself all business with the foreign broker is declared and taxed appropriately. Not sure how much work this is in Italy, in Germany as long as you stick to simple stocks or bonds and the foreign country also has similar taxation concepts that yield some kind of tax document this is not terribly difficult.

One of the things I learned in Italy is that even within EU tax laws can be totally and unexpectedly different. I'm talking of concepts like stamp duty and the tax on checking accounts which we don't have here. So if the taxation concepts are different, it's going to be something between difficult, a lot of hassle, or downright impossible to deduct the foreign taxes from your domestic due.
And of course, unexpected foreign rules for taxation make it more difficult to calculate how much will be due and check whether automatic deductions are at least plausible (e.g. in Germany, for the tax calculation on capital gains there are rules what losses may be balanced against which gains and which may not be balanced against each other - I don't expect they are obvious for foreigners)

This boils down to (unless you are of the monetary weight to employ dedicated tax lawyers) foreign brokers coming at a certain risk of unpleasant (= costly) surprises. I mentally treat this just like any other fee, but what I don't like is if this is unpredictable.

Fortunately, there are online brokers who are specialized on foreign customers and do have experience with this and also how to best transfer money between your domestic bank and them. They can also answer your questions and give sensible predictions on the amount of paperwork needed.
I definitively recommend that checking how much experience they have with foreign/Italian customers as one of your evaluation criteria.

  • What kind of local taxation do brokers in Germany get involved in? Or are you referring to the withholding on dividends paid to non residents? Also, Germany, Italy and the U.S. have tax-treaties which allow favorable treatment of dividends earned by non domestic investors. – Bob Baerker Apr 5 '18 at 0:48
  • @BobBaerker: I'm talking about capital gains tax (residents/German tax subjects). Tax treaties typically avoid/reduce double taxation but while e.g. the US-German and Dutch-German variety seems to work mostly automaticv via German broker, e.g. the German-Swiss tax treaty needs non-negligible paperwork: 1. full Swiss amount is deducted, 2. German broker then sends documentation of this. 3. Numbers go into German tax declaration. 4. Fill in Swiss form calculating refund based on German taxes paid 5. get this form stamped by the German tax office 6. send to Swiss tax office. 7. get refund. – cbeleites supports Monica Apr 5 '18 at 1:23
  • For a non-domestic broker (or bank account), say, a US share at a US broker (international account) I get automatic withholding (just like US share with German broker) but a US instead of a German tax document. I'm responsible for finding out where in the German income tax declaration to put which numbers. And it would probably trigger a duty (coming also with different deadlines compared to voluntary income tax declaration) to hand in income tax declaration (I'm not entirely sure because I anyways have to hand it in) whereas an employee with domestic broker wouldn't have this duty. – cbeleites supports Monica Apr 5 '18 at 1:33
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    Now, if I happened to choose an Italian broker, they may (not sure - but wouldn't be surprised) I may have to pay some stamp duty and maybe also such a tax for having an account. I'm sure the Italian broker would send me more or less fancy documents that these were paid. But I'd suspect (I don't know and I won't try...) they don't match any category the German income tax declaration knows. So I wouldn't rely too much on tax treaties actually avoiding all kinds of double taxation. – cbeleites supports Monica Apr 5 '18 at 1:40
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I have no clue what, if any, restrictions there are in Italy. You'd have to check locally for that info.

The best platform is the one that offers you the features that you need. That could include, charting, commissions, research, real time streaming news, low margin rates, option analytics, etc. Are they effective at borrowing shares for shorting?

I'd suggest that you take a look at Interactive Brokers. They offer trading in over 80 countries including stocks on Borsa Italiana. The platform isn't the most user friendly but if you know what you want to do and you don't need any hand holding, the commissions are ultra low. ThinkOrSwim at TDAmeritrade offers superb option analytics but they're a bit pricey on the commission side. When you pick one, sign up for their paper trading simulator. That's the best way to familiarize yourself with the trading platform.

I wouldn't get too bent out of shape trying to find the perfect broker for a beginner. Pick a reputable trading platform with a low commission structure and try to survive your foray into trading. Down the road when you have a better idea of what you need as well as the ability to discern the trade off choices in brokers, you can then determine which one is best one suited to you.

  • For a beginner, I'd consider whether the broker takes care of local taxation a far more important feature than buying on margin or shorting. I also don't see the point in looking for a foreign broker that would allow me to trade at a domestic exchange - that's gonna be far more difficult (all kinds of tax and other declarations) than doing the same trade with a domestic broker... – cbeleites supports Monica Apr 4 '18 at 20:20
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Fellow Italian here. To add on cbeleites's excellent answer, I would like to provide some specific information about the tax management options that a domestic broker may offer you (regime). There are basically three types:

  • regime della dichiarazione: you perform the investments and it's up to you to declare gains and losses in you tax declaration (730 or Persone Fisiche)
  • regime amministrato: you perform the investments and the broker makes the tax calculation on capital gains for you when you realize them, and subtracts it to them before adding the gains to your account. You cannot compensate the losses. In this case you don't need to report anything in the tax declaration
  • regime gestito: similar to regime amministrato but the brokes decides the investment strategy and you can compensate losses with gains taxes.

If you go with a foreign broker with no Italian branch I'm pretty sure you would need to go with the first option, which may be an hassle depending on you investments. I recommend you to choose a domestic broker, or one with a branch in Italy so that it takes care of your taxes and you can focus on the investments.

  • Great tip! May I ask you what brokerage platform you would use? (or maybe it should be a private chat as it could violate some site restriction) – marco trevi Apr 7 '18 at 8:46
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    I actually use a roboadvisor, so I just basically completed the Mifid form and chose one of their portfolios and they took care of everything (buy ETFs, rebalance when needed etc), so I'm probably not the best here to advise you on a specific broker – Gianluca Meloni Apr 7 '18 at 10:42

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