Why you should avoid unregulated platforms when you invest in US stocks

You're ready to invest in US stocks. The American market looks promising, and you want a piece of the action. A quick search reveals dozens of platforms claiming to be the best app for investing in US stocks from India. Some look sleek. Others promise zero fees. A few even have partnerships with big names.

But here's the catch – many of these platforms operate without proper regulation. They refer to themselves as "technology platforms" and avoid the responsibilities that come with being a licensed broker.

Would you invest in Indian stocks through an unregulated platform? Probably not. So why take that risk when investing in US stocks?

The hidden dangers of unregulated platforms

Technology platforms without regulatory licenses create a dangerous gap in investor protection. They collect your money and execute your trades, but shoulder none of the legal obligations that regulated brokers must follow.

Think about this scenario:

You decide to buy Apple shares at $150 per share. You place your order, and the transaction goes through. But when you check, you paid $152 per share instead. The platform pocketed the extra $2 without telling you.

What can you do?

With an unregulated platform, your options are limited. You can complain, but they have no legal obligation to respond to your concerns. They can say, "We're just a technology platform. Take it up with our partner broker."

This leaves you stuck in the middle, with no clear path to resolve your complaint.

How regulated platforms protect your investments

When you invest in US stocks through a regulated platform, you get absolute protection. They are regulated by the Financial Conduct Authority (FCA), which means:

• Transparent complaint processes: They must respond to your complaints within specific timeframes.
• Regulatory oversight: Their practices are regularly monitored and audited.
• Ombudsman access: If you're not satisfied with their response, you can escalate to an independent ombudsman.
• Transparency requirements: They must clearly explain our fees, processes, and risks.

This isn't just paperwork – it's your safety net when things go wrong.

The SIPC protection myth

Many unregulated platforms try to reassure investors by mentioning SIPC protection. They'll tell you that your investments are protected up to $500,000 under the Securities Investor Protection Corporation.

This sounds great, but there's a significant catch.

SIPC protection only kicks in when a broker becomes insolvent. It doesn't help with day-to-day problems like:

• Pricing disputes
• Delayed transactions
• Account access issues
• Poor execution quality
• Hidden fees

Additionally, SIPC protection originates from the executing broker, not the technology platform you're using. If the platform itself goes bust, you might find yourself in a legal maze trying to access your investments.

Real examples of what can go wrong

Let's look at some common problems investors face with unregulated platforms:

Hidden currency conversion fees: You buy $1,000 worth of Tesla shares. The platform shows a competitive exchange rate but adds a 2% markup that's buried in fine print. You lose $20 without realising it.

Poor order execution: You place a market order during volatile trading. A regulated broker would give you the best available price. An unregulated platform might route your order to generate maximum revenue for itself rather than offering the best price for you.

Account freezing: Your account gets frozen due to a "technical issue." With a regulated broker, there are clear timelines for resolution. With an unregulated platform, you might wait weeks without any updates.

Withdrawal delays: You want to withdraw your profits, but the platform keeps delaying with vague excuses. A regulated platform must process withdrawals within specific timeframes.

The disclaimer trap

Unregulated platforms love disclaimers like this:

"XYZ platform is neither a broker nor an investment adviser but only a platform provider. We make no warranties on products and services offered through our platform and accept no liability for any damages or losses."

This disclaimer protects the platform, not you. When something goes wrong, they'll point to this legal text and walk away from responsibility.

Compare this to regulated platforms, which are required to take responsibility for their services and maintain professional indemnity insurance to cover potential losses.

How to identify unregulated platforms

Spotting an unregulated platform isn't always obvious, but here are key warning signs:

Missing regulatory information: Legitimate platforms display their regulatory licenses and registration numbers. If you can't find this information easily, be suspicious.

Vague complaint processes: Check their website for complaint procedures. If it's missing or unclear, that's a red flag.

Too-good-to-be-true promises, such as zero fees, guaranteed returns, or "exclusive" access to specific stocks, often indicate an unregulated operation.

Complex partnership structures: If they rely entirely on third-party brokers and disclaim all responsibility, they're likely operating without proper authorisation.

The best way to invest in US stocks from India

The best way to invest in US stocks from India is through a properly regulated platform that prioritises your interests. Here's what to look for:

Direct regulatory oversight: The platform should be directly regulated by authorities such as the FCA, SEBI, or SEC, rather than relying solely on a partner's license.

Clear fee structure: All costs should be transparent, including brokerage fees, currency conversion fees, and any other applicable charges.

Robust complaint process: There should be clear timelines for complaint resolution and escalation procedures.

Regular reporting: You should receive detailed statements and have real-time access to your portfolio.

Professional support: Customer service representatives should be knowledgeable about relevant regulations and able to resolve issues promptly.

How to invest in the US stock market safely

When you're ready to invest in the US stock market, follow these steps:

1. Research the platform thoroughly: Check its regulatory status, read reviews, and understand its fee structure.
2. Start small: Test the platform with a small investment before committing larger amounts.
3. Understand the complaint process: Know how to raise issues and what timelines to expect.
4. Keep detailed records: Save all transaction confirmations and communication with the platform.
5. Monitor your investments regularly: Verify that trades are executed correctly and fees align with the promised rates.

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Why regulation matters for your financial future

Investing in US stocks should be about building wealth, not worrying about platform reliability. The regulation provides the framework that makes this possible.

When platforms operate under regulatory oversight, they must:

• Maintain adequate capital reserves
• Segregate client funds from company funds
• Provide regular financial reporting
• Maintain professional standards
• Offer fair and transparent pricing

These requirements aren't bureaucratic hassles – they're essential protections that keep your money safe.

Making the smart choice

The best app to invest in US stocks from India isn't necessarily the one with the flashiest interface or the lowest advertised fees. It's the one that provides genuine protection for your investments through proper regulation and transparent practices.

Yes, regulated platforms charge slightly higher fees than some unregulated alternatives. But consider this cost as insurance for your investments. The peace of mind and legal protection you get are worth far more than the small savings you might achieve with an unregulated platform.

Your financial future is too important to risk on platforms that prioritise their protection over yours. Choose a regulation. Choose transparency. Choose platforms that are legally obligated to put your interests first.

When you're ready to start your US investment journey, do it right. Your future self will thank you for making the wise choice today.

Frequently asked questions about investing in US stocks?

1) Is it safe to invest in US stocks?

Investing in US stocks can be a safe option if you understand the associated risks, including currency fluctuations, regulatory changes, and market volatility. The US market is well-regulated and offers diversification, but returns are not guaranteed, and values can fluctuate.

2) What is an unregulated stock market?

An unregulated stock market, or over-the-counter (OTC) market, is a decentralised market where trades occur directly between parties without oversight from a regulatory authority. This exposes investors to a higher risk of fraud, market manipulation, and inadequate investor protection.

3) Why invest in non-US stocks?

Investing in non-US stocks enhances diversification, thereby reducing portfolio volatility. International markets may perform differently from the US, offering growth opportunities and spreading risk across various economies.

4) What is the main risk you face when you buy stocks as investments?

The primary risk is the potential for financial loss, as stock values can fluctuate due to market volatility, company performance, or economic events. There’s also a risk that you may not achieve your expected returns or may not be able to sell when needed.

Disclaimer: This is not investment advice. Please verify platform regulations and consult a financial advisor before investing.

Contributed by Denila Lobo

Denila is a content writer at Winvesta. She crafts clear, concise content on international payments, helping freelancers and businesses easily navigate global financial solutions.