Successful investors, over time, have stressed on the importance of not putting all your eggs in one basket. Have you ever looked at the American market, with its stocks, bonds, and currencies, as a single basket? While this might not seem like the case, especially when the market is going great guns, bear in mind that the American market witnesses downward spirals too.
If you ignore investment opportunities outside of the country, you are basically missing out on a significant chunk of the developed global investable stock market. It comes as no surprise that an increasing number of Americans are looking at investing in foreign shores, although not everyone know how to make their trades cost-effectively.
If you hoped to buy international stocks a decade or two ago, the process would have been cumbersome and anything but cost-effective. With technological advances, this is no longer the case. Now, you get to choose from different options that include American Depository Receipts (ADRs), Global Depository Receipts (GDRs) and direct investing. Matters get a little tricky if you choose to go the direct investing way. What helps is that the competition has ensured high levels of service coupled with reduced costs.
Turn to Your Broker Account
If you have an existing account with a mainstream brokerage firm, there is a good chance you might be able to use it to trade in overseas stocks. The cost involved may be a factor, though, because you will pay fees for the deal as well as for conversion of currency. Depending on the account you have or plan to open, you may also have to deal with minimum balance requirements. Fidelity, for example, requires that you hold at least $2,500 in your account at all time.Turning to the internet may be a good idea as there is no dearth of reliable online brokerage companies from which to choose. NerdWallet’s list of best online brokers for stock trading in 2017 includes TD Ameritrade, Charles Schwab, E-Trade, OptionsXpress, Merrill Edge, and Fidelity.
Another option is to open a broker account in the country where you plan to trade. Examples include OCBC Securities in Singapore and Boom’s offering in Hong Kong. When it comes to funding these accounts, you get to save money in fees and exchange rates by turning to overseas fund transfer specialists such as TransferWise and WorldFirst.
Open an Account in a Foreign Currency
Setting up an account in another currency is usually a more cost-effective way when compared to using your regular American trading account. TD Ameritrade and Charles Schwab provide this service in the United States.If you live outside of the U.S. and wish to open a trading account in the country, doing so is possible through a number of institutions. In such a scenario, you may lose money when transferring funds to your U.S. dollar account, which you can avoid by using specialist fund transfer companies. These companies tend to come with lower fees and typically better exchange rates when compared to most banks.
The Trading
After you load funds into your trading account comes the time to buy stocks. While you will need to provide details of the stock you wish to buy as well as how many you wish to purchase, you may also need to choose between market orders and limit orders. The former comes with instructions to carry out your trade as quickly as possible, at existing market rates. With a limit order, you get to set the maximum you are willing to pay for a stock, and this ensures that you do not end up overpaying.Conclusion
A number of factors may affect the cost-effectiveness of trading in international stocks. Pay attention to the brokerage account you open, how you fund your account, how you withdraw funds from an overseas account, and how you actually carry out trades.*Photo Credit: GotCredit (Creative Commons)
