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How To Invest In Foreign Stocks

How To Invest In Foreign Stocks

20 years ago it would have been unheard of for an individual investor to be able to invest in foreign stocks. Now, because of both technology and globalization, any investor with an interest in owning shares in a foreign company or on a foreign exchange has the ability to do just that with little to no obstacles. Online brokers, with their wealth of available services and investments, provide an opportunity for anyone interested to invest in foreign stocks and other investments what a foreign nature.

Foreign Exchanges

Foreign stock market exchanges have always existed but Internet trading has made investing in foreign exchanges possible for everyone. While it is unlikely for you to be able to invest in foreign exchanges or foreign stocks directly, you can always open a brokerage account in a foreign country, rules permitting of course. Many international brokers service investor needs around the world including providing access to multiple foreign stock exchanges. Opening more than one brokerage account domestically however is often unnecessary given the breadth of the offerings by most brokers.

American Depositary Receipts

Multinational companies are sometimes interested in providing their shares, which normally trade on foreign exchanges, on American stock exchanges for investors to purchase. American depository receipts, also known as ADRs, are shares listed on an American exchange which represent shares in a foreign stock. ADRs are traded in and have their dividends paid out as U.S. dollar denominations. An example of a foreign company trading shares as an ADR on a United States stock exchange is that is of Nokia (NOK). ADRs may be limited in number however since only the largest and most well-known multinationals trade in this fashion.

Foreign Stock Mutual Funds

Many domestic mutual fund companies offer a wide variety of different types of funds one of which is foreign Exchange Traded Funds. Emerging Market or International Index funds operate like standard mutual funds but shares focus on specific foreign sectors. These types of funds are a great way for individual or small investors to invest internationally without the need to create a foreign brokerage account or hope that a company they're interested in offers an ADR in the future. Foreign ETF's, and exchange traded funds in general, are incredibly popular due to their low fees, minimal activity and tax efficiency.

Pick a Stock Broker

So far the discussion has been about everything except for how to invest in foreign stocks. This is because the basics of investing are already covered by other articles such as opening a investment account and how to start investing in stocks. The basics of investing should already be known prior to considering purchasing shares in foreign stocks or exchange traded funds. Any online or traditional broker will be able to provide analysis and insight when looking to purchase foreign stocks or ETFs. They offer a wide variety of different investment vehicles many of which are from emerging markets. Once you've selected your broker and opened your account you can start investing in foreign stocks immediately.

Image by: Jonathan Molina