How to Buy Stocks in Foreign Markets: A Basic Guide
International investing has always been an attractive alternative. This is true for both individual and institutional investors. But for the latter, the allure of foreign equity exposure could be due to the institutional imperative. That is, not wanting to look stupid if it turns out their competitors made a killing through their global exposure. This is how to buy stocks in foreign markets at an individual with little money.
I am presenting a guide to how to buy stocks in foreign markets as a beginner. This is more centered on the individual investor than any other group. Unlike hedge fund managers and the big players who deploy heavy capital, you can also start doing it with your savings. Fortunately, you don’t need large capital or political connections to buy international equity. I know this to be true because I purchased my first foreign stock back in 2004.
If you’re looking for how to invest in foreign stock market, you can use this primer. Understand the basic premise of investing and the institutions and people who act as mediators. Simply pull this off with a little bit of online research, and a minimal amount of due diligence on your part.
Individual investors like you might simply see this as a daring move. There is surely the propensity of finding outstanding assets. Then there lies the ego. Perhaps you want a brag-worthy adventure of some sort. Either way, international investing could be promising if you find the right foreign broker to deal through.
Investing in Foreign Stock Markets for Beginners
Investing entails the buying, selling, and exchange of financial assets (sometimes properties) between buyers and sellers. With regard to the stock market, there is a middle man – the stock broker. He is a registered licensed dealing member of a stock exchange. You will discover how to buy stocks in foreign markets through international brokers in the sections below.
The Securities and Exchange Commission (SEC)
If you want to know how to buy stocks in foreign markets, you might want to get acquainted with the SEC. It is an institution that licenses and regulates both listed businesses and brokers also. Their standards and mode of operation are identical in nearly every country that has a stock exchange. On the other hand, overseas markets may differ from the US market in a number of ways.
The primary differences: There are cultural and local laws, as well as tax obligations that are layered to make the best use of capital in those areas. For example, the US markets have capital gains taxes which are due when a seller exits a long position profitably (typically). There are many foreign countries that do not have the capital gains tax in place. They’re either waived completely or minimized drastically.
Brokerage Services for Foreign Investors
A Stock Broker
To learn how to buy stocks in foreign markets, you have to use a broker. Brokers are licensed dealing members of one or more stock exchanges in your country or another foreign region. They are firms who mediate trades between buyers and sellers.
Their function is to act as middlemen in an investment transaction. Brokerage firms have a common structure in various countries and jurisdictions. Their operations are regulated by one or more government institutions.
Types of Brokers
There are standard stock brokers that serve a range of clients at different fees that vary. The premium brokers generally serve institutional investors and high net worth individuals. The process and the how to buy stocks in foreign markets require a broker who is local to the stock exchange.
Then there are Discount Online Brokers who serve a larger majority of clients at very low fees. This is because their clients are generally served on the internet with little to no human service. The reduced cost of operations is passed down to the clients as discounted commission trades.
International Broker Commissions
Secondly, American brokerage firms charge flat commission fees for their buy/sell trade mediation. There are many countries that require investors to pay commissions in percentages of the value of their trades. Sometimes as low as 1% to 2% per trade in regions in Africa and elsewhere. Your $1,000 purchase of a foreign stock could cost you $20.
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This seems a bit high compared to the US average discount broker commission of $5. You’d also be looking at an extra 0.5% annual maintenance fee – based on the value of your assets. That’s how to invest in foreign stock market environments. Consider and compare the rules to those of your own country.
Money Transfer Flexibility
New international investors will have various transfer and funding options to select from. This is vital to note if you want to learn how to buy stocks in foreign markets. This provision will enable flexible deposits and withdrawals to and from your account.
Optionally, brokers are able to facilitate the transfer of existing clients’ securities to another broker. This provision will allow new individual investors to commence trading using imported securities placed in their accounts – in addition to the cash position they may have.
Foreign Stock Selection
Choosing a stock requires the identification of its ticker symbol. Be sure to check and match this with the actual business name. A simple reminder if you’re learning how to buy stocks in foreign markets. There’s no free (no cost) reversal if you get this wrong.
Place your buy order if you want to go long or perform a sell order to short-sell. But not all stocks in global markets facilitate the use of shorting. You’ll need to keep the quantity in mind together with the prevailing market price. The broker’s commission should be the final factor to consider. Your funds in the brokerage account will have to meet your total order amount – else re-adjust and submit your trade.
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Investing Style
There is big difference between trading and investing. From another perspective, it is only a thin line. Your investing style as a beginner must be aligned to your objectives. Are you a long-term market player who’s looking to buy stocks and hold? Or you want to dabble in agile transactions daily or weekly for a quick profit?
Either way, chance favors the long-term investor than the short-term trader. To learn how to buy stocks in foreign markets without losing money, keep trades minimal. The brokers in the US provide faster trades and reliable confirmations. But in some foreign jurisdictions, you should expect to experience delays for days or weeks.
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A Few Parting Words
Global investments have been the well kept secrets of institutional fund managers for years. Now you’ve discovered how to buy stocks in foreign markets with little capital. Your investments will grow with a well diversified portfolio of both foreign and local stocks. You just need to be well informed about the laws surrounding the ownership of global equity, settlement, and taxation.
All this resources are now available at the tap of a link. You can benefit from emerging market movements, and undervalued opportunities that used to belong to much larger fund managers. The safest entry strategy is to use Dollar Cost Averaging (DCA) to build your long-term positions over a period of time – while expecting a reasonable volatility in those regions.
Share your experiences and tips about how to invest in foreign stock market securities if you have any. Forward your questions if you want clarity on a section of this article.
Further Reading: How to Invest in Foreign Stock Market Securities from Anywhere
Frequently Asked Questions (FAQs): How to buy stocks in foreign markets as a beginner?
Advantages of buying stocks in a foreign stock market
Here are Five (5) Reasons to Invest in Global Stocks:
- Low Initial Investments
- Emerging Market Growth Opportunities
- Cheaper broker commissions
- Bigger Market Index Moves
- Low Tax rates for foreigners
Disadvantages associated with owning stocks in international markets?
A list of Four (4) Reasons for Not Investing in Foreign Stocks:
- Presence of Corruption
- Delayed Broker Trade Settlements
- Foreign Currency Disparities
- Uncertain and unstable Political situations
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Great article on the basics of international investing! 👍
I personally invest in the Singapore, China and US markets. But like most investors, I started on home ground before branching out a couple of years later.
Familiarity is nice, but home bias can cost. Between concentrating investments in a single country and diversification, I prefer to spread the risks.
Diversifying into foreign markets can enhance potential returns, but it’s imperative that investors acquired knowledge and engage in thorough research.
This article is a good starting point. 😊
Feedback appreciated, Lynn.
I agree that investors should focus in regions they have confidence in.