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How to Buy ADR Stock

Originally introduced in 1927, American depositary receipts (ADRs) allow Americans to purchase stocks that trade in the U.S. but represent a specified number of shares in a foreign corporation. The first ADR allowed U.S. investors to purchase shares of a British department store. Here’s how you can buy them

What's an ADR stock?

Today’s market includes a variety of ADRs across all markets. These include popular companies such as Alibaba, Bidu, Vale SA, Teva Pharmaceuticals, Gazprom and more.

Banks issue ADR stock for companies traded on foreign exchanges, in which one share of an ADR represents one, multiple or fractions of shares of the original stock. U.S. investors can purchase ADR stock on the major U.S. exchanges.

ADRs come in two types, sponsored and unsponsored. Sponsored ADRs have an agreement between the foreign company and the U.S. bank who performs recordkeeping. Non-sponsored ADRs do not have an agreement and originate from a U.S. broker-dealer. However, non-sponsored ADRs may not be established if the foreign company is not subject to the SEC reporting requirements or has an exemption.

You can read more about ADRs on the SEC website.

Where can I buy ADR stock?

ADR stocks trade on American exchanges including the NYSE, AMEX, Nasdaq, and the over-the-counter markets.

Investors group ADRs into three levels:

  • Level 1: Unsponsored, over-the-counter ADR that isn’t permitted to raise capital but which creates a trading presence. An F-6 form is filed with the SEC to establish the ADR.
  • Level 2: ADR allows trading on the national exchanges, but cannot be used to raise capital. The company will register and file annual reports with the SEC.
  • Level 3: Highest classification that establishes trading on national exchanges and allows for capital raising. Foreign companies both register and file annual reports with the SEC.

Check out Benzinga’s article on how to buy stocks on the OTC market.

Similarities and differences between ADRs and regular stocks

ADRs and regular stocks share many common characteristics.

  • Both trade through regular business hours on the American stock exchanges.
  • Ownership of ADRs or regular stocks entitles shareholders to dividend payouts.
  • Prices trade in U.S. dollars.

ADRs contain some significant differences compared to regular stocks:

  • ADR companies maintain headquarters in foreign countries.
  • Banks convert payouts to shareholders from foreign currency.
  • Depending on the level, ADRs may not be permitted to trade on the national exchanges or may not file regular reports.
  • Banks that hold ADRs may charge additional fees.

How to buy ADR stock

If you’ve researched a foreign company and decided you’d rather purchase its ADR than shares directly on the foreign exchange, you can follow these steps:

Step 1: Decide how much you want to invest. 

Determine the total number of shares or dollars you wish to allocate towards purchasing the ADR stock. In order to calculate the number of shares you want to purchase,  divide the total amount you want to invest by the current or closing price of the ADR.

Step 2: Pick a broker

Since ADRs trade like regular stocks, you’ll be able to use any broker that trades stocks. Review brokers based on transaction costs as well as research they provide to help guide your decisions.

You can skim through Benzinga’s picks for the 2018 Best Online Brokerages for Stock Trading, or you can take a look at some of our favorites below.

Broker Best For Commissions Account Minimum Choose your platform
Ally Investment
  • Active traders
  • Beginners looking to start trading
  • Low fees
$4.95 volume discount available $0
Get started securely through Ally Investment's website
1 Minute Review

If investors are on the hunt for a bargain broker, Ally Invest could be the one. With low commissions across the board, Ally Invest (formerly TradeKing) stops potential investors in their tracks with its especially low mutual fund commissions. Commissions on stocks and ETFs are notoriously inexpensive as well, and for more active traders or those with larger account balances, commissions can dip as low as $3.95 per trade.

Pros
  • Volume discounts available
  • Among the lowest fees in industry
  • Good for every experience level
  • Excellent customer service
Cons
  • Lacks physical locations
Current Promotion

$3.95 per stock trade for Active Traders at Ally Invest

TD Ameritrade
  • Beginner investors
  • Advanced traders
  • Investors who want portfolio-building advice.
$6.95 $0
Get started securely through TD Ameritrade's website
1 Minute Review

This publicly listed discount broker, which is in existence for over four decades, is service-intensive, offering intuitive and powerful investment tools. Especially, with equity investing, a flat fee is charged, with the firm claiming that it charges no trade minimum, no data fees, and no platform fees. Though it is pricier than many other discount brokers, what tilts the scales in its favor is its well-rounded service offerings and the quality and value it offers its clients.

Pros
  • Superior technology
  • No account minimum balance
  • Excellent customer support
  • Premier data and news partnerships
Cons
  • Slightly higher commissions
  • Can be for more advanced users
Current Promotion

Trade commission–free for 90 days & get up to $2500

eTrade
  • Mobile traders
  • Traders looking for research and data
  • Investors looking for retirement planning guidance
$6.95 for fewer than 30 trades/quarter. $0
Get started securely through eTrade's website
1 Minute Review

E-Trade is best known for its user-friendly browser, desktop and mobile trading platforms and its extensive research and educational information. E-Trade may not have the lowest commissions compared to discount online brokers, but customers certainly get their money’s worth from E-Trade’s comprehensive offerings.

Pros
  • Extensive resources
  • Full banking services
  • Easy-to-use platforms
Cons
  • Limited access to ETrade Pro
  • Higher commissions than discount brokers
Current Promotion

60 days of commission-free trades with deposit of $10,000 or more

Step 4: Purchase shares of the ADR

Once you’re ready, you can purchase shares of the ADR like regular stock. The closing price of a foreign company will be translated into U.S. dollars for the opening price on the American exchanges.

Final thoughts

It’s easy to equate an ADR to trading regular stock. Investors often create trading plans with stop orders. However, they forget that an ADR’s main stock trades in a foreign exchange overnight.

This can lead to overnight large price changes that trigger stop orders first thing at the open. Any strategy you implement to trade ADRs needs to consider these impacts. Consider using adjusting plans to enter or exit positions into an ADR based on closing prices.

Compare Online Brokers
Broker Commission Account Min Get Started

See Promotion $0 Learn More

$6.95 for fewer than 30 trades/quarter. $0 Learn More

Flat-fee pricing: $5 per trade, Per-share pricing: $0.006-$0.01 per share ($1 minimum per trade) based on trading volume, Unbundled pricing: $0.002-$0.01 per share ($0.50-$1 minimum) based on trading volume $5,000 for individual retirement accounts (IRAs) Learn More

Free $0 Learn More

$0.005 per share minimum $1 and maximum 0.5% of trade value; volume discount available $0 for cash account, or a margin account with $2,000 Learn More