You might be surprised at how easy it can be to trade in an online account if you want to invest or trade in European stocks. There are a number of ways you can participate in the European stock market. We’ll guide you through a few different methods so you can choose one that best fits your situation.
Overview: Buying European Stocks Outside of Europe
Online stock trading is the best way to buy foreign stocks. Whether you’re based in the United States or any other part of the world, there’s a good chance you can buy a selection of the top European stocks through an online stockbroker.
Do you want direct access to European markets, participate in new offerings and trade in other European equities such as bonds? You may want to open an online account with a stockbroker based in the European Union that accepts clients from your country. This may require you to deposit funds in euros, although many international brokers accept U.S. dollars and U.K. pound sterling.
A large number of the bigger European publicly-traded companies have dual listings on other world stock exchanges, such as the New York Stock Exchange (NYSE). Many European stocks without a dual listing still trade on U.S. exchanges through American depositary receipts (ADRs), on U.K. exchanges through European depositary receipts (EDRs) and on other world exchanges through global depositary receipts (GDRs).
Another way to participate in the European stock market involves buying mutual funds or exchange-traded funds (ETFs) that conduct the majority of their business in the European Union. You could buy shares in an index fund based on European investments in addition to ETFs and mutual funds.
Many prominent U.S. companies now derive half of their income from international operations. You may already inadvertently be investing in the European market if you invest in U.S. blue-chip stocks. As more U.S. and other international companies expand their businesses abroad, stockholders of those firms benefit from greater participation in international markets.
How to Buy European Stocks
Take a look at these steps on how to buy stocks in Europe.
Step 1: Choose how you want to buy.
Have you considered buying shares in a mutual fund or ETF? Buying an ETF or mutual fund means you could participate in the European market without holding any individual stocks. It could be one of the most cost-effective ways to buy European stocks.
You can use your existing trading account or open an account with a reputable online broker, and many European stocks can be purchased through ADRs, EDRs or GDRs.
More experienced traders and investors who want to buy European stocks can use an international broker, preferably based in the EU. You can also use a broker based in your country of origin as long as it has access to European stocks.
Step 2: Develop a plan.
Have a well-thought-out investment or trading plan before you begin buying stocks. Take some time to define your investment time horizon, how much you expect as a return and what percentage of your portfolio you’d like to diversify with European stocks.
Work out a trading strategy if you plan to trade European stocks. Trading without a strategy or a clear set of trading rules generally spells disaster for most novice traders and could be one of the reasons most people who begin trading in the forex market fail. Many online brokers offer virtual or demo accounts that can help you backtest and apply your trading strategy in a realistic market situation.
You can also choose to join a social trading platform and follow a trader with a proven track record. You can copy the social trader’s trades in your own account if you don’t want to work out your own trading plan.
Step 3: Pick a broker.
Open several demo accounts to get an idea of the type of service and trading platform you prefer once you start trading in a live funded account.
A broker based in the EU might be best when you want to trade European stocks, depending on where you’re located and the broker you have in mind.
Make sure the stockbroker you choose complies with the EU’s Markets in Financial Instruments Directive (MiFID) and its recent MiFIR revision that provides a regulatory framework for financial firms that operate in the EU.
Many brokers based outside of the United States refuse to take U.S. customers due to the stringent regulatory requirements of the U.S. Securities and Exchange Commission (SEC), the National Futures Association (NFA) and the Commodities Futures Trading Commission (CFTC). These U.S. regulators are responsible for overseeing the various securities and derivatives markets based in the United States.
- Experienced Traders
Freedom Finance
When you use Freedom Finance, you get unprecedented access to IPOs along with the ability to trade stocks, ETFs, bonds and assorted securities. The platform focuses on bringing dividends back to you, and it provides a savings account that makes money management that much simpler.
The D Account allows you to save your money with a 3% per year interest rate. You can also complete a currency swap if you prefer.
With over 1 million financial instruments to choose from, you can use Freedom’s quality mobile app or reach out to the customer service team via live chat, phone or email. You can pay with Visa, Mastercard or bank draft, and there are currently zero commissions for 30 days for new clients.
- Active and Global Traders
Interactive Brokers
You might consider Interactive Brokers if you’re based in the United States, the U.K. or any other country.
Interactive Brokers has oversight from the NFA, the CFTC and is regulated in most jurisdictions where the broker operates, including the EU.
This international broker gives you access to over 120 world markets, including stock markets based in the EU so you can buy European stocks. You can also maintain your account in multiple currencies to take advantage of favorable currency moves.
Interactive Brokers offers some of the most competitive margin and commission rates in the business. The main disadvantages include inactivity fees and a high minimum deposit requirement of $10,000.
Fidelity and Charles Schwab
Two other established U.S.-based brokers provide international brokerage services and have full oversight by the SEC: Fidelity Investments, which has no minimum deposit requirement, and Charles Schwab‘s Global One Account, which requires a minimum deposit of $25,000.
Do you plan to trade U.S. blue-chip stocks with exposure to the European market or only plan to trade European stocks with ADRs listed on the NYSE?
Robinhood and Webull
You can open an account with a commission-free broker like Robinhood or Webull. Robinhood offers free stock trading on most European stocks listed on U.S. exchanges as ADRs.
- Advanced Forex Traders in the UK
Saxo Bank
Traders and investors outside of the United States have other choices that may not be available to U.S.-based traders. For example, Saxo Bank is an investment bank based in Denmark and allows its clients to trade EU stocks in addition to a wide range of other tradable assets.
Saxo Bank has an excellent research department and has oversight from 10 top financial regulators. Saxo Bank’s brokerage services are also available to traders in many jurisdictions outside of the EU.
- Social Investing
eToro
Israel-based eToro offers social trading in the U.K. and in Australia. This means the broker is overseen by both the U.K.’s Financial Conduct Authority (FCA) and the Australian Securities and Investment Commission (ASIC).
All other accounts go through its EU office in Cyprus, which complies with the MiFID and MiFIR regulations. eToro provides an excellent trading platform for social trading in stocks, currencies and a wide range of contracts for difference (CFDs).
Step 4: Start trading.
Plan a strategy to guide your trading or investing, as well as a prudent money management component to avoid putting too much money at risk on any particular stock.
Apply your research so you know which sectors and European stocks would be the most profitable for trading or investing. European stocks can offer the same or better returns than many U.K. or U.S. stocks and many of them can be bought through ADRs, EDRs or GDRs, depending on where you’re located.
Mutual funds or ETFs might help you invest indirectly and in a diversified manner. Many U.S.-based brokers offer commission-free trading in mutual funds and low commissions on ETFs.
Final Thoughts on Buying European Stocks
Buying European stocks is a great way to diversify a large portfolio and to get investment and trading opportunities not available with U.S. or U.K. stocks. Another advantage to establishing positions in European stocks means you’ll be able to take advantage of currency fluctuations and capital appreciation during times of strength in the EU economies, especially if the U.S. economy and currency show signs of weakness.
The U.S. Fed Funds Rate is at a current rate of 2.5%, which is high compared with the negative -0.4% benchmark interest rate the ECB has set. The current interest rate differential favors holding the U.S. dollar compared to the euro. U.S. stock markets have recently hit new highs, while stock indices from the U.K., Germany and France hit major highs early in 2018. They now seem to be consolidating at lower levels.
Another key consideration to take into account when considering purchasing European stocks involves the market risks related to the upcoming Brexit date on October 31, 2019. This major event could strongly affect capital markets and the economies in both the U.K. and the EU, in addition to having a lasting impact on the political and economic integrity of the European Union.
Finally, after the results of the recent EU parliamentary elections, populist candidates from Italy, France and the U.K. won seats by a wide margin. If this trend continues, it could lead to a further weakening of the European Union and the euro. You may want to exercise extreme caution for U.S.-based investors who want to buy European equities down the road.
Want to learn more about investing? Check out Benzinga's guides to the best online brokerages, the best online investing courses and the best investing books for beginners.
Frequently Asked Questions
What are the different ways I can invest in European stocks?
You can buy European stocks through ADRs, mutual funds, ETFs or through a broker with access.
How much of my portfolio should I invest in European stocks?
You want to invest from 15% to 25% in these areas.
About Jay and Julie Hawk
Jay and Julie Hawk are a married financial writing and authorship team who co-founded TheFXperts, a notable financial writing services provider. The Hawks each worked professionally in the financial markets and have more than 40 years of trading experience among them. Together, they write books, trade forex online for their own account and others, mentor traders, and have worked actively as professional freelance writers specializing in financial topics for over 15 years.