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How to Buy Foreign Stocks

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A number of different options exist for buying foreign stocks versus domestic stocks if you’re based in the United States. Perhaps the easiest way to purchase foreign stocks is through American depositary receipts (ADRs), which basically give you access to certain foreign stocks held on deposit for U.S. investors.

ADRs are traded on major U.S. exchanges like the New York Stock Exchange (NYSE) and the NASDAQ.

Another lesser-known method of investing in foreign stocks are through global depositary receipts (GDRs), which are like ADRs but are instead deposited with foreign banks and available to investors worldwide. GDRs are mostly used by Europeans and the stocks on deposit are usually located in Brussels or Luxembourg.

You can also buy exchange-traded funds (ETFs) or mutual funds whose managers specialize in foreign stocks or purchase foreign stocks directly through your broker if they have an affiliate in the stock’s country of origin.

In the case of a stock that’s only available on a foreign stock exchange, you would generally need to open an account with a broker in that country to purchase the stock.

How You Can Buy Foreign Stocks:

  1. Determine whether you’ll buy the foreign stocks through an international broker or online stock broker.
  2. Pick a stockbroker that fits your needs and open an account.
  3. Practice trading and develop a strategy through a simulator or demo account.
  4. Start live trading the stocks of your choice.

Buying Foreign Stocks: What to Know Before You Buy

It’s a good idea to have a thorough understanding of the risks involved with foreign investments before you invest in foreign stocks. For starters, each country has its own regulations pertaining to both stock issuance and foreign investors, which can affect your investments and your foreign accounts.

Other considerations, such as getting timely and accurate information on the value of your investments, may not be as readily available in foreign countries as in the U.S. Foreign tax laws and the U.S. taxation of your trading profits should also be taken into consideration before you plunge into foreign stocks.

Furthermore, the economic condition and geopolitical events that affect the country where you plan to buy stocks could significantly impact such foreign investments. Last, but certainly not least, the foreign nation’s currency and the level of its exchange rate versus the U.S. dollar will directly affect the value of your investments in that country.

Step #1: Determine How You’ll Buy Foreign Stocks

As mentioned above, you can invest in foreign stocks through a variety of methods. Mutual funds, exchange traded funds (ETFs), American depositary receipts (ADRs) and global depositary receipts (GDRs) are options, as is buying the stock of transnational corporations like Coca-Cola, for example.

Depending on your choice of broker, you can also sometimes invest directly in foreign stocks. Each method of investing has its own risk profile and commission structure, so pick the method that suits your needs.

ADRs and GDRs  

This method of buying foreign stocks can be done through your existing stock brokerage account. Foreign stocks trading as ADRs and GDRs are generally sponsored in whole or in part by the listing company.

They are typically listed on major U.S. stock exchanges or in the over-the-counter (OTC) market. The 3 levels of ADRs are listed below.

Level I

The level I listing is for sponsored ADRs that require the least regulatory oversight and compliance. The only requirement for listing ADRs at this level is an F-6 Securities and Exchange (SEC) form with all the pertinent information on the foreign company.

Since this is the lowest level of ADR permitted to trade in the United States, stocks listed at this level can only trade in the OTC market.

Level II

In addition to the SEC F-6 Form, the second ADR level requires SEC Form 20-F to be filed, along with annual financial reports using either international financial reporting standards or the generally accepted accounting principles (GAAP) standard.

Level II ADRs can be listed on major U.S. exchanges, such as the New York Stock Exchange or the NASDAQ exchange without having to issue a new public offering.

Level III

This ADR level has all of the requirements of the first 2 levels, but companies listed at this level can also raise money in the U.S. through a public stock offering. The extra step requires that the company file SEC Form F-1.    

Mutual Funds and ETFs

You can also indirectly buy foreign stocks through mutual funds and ETFs that specialize in investing in foreign stocks from all over the world. The advantage of buying foreign stocks through ETFs and mutual funds is that you can invest through your normal stockbroker without the need to open new accounts or obtain the stock through international brokers.

Another major advantage of ETFs is that the fund’s expert stock picker(s) will research and choose what to buy and diversify the portfolio to maximize returns so you don’t have to.

Foreign Brokerage Account

A more complicated method of acquiring foreign stocks requires opening an account with a foreign broker and purchasing the stock you are interested in directly in the country of origin. Find a broker in the country where you want to buy stocks, open your account(s), place your order and receive your stock in your foreign account.

While this may sound simple enough, take into account any restrictions on foreign investments in the country you plan to buy stock. You should also factor in any additional costs of doing business abroad.

Be sure to understand the tax implications both abroad and domestically of this investment plan, in addition to how you can pay for stock and receive funds from your foreign account.

Another important issue is the country’s currency and the exchange rate versus your home currency. This could either favor your foreign stock transactions or cost you money, depending on how that exchange rate moves.  

Step #2: Pick a Broker

Knowing how to buy foreign stocks is just as important as selecting the right broker, so once you’ve decided on the method you plan to use to buy foreign stocks, pick a reputable broker and open an account to facilitate your stock purchases.

Many good stockbrokers have access to foreign stock exchanges and can execute orders for ADRs, GDRs, ETFs and mutual funds. You’ll be able to find some of the top brokers for buying foreign stocks listed below.

Best For
Intermediate Traders and Investors
Overall Rating
Get started securely through Webull’s website
Best For
Intermediate Traders and Investors
N/A
1 Minute Review

Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.

Webull is widely considered one of the best Robinhood alternatives.

Best For
  • Active traders
  • Intermediate traders
  • Advanced traders
Pros
  • Commission-free trading in over 5,000 different stocks and ETFs
  • No account maintenance fees or software platform fees
  • No charges to open and maintain an account
  • Leverage of 4:1 on margin trades made the same day and leverage of 2:1 on trades held overnight
  • Intuitive trading platform with technical and fundamental analysis tools
Cons
  • Does not support trading in mutual funds, bonds or OTC stocks
Best For
Futures Trading
Overall Rating
Get started securely through TradeStation’s website
Best For
Futures Trading
N/A
1 Minute Review

TradeStation is for advanced traders who need a comprehensive platform. The brokerage offers an impressive range of investable assets as frequent and professional traders appreciate its wide range of analysis tools. TradeStation’s app is also equally effective, offering full platform capabilities.

Best For
  • Advanced traders
  • Options and futures traders
  • Active stock traders
Pros
  • Comprehensive trading platform and professional-grade tools
  • Wide range of tradable securities
  • Fully-operational mobile app
Cons
  • Confusing pricing structure to leave new traders with a weak understanding of what they pay
  • Cluttered layout to make navigating TradeStation’s platform more difficult than it should be
Best For
Options Trading
Overall Rating
Get started securely through TD Ameritrade’s website
Best For
Options Trading
N/A
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.

Best For
  • Novice investors
  • Retirement savers
  • Day traders
Pros
  • World-class trading platforms
  • Detailed research reports and Education Center
  • Assets ranging from stocks and ETFs to derivatives like futures and options
Cons
  • Thinkorswim can be overwhelming to inexperienced traders
  • Derivatives trading more costly than some competitors
  • Expensive margin rates
Best For
Advanced traders
Overall Rating
Get started securely through Moomoo’s website
Best For
Advanced traders
N/A
1 Minute Review

Moomoo is a commission-free mobile trading app available on Apple, Google and Windows devices. A subsidiary of Futu Holdings Ltd., it’s backed by venture capital affiliates of Matrix, Sequoia, and Tencent (NASDAQ: FUTU). Securities offered by Futu Inc., regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

Moomoo is another great alternative for Robinhood. This is an outstanding trading platform if you want to dive deep into smart trading. It offers impressive trading tools and opportunities for both new and advanced traders, including advanced charting, pre and post-market trading, international trading, research and analysis tools, and most popular of all, free Level 2 quotes.

Get started right away by downloading Moomoo to your phone, tablet or another mobile device.

Best For
  • Cost-conscious traders
  • Novice traders
  • Active/Advanced traders
Pros
  • Free Level 2 market data for all users who open an account
  • Commission-free trading in over 5,000 different stocks and ETFs
  • Over 8,000 different stocks that can be sold short
  • $0 contract fee for trading options, no commission either
  • Strong market data and analysis tools with over 50 technical indicators
  • Access trading and quotes in pre-market (4 a.m. to 9:30 a.m. ET) and post-market hours (4 p.m. to 8 p.m. ET)
  • No minimum deposit to open an account.
  • Active trading community with more than 100,000 app users
Cons
  • No phone or chat support

Step #3: Practice Trading and Develop a Strategy

The broker you choose will ideally offer a demo or simulator account to let you try out its platform and to test services before funding an account. This can be very helpful in figuring out whether you chose the right broker or not.

You may probably also benefit from taking some time to try out your trading strategy or strategies in a demo account ahead of jumping right into trading foreign stock markets.

A demo account can also be used to backtest a strategy, which could save you time and money in the long run and give you a sense of what sort of returns to expect from that strategy.

Step #4: Start Live Trading

Once you’ve decided on a broker and have favorably tested a strategy, open your live trading account. Use your preferred trading strategy to buy foreign stocks, either directly from the country where the stock trades, or through an ADR, GDR, ETF or mutual fund.

Do some initial research to choose a stock and some technical analysis to identify entry and exit levels in the stocks you plan to trade to improve your chances of success.

All brokers mentioned in this article provide clients with an excellent trading platform and considerable research resources, which will give you an edge once you start live trading.

Are Foreign Stocks for You?

Thanks to the international access provided by the online brokers mentioned above like Interactive Brokers, you can now trade in multiple foreign markets using a number of different currencies without having to open an account abroad.

Trading international stocks involves familiarity with the local market, and the more informed you are about the particular market, the more profitable you’re likely to be. Furthermore, in addition to paying higher commission costs for foreign stock trades, you might also have to pay additional taxes in the country where you trade if you’ve opened an account with a local broker.

Trading foreign stocks may not be for everyone, but if you are willing to do the research, trading international stocks could be lucrative and provide a vast array of additional opportunities.

Want to learn more about international investing? Check out Benzinga’s top picks for best international ETFs, the best international mutual funds and thebest international stock brokers.

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