Investing in Foreign Stocks – Top 5 Best Online Brokers for Trading Foreign Stocks

RankNameCommissionsRatingMore Info
1TDAmeritradeStock: $9.99
Options: $9.99 + $0.75/contract
3SogotradeStock: $3.00
Options: $5.00 + $0.65/contract
5ETradeStocks: $9.99
Options: $9.99 + $0.75/contract

Investing in Foreign Stocks

Investing in foreign stocks is exactly what it sounds like – purchasing stocks, also called equity, in foreign companies or foreign indexes. For those living in the United States, investing in any company based outside of the United States would be considered investing in a foreign stock. Since diversification is the key to minimizing risk, investors shouldn’t just diversify their stock holdings in U.S. Equities, but also diversify by allocating a part of your portfolio. Keep in mind, trading foreign stocks online has just as many risks as trading stocks in the United States. Prices fluctuate based on the forces of supply and demand as well as the company’s underlying performance. Shareholder rights are similar across countries, and owning stock in a foreign company entitles you to vote in corporate elections, just as owning stock in a U.S. Corporation has the same rights.

Emerging Markets Exposure
One major benefit of investing in foreign stocks is the exposure investors can get to rapidly growing emerging markets. Countries like China, Russia, Brazil and India are growing at a much faster rate than the United States, and thus offers many lucrative investment opportunities. Investors, through their online brokers, can purchase either individual stocks traded on foreign stock markets or simply by ETFs or mutual funds that invest in foreign markets. Picking individual foreign stocks to invest in can prove to be risky, but the potential for price appreciate is enormous in developing countries. Investing in foreign stocks doesn’t have to be speculation though. There are plenty of conservative dividend yielding foreign stocks that can be much safer bets than companies in the United States. Foreign energy companies and real estate investment trusts can generate solid dividends and provide investors exposure to foreign markets

Foreign Stocks as a Hedge Against Inflation
With the ever increasing supply of money in the U.S. Investing in foreign stocks can act as a hedge against inflation. Stocks that are purchased on the Japanese market for example must be purchased with Japanese Yen, so investors, through their brokers, must convert their dollars to yen to actually make the purchase. Aside from the growth of the company, investors can benefit if the foreign country’s currency appreciates against the U.S dollar. Since all major currencies are actively traded on the Forex markets, purchasing foreign stocks and converting dollars to foreign currencies has never been easier. Since dividends from stocks in Germany or France will be paid in Euros, investors in the U.S can diversify their fixed income streams.

Online Brokers that Allow Foreign Investing
A lot of mainstream online brokers don’t allow their clients to invest in foreign stock markets, so investors should look carefully at what features an online broker has before signing up. It’s surprising how many big online brokerages don’t offer global trading to their clients. One thing worth mentioning about foreign trading is that commissions on foreign stock trades vary by country and tend to be higher than trading U.S. Stocks. Make sure to compare different foreign stock brokers before picking one to use.

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