How to Invest in Foreign Stocks

Investing in foreign stocks can provide you with a great potential return on your investment. Many investors seek out a way to get involved in the foreign stock market, which is slightly different than investing in domestic stocks. Here are the basics of how to invest in foreign stocks.

Investing in Foreign Stocks

Foreign stocks carry with them a certain appeal for many investors. Most investors have experienced what the domestic market has to offer, and many of them wish to pursue other opportunities. Certain foreign markets have exploded with growth over the last few years. If you had been involved in the market at that time, you could have brought in a substantial return on your investment.

By investing in foreign stocks, you will also be able to take advantage of diversification. If you have all of your money in one market, when that market goes through a downturn, your portfolio could suffer greatly. However, if you spread your resources over several different markets, this can help to lower your overall risk.

Current Broker

With the emergence of foreign markets, many domestic stockbrokers will allow you to invest directly into them. In order to find out if you can invest in foreign markets with your current brokerage account, contact your broker. You need to know exactly where you would like to invest and then ask about that market. If you regularly trade through an online platform, you may be able to do the same thing with a foreign stock market. In some cases, your broker will have to contact a broker in a foreign country and facilitate the trades that way.

Foreign Broker

If your current broker does not offer a way for you to invest in the foreign markets, you may need to open another brokerage account. Many times, you will be able to find a broker that is located in the foreign country to open an account with. You may be able to access the broker's website and fill out an application form online. If not, the broker will be able to fax you the necessary documents to open an account with them. You will then need to send them the money to open your account. At that point, you will be able to place trades in the foreign stock market through your new broker.

ADRs

Another way that you can invest in foreign stock is to purchase ADRs. The term "ADR" stands for "American depository receipt." This is an arrangement whereby an investment bank in the US purchases a certain number of shares in a foreign company. The investment bank then creates shares that can be traded on domestic stock markets. You can then get on your normal stock brokerage account and purchase these shares. This is perhaps the easiest way to invest directly into a foreign company, as you do not have to worry about opening a new account or about currency exchanges.

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