How to Buy Foreign Stocks Online

Buy strength and sell weakness

Invest in what you know or get professional help. Understand that foreign investing can take many forms and that accounting and regulatory rules are different in each country. If you do not have the expertise to pick individual stocks and access to a broker qualified to trade on a foreign exchange, use professional help through investing in mutual funds, exchange traded funds or American companies with foreign exposure.

Instructions

1. Open an online brokerage account that will trade with foreign exchanges. Make certain the brokerage firm has free online research and practice trade the system. Compare fees, though foreign trading fees are always higher. Make it a practice to write down your trade before entering it online to avoid mistakes. Check following a trade to see that it was properly executed.

2. Buy foreign equities directly through special platforms developed by E*Trade or Charles Schwab. Not all markets in all countries are available for investment. In addition, you will not receive immediate confirmation of trade. Commission fees will be higher, because a brokerage firm in the host company must be paid as well.

3. Use American stocks that represent the major companies of each country. Most Dow Jones Industrial Average stocks are invested throughout the world, and a high percentage of earnings are foreign based. IBM and 3M are noticeable examples.

4. Trade in low-priced exchange traded funds that are passively managed and invest in a particular size (small cap, medium cap, large cap) of the country's economy. Use Resources to find country-specific exchange traded funds. Almost every European, Asian and most South American companies are represented with a country-specific fund that trades on an American exchange. Besides immediate diversification, commission costs are considerably lower than trading abroad.

5. Invest in American mutual funds that specialize in regions or country-specific stocks. Trade funds that are no-load funds only. Study the prospectus to understand exactly what you are and are not investing in. Understand the ongoing fee structure. There is no provable study that load funds outperform no-load funds. Purchase and trade these funds by buying them online using the 200-day moving average. If the price of the fund is above the average, buy or hold the fund. Otherwise, sell the fund.

6. Use caution if investing directly through your online brokerage firm. Diversify your portfolio by buying at least 3 stocks in every country and a minimum stock portfolio of 20 stocks. Do not let the foreign component exceed more than 20 percent of your entire stock portfolio. In turn, do not let your stock portfolio exceed 70 percent of all your assets. Place the remainder in fixed income securities or commodities. Consider buying fixed-income securities or convertible securities from foreign countries, as well as stocks.

Tips & Warnings

• Remember that diversification is very hard to achieve with foreign investments. Use your online brokerage account to find diversification tools.

• Be careful of using anything but mental stops in foreign stock markets. It is easy to lose stock in what are called "bear raids" in foreign stocks not often traded.

References

• E*Trade Platform for Trading Stocks
• Article on Buying Foreign Stocks
• Exchange Traded Fund Screener

Resources

• Advice on Foreign Stock Buying
• Charles Schwab Homepage