How to Purchase Foreign Stocks
It is very difficult and expensive to set up a stock brokerage account in another country to buy stocks. After you set up the account, you are limited to buying stocks on that one stock market, in that one country. Fortunately, it is possible for investors to buy foreign stocks through a U.S. stock brokerage account. By purchasing so-called ADRs, U.S. stock investors have access to a wide range of foreign company stocks.
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Instructions
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Open and fund an account with an online stock brokerage company, if you do not already have one. Smart Money magazine provides an annual ranking of brokerage firms (see Resources). According to their 2010 broker survey, the top three online brokers were Fidelity, E-Trade and TD Ameritrade.
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Research foreign stocks that trade in the U.S. through the database at ADR.com. "ADR" stands for American depository receipts. ADRs are certificates for shares of foreign companies held in U.S. banks. You can search the ADR database for specific companies and by country, region and sector.
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Select the ADRs in which you would like to invest and make a note of their stock symbols and current share prices.
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Buy shares of your selected ADRs through your online broker's stock trading screen. ADR shares trade exactly the same as any exchange-listed U.S. stock.
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Tips & Warnings
When investing in ADRs, the company's stock price is converted from the native currency to dollars. Dividends from ADRs are converted to dollars and credited to your investment account.
The ADR database includes stock symbols that are private placement listings. Tradeable ADRs will have three- or four-letter stock symbols, just like U.S. stocks.
Investment in foreign stocks can also be accomplished through mutual funds, closed-end funds or exchange-traded funds --- ETFs --- that own foreign stocks.
ADR shares are subject to currency exchange risks between the company's home currency and the U.S. dollar. ADRs, like all stock investments, can result in significant loss of invested money. Investors must do their own research and understand the risks.
References
Resources
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