Where to buy stocks? Silly question, you may say! Of course, you buy stocks via your broker or online using your brokerage account.
But …
It’s not necessarily that easy to buy foreign stocks that you shouldn’t underestimate or neglect. There’s a whole batch of foreign stocks out there that make great investments, but that is not available in your country or only with difficulty.
And that’s the reason for this post. Several of my subscribers emailed me saying they were interested in stock but couldn’t purchase it in their country. Now, why is that?
If you want to buy Microsoft or Walmart stocks, you will not experience any problems at most stock exchanges, let alone the US. These two stocks alone already have a trading volume of over ten million-plus every day on Wall Street. Even the regional stock exchanges like Chicago or San Francisco etc., have a high trading volume with Microsoft and Walmart. Buying and selling take place within seconds.
But although most foreign stocks are also found on the trading floors of New York and other international exchanges, there are exceptions. Like the Canadian company Loblaw for example. You won’t see Loblaw stocks anywhere in Frankfurt, the largest stock exchange in Germany, and there’s only a bit of volume at the regional stock exchange in Berlin. On average, about 17 stocks per day. And that’s nothing!
The same is true for other big exchanges too! You will not find every stock in New York, London, Frankfurt, Sydney, or Hong Kong. It simply has to do with supply and demand. If there’s hardly any demand for stock in XYZ country – for whatever reason – you won’t have the necessary supply. So, either the stock is not available in your country at all, or only at very low volumes.
The difficulty with very low trading volumes is that if you don’t only want to buy, say 10 or 20 stocks, but maybe 500 or even 1000, this volume will be difficult to get and may take several hours or even days to complete.
What can also happen then is that your order will automatically be split up into several orders until the entire volume ordered is purchased. This is what happened to one of my orders a few years ago. And every order may be charged with a commission. Considering the extra charges for each order at your local stock exchange, it might even be cheaper if you buy the stocks at a foreign stock exchange where the volume is much higher.
And that’s exactly what you also do if you find a good stock that you are eager to get hold of but can’t buy in your country at all! You buy your stocks at a foreign exchange which in most cases will be the country of the stock’s origin. This will also involve higher charges because you will have to do this via two brokers.
So, let’s take the Canadian Loblaw again. If I would like to buy this stock, I will have to see my broker here in the US, who will then buy the stocks at the stock exchange in Toronto, which will involve several extra commissions and charges. Because not only will my broker charge a commission, but also the broker in Canada. So, I’ll end up paying two brokers who are involved in my transaction.
So that’s how it works. My broker will contact a broker in Canada who will then purchase for me. And apart from the extra charges involved, it will also take longer before the transaction goes through.
But these extra commissions shouldn’t be overrated. If you find a great and solid stock that you want, then go for it, and because if you’re an investor and not a trader, you are probably contemplating a long-term investment anyway. And in the long run, commissions and other charges are negligible anyway.
That is generally how this transaction may have gone prior to the Internet and many larger online brokers developing international offices. One in particular that allows US citizens to buy in several foreign markets is Charles Schwab. If the stock is not offered as an ADR, try to see if Schwab has an office in the stock’s country of origin. In addition to ETFs and ADRs, you can open an international brokerage account at Schwab.
It’s only important which stocks you buy and not the place where you buy them! For assistance or more information on foreign stocks, don’t hesitate to contact me directly. If you are not in the Metro Nashville area or outside of Tennessee, contact a Registered Financial Consultant, a fee-only fiduciary near you today!
