Investing - Trading Abroad
Want to trade shares in New York in the day and Japan at night? In a fully liberalized market, it's possible. If you have an Internet account, you can buy stocks in major stock markets like Japan, China, Australia, the US and London. Many other exchanges also have links to other markets that allow for orders to be routed to the relevant market for execution and entered in the relevant currency. If you're well-traveled and have friends out of the country, they can probably introduce you to a foreign broker. Otherwise, major local brokers have connections with foreign brokers. The banks can TT (telegraph transfer) money to the assigned brokers and do the conversion of funds for you. However, it's a burdensome process unless your broker has a tied-up with a foreign house. Alternatively, you could open an Internet trading account and $1000 is the minimum deposit to start with. You have to go through a form, including declaring your foreign status for tax purposes. The cost of investing in shares is pretty much the same; you'd need to open an account and pay stamp duties, have a trustee and account for transaction costs and settlement fees. How much is worthwhile depends on how much you trade and what the returns could be like. There is also a buy-sell spread in currency conversion. And don't forget the cost of sending the money abroad; the costs of transmitting funds abroad include cable charges from the remitting bank as well as the receiving bank. There is no minimum amount required to open a foreign currency account or to remit funds. The extra cost is not a major issue as the important question is how much return can you get? You need to look at the big picture when investing abroad and do the homework on the country in which you want to invest. Investing directly is for the sophisticated and educated investor. Investors can invest offshore themselves but how well do you know the markets? It is a big pond out there. There are thousands of companies listed, thus how do you ensure that you buy the right stock? Familiarity is an important issue, where investors have access to other markets like Australia; they don't actively invest in Australia securities because they don't understand the market. A single stock also may not offer the diversification benefits of a large basket of stocks. One option for international investing is exchange-traded funds (ETFs). They are like index funds representing a basket of securities, but are traded like a stock. ETFs have the ability to be traded throughout the day and have low expense ratios, but some ETFs present liquidity issues. Unlike unit trusts where the manager has the obligation to buy back from you at all times, small ETFs sometimes have liquidity problems. There are two important considerations before you start investing globally. First, be educated; any investor should be an educated investor. For the global investor, it is even more important to become connected to the global economy. Knowledge is important even with advisers at hand. Do your homework, read as much as you can on the markets, political and economic developments as well as watch news channels and attend investment seminars. Travel and profit from your holidays. First-hand knowledge of the countries is important. When you travel, you see the actual cultures and economies. Second, know yourself; in building portfolio, global investors need to examine their objectives, risk profile and investment time horizon. For instance, a conservative investor may not be able to take the volatility of a Euro-denominated fund that fluctuates. Investors who cannot take currency risk also shouldn't go abroad. Investors need to understand that investing abroad is for medium to long term time horizon, for this reason your money could be tied up for some time. Investors need a longer-term view as the benefits of a global diversification show up over a longer period and currency movements could cause volatility in the short term. If your investment time horizon is short, you should avoid investing outside your home market. Always get your feet wet first. You don't have to wait until you have $1 million to start investing abroad. You'll learn a lot, whether through gains or losses. If you have only a few thousands dollars, invest in local unit trusts with overseas exposure. Every few months, you'll get a report on how the fund manager invests and their strategies. Learn from these reports. Michael Russell Your Independent guide to Investing |
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