Owning the stock of foreign companies can provide investors with diversity away from the U.S. economy, and exposure to different markets and products. The profit potential in other markets may be significantly higher than in the U.S. However, it can be difficult and expensive to open a broker account in a foreign country, so U.S. investors looking at foreign stocks need U.S.-based investing services. In recent years, it has become easier for investors to own shares of foreign companies.

Use American Depository Receipts

The easiest way for U.S. investors to buy foreign stock is through the purchase of American Depository Receipts, or ADRs. ADRs trade on the major U.S. stock exchanges, and each ADR share represents shares of the foreign company's stock held in trust by a U.S. bank. ADR shares give the shareholder the rights to the dividends and price gains of the foreign stock shares. Since ADRs trade in the U.S., all ADR values and dividends paid are in U.S. dollars. This can be an advantage if the home currency of the foreign stock strengthens against the dollar, but hurts the value of ADRs when the dollar is strong. ADRs do not allow the investor to hold foreign stock denominated in foreign currency. ADR.com shows more than 2,000 sponsored ADR issues available in the U.S. Some of these are private placement stocks, but most can be purchased by individual investors like any other stock.

Buy Foreign Stocks Direct

Wealthy investors have long been able to purchase foreign stocks through their full-service stockbrokers with offices in other countries. Recently, some online brokers have added the ability to purchase foreign stock through investors' online brokerage accounts. In 2007, E*Trade opened up online trading in several foreign stock exchanges, including Canada, Japan, Hong Kong, Germany, France and the United Kingdom. E*Trade requires investors to open a global account where dollars can be converted into local currencies to purchase stocks. A global account allows real-time quotes and trading on the foreign markets. Currency exchange can be easily accomplished through the E*Trade global platform. In October 2009, Fidelity announced the availability of online foreign stock trading. Fidelity offers investors access to 12 different stock markets, and investors can trade and hold in eight different currencies. Fidelity allows international trades to be settled in either the foreign currency or U.S. dollars. International trading through Fidelity is limited to investors who make more than 120 trades per year or have $1 million in household assets.

Source:

E*Trade: Global Trading

Fidelity: American Depository Receipts

Fidelity: International Trading

More Information:

ADR