How to Buy Foreign Stocks
A question many investors ask is how to invest in foreign stocks directly. How do I buy stocks on non-US exchanges? How do I do so using a different currency? Will the commissions be excessive?
Not all disruptive technology stocks are traded on US exchanges. Stocks that we have discussed on Nanalyze such as Nanoco, Arcam, Algae-Tec, pSivida, and Starpharma all trade on exchanges outside the US. While there are ADRs listed as Pink Sheets or over-the-counter stocks (OTC), these issues suffer from low liquidity and are subject to currency fluctuations. Many investors are skeptical in general of stocks traded over-the-counter.
One solution to this problem is to use Interactive Brokers. Below we’ll walk through an actual trade to see how cost effective and easy this method can be.
We will use Swedish based 3D printing company Arcam (STO:ARCM) as an example. Let’s say you want to buy 100 shares of Arcam on the Nasdaq OMX Nordic exchange instead of the OTC issue. First we can look up the price on Google Finance:
The price is quoted in Swedish Currency (SEK) so we’ll need to but some SEK first. With a quoted stock price of 508 SEK, we’ll need 50,800 SEK to buy 100 shares of Arcam. Using www.XE.com, we can see this is equivalent to roughly 7,671 US dollars at today’s price. First let’s purchase 7700 USD of SEK so we can take into account commissions.
We see that the confirmation tells us the cost of purchasing 7,700 USD of SEK including commissions amounts to 51,013 SEK. We also see the commission for this transaction is $2.50 USD.
We execute the order and purchase 51,013 of SEK. Now we want to purchase Arcam on the Nasdaq OMX Nordic exchange. Note that we make sure the transaction is taking place in SEK using the ticker ARCM which assures us we are purchasing the Swedish issue and not the OTC issue.
We can see on the order confirmation a commission of 49 SEK which equates to $7.40. We put through the order and now own 100 shares of Arcam purchased on the Nasdaq OMX Nordic exchange and denominated in SEK. The total transaction costs about $9.90 which is roughly the same commission incurred when purchasing the OTC issue through many other brokerage firms. We have also diversified our currency risk by purchasing the shares in SEK.
While Interactive Brokers allows clients to trade on over 22 different global stock exchanges, the user interface is not overly intuitive. Customer support while effective may not be up to the standards of some. However, we have used Interactive Brokers for many years very effectively and incurred low transaction costs while doing so. Trades on U.S exchanges are also dirt cheap at $1.00 per 100 shares. Currency conversion fees are also extremely low and you can buy and sell currencies at the actual forex rate.
Most people don't know that Interactive Brokers is the biggest online brokerage firm in the U.S. and the only firm we know of that allows you to buy stocks directly on 22 different foreign exchanges. We've used IB for many years as a cheap platform to exchange currency, for trading stocks on foreign exchanges, and for trading U.S. shares at just $1.00 per 100 shares. Click this link to get started.