Factors Controlling International Share Trading

When you are trading shares, you can either trade domestically or internationally.

Domestic trading is when you trade in shares listed on Australian stock exchanges. The stock exchanges are the Australian Securities Exchange (ASX), the National Stock Exchange (NSX) and the Australian Chi-X.

In International trading, you trade shares from markets all across the world, subject to local market hours. Some of the biggest stock exchanges can be accessed through international trading, such as the New York Stock Exchange, the London Stock Exchange, the NASDAQ, the STOXX Europe 600 and many more.

 

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Factors Controlling International Share Trading

While you gain access to a much wider range of investment options than you would in the domestic markets, there is also a lot more risk involved in the process. Therefore, when you trade internationally, you need to ensure that you are aware of what could influence international markets. Here are some of the factors controlling international share trading.

Exchange Rates

One of the major factors that impact international share trading in the exchange rate of currencies. Foreign currency rates directly impact the price and value of stocks foreign countries.

Changes in exchange rates will increase or decrease the cost of conducting business in a country. This, in turn, affect the price of stocks of companies doing business abroad.

Inflation and Interest Rates

One of the most predictable factors controlling international share trading is the adjustments of interested rates by central banks, which is a tool used to control inflation.

When interest rates go up, many investors tend to sell high-risk stocks and replace them with government backed bonds. Government bonds usually give higher returns when the stock market is going down due to increased interest rates.

Politics and World Events

Politics impact stock markets very strongly. And in international trading, world events play an even stronger role in stock markets. The impact of politics and world events can be direct or indirect and can cause chain reactions.

One example of a chain reaction is martial aggression. Last year, North Korea had the entire world on tenterhooks as it conducted one military test after the other. Countries across the world reacted, with the US in the lead. Due to geopolitical tension, stock prices across the world dropped and government bonds’ yields started going up. Asia-Pacific stocks were the worst hit, with fears of destabilization of the region being high.

International trading was hit during this time, with most markets across the globe sliding.

Economics of the Region

How a region is performing economically will impact international share prices. If the economy is booming, inflation is low, the country is stable and economic policies are pro foreign investment, then you know that that is a good investment bet.

Economic development levels can directly impact a country’s foreign trade structure and its position in the international trading market. The US, Japan and the European Union’s economic development is now once again on the rise. This means trading to and from these countries is also on the rise. Which in turn means that foreign investors would be willing to invest in the country.

Internal Developments

Whether a stock is domestic or foreign, this fact will influence shares tremendously. How the company performs is one of the key factors that impacts trading. Here is a list of company-specific factors that influence share trading:

  • Earnings and performance reports of the company. If a company has done well, then share prices obviously rise.
  • Announcement of dividends. Share prices tend to be affected when dividends are announced. The higher the dividends, the higher the share prices.
  • The introduction of a highly anticipated new product or a disastrous product recall.
  • Securing a large new contract.
  • Employee layoffs. They are not always bad for the company. For example, if the company has been struggling with a top-heavy staff structure, then layoffs of management staff may actually be seen as a positive step and increase the value of the company.
  • Anticipated merger or acquisition
  • A change in the company’s management
  • Scandals

Industry Performance

A lot of the time, stock prices of companies in the same industry will move in tandem each other. This usually happens when market conditions impact an industry, rather than a single entity. However, there are times, when the poor performance of one company can lead to an increase in the stock prices of its competitor.

Investor Sentiment

The way investors feel about the stock market can have an impact on the price of shares.

  • Bull Market: This is when investor confidence is growing, thanks to a strong market where share prices are rising. This kind of a market is usually linked with economic recovery or an economic boom and investor optimism.
  • Bear Market: This is when investor confidence is low. Markets are weak and stock prices are falling. This usually occurs when the economy is in a recession, because of which there is high unemployment, and prices are rising.

At the end of the day, when you trade internationally, one of the most important assets you can have is information. Knowing the economic and political climate of the country in which you plan to trade, having the latest information about the company or the sector in which you wish to trade and keeping an eye on currency rates will be the difference between you making and losing money.

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