There are 60 major stock markets across the globe which have a collective market value of US$70 trillion. Of that figure, the Australian Stock Exchange (ASX) represents a tiny 1.7%. Investing overseas can actually be of great benefit – you would have a more diversified portfolio as well as gain access to markets and industries that just don’t exist in Australia.
The thing is, you can’t just jump into it head first. There are few things you need to keep in mind before you begin international share trading from Australia.
Choosing the right online broker
The first thing you need to do to be able to purchase foreign stocks is to create an online brokerage account. This is the platform through which you will buy and sell shares.
To be able to open an account, you need to choose an online broker. A broker will charge you a commission to buy and sell stocks for you. It is more expensive to trade in international shares, so if you are planning to invest small sums of money, then it might be a wiser decision to trade locally.
Typically, international share trading brokerage fees range from $20 to $60 for trades of up to $10,000. If you plan to invest more than that, then there is usually a fee of 0.40% on larger transactions.
While you can open an international brokerage account with any of the big banks, here is a list of the most popular choices such accounts:
- CommSec – Pershing account
- Westpac Banking Corporation – Global Markets account
- National Australia Bank Limited – International Shares account
- ANZ – Global Shares account
Of these, the most popular one is the CommSec Pershing account. While it may not be the cheapest, it is the easiest to use with a really simple interface. However, all the above mentioned accounts will give you access to US and non-US markets, Exchange Traded Funds (ETFs) as well as Exchange Traded Options (ETOs).
To open an account, would need to print out an application for, fill it, attach photocopies of identification documents and post it. There is, however, one document that you need to fill very carefully – the W8-BEN form. This form is used by the American Internal Revenue Service to verify that you are a non-resident alien so you don’t get taxed.
If there even one tiny error in this form, you entire application will be rejected and can set you back weeks. Here is a link that will give a good explanation on how to fill in the W8-BEN form.
Loading your account
Once your international brokerage account is registered and activated, you will be able to access it from your regular brokerage account. Before you can start trading, you will need to transfer money into your account.
There will usually be a “Transfer Funds” tab which you can use to add money to your account. Be patient. The funds usually take a few days to transfer.
Holding funds in your international account can actually be advantageous. You can hold the money in whichever currency you wish and you don’t need to pay any fees until you decide to convert those funds into Australian dollars. Mind you, foreign currencies don’t earn any interest, which doesn’t really make too much of a difference, considering the current interest rates at banks anyway.
Another advantage of being able to hold your money in your international account is that you won’t have to keep paying conversion fees. In fact, it’s better to not trade in and out of a currency too often as it will end up eating into your returns.
One you have money in your account, you are all set to start trading. You can go to the trading page in your international account and enter the shares’ code or company name. Also enter the number of shares you wish to buy.
A note of caution – when you’re choosing the company and the shares you wish to trade, you will be given an option of choosing between a “limit” or “at market” for the order type. It is preferable to choose the “limit” option and then enter the maximum price that you want to pay for that stock.
“At market” means you’re telling the broker that you will buy the share at the best available price at that time – no matter what it is. This way, you could seriously end up overpaying for that stock, especially in a volatile market.
If you are planning to buy stocks worth up to $5,000, then the better option is to buy them all at once. This way, you save on brokerage fees.
However, if you are planning on investing more than $5,000, then try using the dollar cost averaging method, which means that you invest certain sums over a period of time rather than all in one go.
Once you have filled in the details of your order, click submit. There are two things that can happen – either your order gets accepted immediately or it will sit in the market until someone finally accepts it. Usually, when your offer price for a share is below market prices, it will take longer for order to get matched.
Investing in international stock exchange can be very fruitful. However, just like any other kind of trading, remember the dangers and trade carefully.