Investors strive to have a diversified portfolio, which for most investors should include some commitment to foreign securities. There are a number of ways to invest in foreign markets, the simplest being mutual funds or exchange-traded fundsthat invest in or track foreign markets. American depositary receipts are another option. [For more information about ADRs, see “Offbeat Offerings” in the August 2007 AAII Journal; available at AAII.com.]
Another avenue for investors to take part in international markets is to buy stocks directly from a particular country listed on a foreign exchange. These are known as foreign ordinaries.
In this article
- How It Works
- How to Trade
- Investor Suitability
- Tax Consequences
- The Pros
- The Cons
- Additional Information
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How It Works
Foreign ordinaries can be traded in two ways: on the local market exchange or though a U.S. brokerage firm. If your trade is placed through the local market, it will occur when that specific market is open. If the stock is purchased through a U.S. brokerage firm, the trade is usually done during U.S. market trading hours and may involve a fee for the risk of trading the stock when the local market is closed.
When investing in foreign ordinaries, you are certain to face additional fees no matter the route you take to purchase the stock. Fees include, but are not limited to:
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