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How To Buy Stock In Foreign Companies

By Jason Markum

Investing in the stock market can be a difficult enterprise to engage in. Make a wrong choice and you can lose a bunch of money really quickly. One thing that isn’t hard about stock market investing though is the mechanics of investing itself.

With online stock trading available so cheaply, it’s easy to pick a stock and place an order with just a few clicks of your mouse. And if, by chance, you aren’t technologically savvy and don’t like to work on the Internet yourself… you can buy and sell stock by simply picking up the phone and calling your local stockbroker and telling them what you want.

Trading US bonds, and corporate bonds, and even precious metals like gold and silver can be just as easy.

Of course… it’s easy when you’re dealing with American companies that are listed on the US stock exchanges such as the NASDAQ and the New York Stock Exchange, or even the American stock exchange (the pink sheets). But what happens when you want to buy stock in foreign companies? It’s not as easy then!

So what do you do if you want to buy stock in a foreign company? That’s what I’m going to talk about in this article today.

For the most part you’re going to have to purchase the stocks on foreign exchanges that are located abroad. But that isn’t always the case as some foreign companies sell shares on American exchanges. These shares are usually called American depository receipts or ADRs.

It’s true that not all foreign companies sell American depository receipts on US exchanges such as the NASDAQ or the New York Stock Exchange, but many of the more established and larger companies abroad will. And after all, if you’re just testing the waters of foreign stock investment, it may be a good idea to stick with some of the larger more established companies anyway.

ADRs are traded on the US stock exchanges and are treated almost exactly like US stocks. You can usually buy them in units of 1 to 10 shares of the foreign companies stock that they represent. The ADR certifies that the shares have been bought and are currently being held in a sort of custodian account outside of the United States.

One major advantage of purchasing American depositary receipts is that generally speaking you will pay less for broker commissions than you would on shares that were actually bought on foreign exchanges because even if your stockbroker does offer foreign shares in your account, chances are they’re going to charge you more to make the trades.

Another great advantage is that dividends paid on ADRs are usually paid in US dollars which can be a huge benefit and save you considerable currency risk from fluctuating foreign currencies.

So there you have one very simple way to get the benefits of investing in foreign companies without the hassle of buying foreign stocks on foreign exchanges that you are not familiar with.

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