Investors have never had more options for accessing global markets. Thousands of exchange-traded funds (ETFs) and American Depositary Receipts (ADRs) trade on U.S. exchanges. Yet While country ETFs provide exposure to an entire economy, they don’t provide exposure to specific equities within those economies. Many ADRs have much less liquidity than foreign stocks, which also makes them a subpar way to invest in foreign markets.
Let's look at the best brokers for international investors who want to buy and sell stock directly on foreign exchanges.
- Interactive brokers offer access to more than 135 exchanges around the world.
- OCBC Securities offers access to Asian stock exchanges.
- Investors should keep in mind that U.S. regulatory agencies do not regulate foreign brokerages.
- If you don’t want to buy and sell foreign stock, consider international ETFs or U.S.-traded ADRs.
Top International Brokers
Many popular U.S. discount brokers provide access to certain global markets, such as Canada’s Toronto Stock Exchange (TSX), but fail to offer access to more obscure markets. The good news is that there are brokerages that offer this kind of access to investors.
Interactive Brokers is the most popular international broker for U.S. investors,. It offers access to over 135 exchanges around the world. Individual accounts do not have a minimum requirement, but must maintain a minimum monthly trading activity or incur a fee. Flat-rate commissions are just $1 per 100 shares. Tiered pricing varies based on trading volume and regulatory fees, although it’s very competitively priced.
Other U.S. brokerages offer exposure to foreign markets. They include Charles Schwab, OptionsXpress, and MB Trading. These brokers have a more limited set of international markets than Interactive Brokers but could be worth exploring if you only need exposure to certain markets.
IIf you seek cheaper or regional exposure, consider brokerages like OCBC Securities. This Singapore-based firm offers access to a variety of Asian stock exchanges. The most significant piece of exposure is likely the Shanghai Stock Exchange’s A-Shares. They tend to be difficult to access for foreigners. While U.S. citizens are accepted as clients, they cannot trade on U.S. exchanges using the brokerage account.
Risk Factors to Consider
International investors should exercise caution when selecting foreign brokerages. They aren’t regulated the same as U.S. brokerages are. Investors should also consider the other costs and complexities associated with directly purchasing foreign stocks.
Keep in mind that foreign brokerages are not regulated by U.S. regulatory agencies. This means they should look into the reliability of foreign regulatory agencies. There are many examples of foreign brokerages that have shut down overnight, resulting in a complete loss of capital. International trading can also be more expensive than domestic trading, and certain rules may apply—such as limitations on trading in certain markets.
Foreign stock investors may also owe capital gains taxes to tax agencies in other countries. If you made a profit trading Chinese shares, it may mean paying taxes on those gains in China. The only exception is countries that have pre-existing agreements in place with the U.S. to avoid double-taxation. Some brokers may also charge currency conversion fees on top of each trade that can add up over time and take a bite out of profitability.
If you don’t want the hassle associated with buying and selling a foreign stock, consider international ETFs, U.S.-traded ADRs, or purchasing actively managed mutual funds targeting foreign markets.
International ETFs let investors target regional or country-specific markets with broad exposure. Actively managed mutual funds may offer value-driven or other approaches. Consider these securities if you don't want to invest the time and energy to analyze foreign stocks. It can be a daunting process because corporate and financial information isn’t always reliable and up-to-date.
ADRs are a more direct way to invest in foreign markets using U.S.-traded securities. Often, these ADRs are blue-chip companies that are dual-listed in the U.S. and on their home exchange. While the value of these two listings may vary, there is rarely a persistent discount. Arbitrage traders can profit from the difference if it becomes too wide. This makes ADRs a compelling investment, even if liquidity is limited.
The Bottom Line
Various ways exist to invest in foreign markets. They include international ETFs, U.S.-listed ADRs, and mutual funds. Advanced investors looking for exposure to specific securities may consider buying stock directly on a foreign exchange. This requires a brokerage that provides access to those exchanges. The good news is there are several options for these investors.
Interactive Brokers is the most popular international investment platform. You'll get exposure to over 50 exchanges around the world. If you prefer cheaper and specific exposure, consider regional brokers. It’s important to weigh the reliability of these brokers as well as the cost of investing in foreign stock. It can be significantly more expensive and risky than investing in U.S. stocks.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.