How to Buy Foreign Stocks

Invest in foreign stocks by opening an international brokerage account such as Interactive Brokers.

A number of different options exist for buying foreign stocks versus domestic stocks if you’re based in the United States. Perhaps the easiest way to purchase foreign stocks is through American depositary receipts (ADRs), which basically give you access to certain foreign stocks held on deposit for U.S. investors. ADRs are traded on major U.S. exchanges like the New York Stock Exchange (NYSE) and the NASDAQ.

Another lesser-known method of investing in foreign stocks are through global depositary receipts (GDRs), which are like ADRs but are instead deposited with foreign banks and available to investors worldwide. GDRs are mostly used by Europeans and the stocks on deposit are usually located in Brussels or Luxembourg.

You can also buy exchange-traded funds (ETFs) or mutual funds whose managers specialize in foreign stocks or purchase foreign stocks directly through your broker if they have an affiliate in the stock’s country of origin.

In the case of a stock that’s only available on a foreign stock exchange, you would generally need to open an account with a broker in that country to purchase the stock.

What to Know Before Buying Foreign Stocks

It’s a good idea to have a thorough understanding of the risks involved with foreign investments before you invest in foreign stocks.

For starters, each country has its own regulations pertaining to both stock issuance and foreign investors, which can affect your investments and your foreign accounts.

Other considerations, such as getting timely and accurate information on the value of your investments, may not be as readily available in foreign countries as in the U.S. Foreign tax laws and the U.S. taxation of your trading profits should also be taken into consideration before you plunge into foreign stocks.

Furthermore, the economic condition and geopolitical events that affect the country where you plan to buy stocks could significantly impact such foreign investments.

Last, but certainly not least, the foreign nation’s currency and the level of its exchange rate versus the U.S. dollar will directly affect the value of your investments in that country.

How to Buy Foreign Stocks

Ready to invest in foreign stocks? Follow these steps below.

ADRs and GDRs  

This method of buying foreign stocks can be done through your existing stock brokerage account. Foreign stocks trading as ADRs and GDRs are generally sponsored in whole or in part by the listing company.

They are typically listed on major U.S. stock exchanges or in the over-the-counter (OTC) market. The 3 levels of ADRs are listed below.

Level I

The level I listing is for sponsored ADRs that require the least regulatory oversight and compliance. The only requirement for listing ADRs at this level is an F-6 Securities and Exchange (SEC) form with all the pertinent information on the foreign company.

Since this is the lowest level of ADR permitted to trade in the United States, stocks listed at this level can only trade in the OTC market.

Level II

In addition to the SEC F-6 Form, the second ADR level requires SEC Form 20-F to be filed, along with annual financial reports using either international financial reporting standards or the generally accepted accounting principles (GAAP) standard.

Level II ADRs can be listed on major U.S. exchanges, such as the New York Stock Exchange or the NASDAQ exchange without having to issue a new public offering.

Level III

This ADR level has all of the requirements of the first 2 levels, but companies listed at this level can also raise money in the U.S. through a public stock offering. The extra step requires that the company file SEC Form F-1.    

Mutual Funds and ETFs

You can also indirectly buy foreign stocks through mutual funds and ETFs that specialize in investing in foreign stocks from all over the world. The advantage of buying foreign stocks through ETFs and mutual funds is that you can invest through your normal stockbroker without the need to open new accounts or obtain the stock through international brokers.

Another major advantage of ETFs is that the fund’s expert stock picker(s) will research and choose what to buy and diversify the portfolio to maximize returns so you don’t have to.

Foreign Brokerage Account

A more complicated method of acquiring foreign stocks requires opening an account with a foreign broker and purchasing the stock you are interested in directly in the country of origin. Find a broker in the country where you want to buy stocks, open your account(s), place your order and receive your stock in your foreign account.

While this may sound simple enough, take into account any restrictions on foreign investments in the country you plan to buy stock. You should also factor in any additional costs of doing business abroad.

Be sure to understand the tax implications both abroad and domestically of this investment plan, in addition to how you can pay for stock and receive funds from your foreign account.

Another important issue is the country’s currency and the exchange rate versus your home currency. This could either favor your foreign stock transactions or cost you money, depending on how that exchange rate moves.  

Best Online Stock Brokers

You’ll be able to find some of the top brokers for buying foreign stocks listed below.

Are Foreign Stocks for You?

Thanks to the international access provided by the online brokers mentioned above like Interactive Brokers, you can now trade in multiple foreign markets using a number of different currencies without having to open an account abroad.

Trading international stocks involves familiarity with the local market, and the more informed you are about the particular market, the more profitable you’re likely to be. Furthermore, in addition to paying higher commission costs for foreign stock trades, you might also have to pay additional taxes in the country where you trade if you’ve opened an account with a local broker.

Trading foreign stocks may not be for everyone, but if you are willing to do the research, trading international stocks could be lucrative and provide a vast array of additional opportunities.

Frequently Asked Questions