Making Your First Overseas Trade

Transcription

1 Special Report Making Your First Overseas Trade How to Buy and Sell Stocks Around the Globe without Leaving Home By Jeff D. Opdyke

2 The Sovereign Society 98 S.E. 6th Avenue, Suite 2 Delray Beach, FL USA USA Toll Free Tel: (888) info@sovereignsociety.com Website: Copyright 2010 by The Sovereign Society. All international and domestic rights reserved. No part of this publication may be reproduced in any form, printed or electronic, without prior written permission from the publisher, The Sovereign Society. Notice: This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold and distributed with the understanding that the authors, publisher and sellers are not engaged in rendering legal, accounting or other professional advice or service. If legal or other expert assistance is required, the services of a competent professional advisor should be sought. The information and recommendations contained in this brochure have been compiled from sources considered reliable. Employees, officers, and directors of The Sovereign Society do not receive fees or commissions for any recommendations of services or products in this brochure. Investment and other recommendations carry inherent risks. As no investment recommendation can be guaranteed, the Society takes no responsibility for any loss or inconvenience if one chooses to accept them. Any information or statements contained in this publication are not to be considered by the reader as personalized investment advice. The authors and any agents of The Sovereign Society are not licensed under U.S. or other securities laws to address particular investment situations and nothing herein should be deemed as personalized investment advice. 2

3 Making Your First Overseas Trade How to Buy and Sell Stocks Around the Globe without Leaving Home Are you ready to go global with your greenbacks? Until recently, putting money to work in overseas stock markets was largely the province of institutional investors and the über-wealthy, whose deep pockets attract the interest of private bankers and white-shoe U.S. brokerage firms that cater almost exclusively to the moneyed crowd. But today you re no longer locked out of that game. Now, you, too, have the opportunity as an individual investor to trade stocks directly overseas, regardless of the size of your wallet. And you don t even have to set up private-banking relationships with financial institutions in foreign lands. In the last couple of years, a small collection of discount and online U.S. brokerage firms has begun offering individual investors direct access to foreign stock markets. Today, you can sit at your kitchen table in Boston or San Diego or Mountain Home, Ark., and trade stocks directly in markets stretching from Paris to Hong Kong, Sydney to London and numerous places in between. Gone are the days of being limited to the 10,000 or so securities on the U.S. exchanges many of which have been analyzed to death by the financial press and manipulated to extreme highs or lows by the rating services that move markets, one upgrade or downgrade at a time. You can also put behind you the eternal quest for the next Apple or Google. These explosive opportunities do exist but not on the Nasdaq or NYSE. The next instance of Google-like growth is taking place east of Wall Street and sometimes west, and sometimes south. Sometimes north, too. In fact, you can start building your overseas wealth with as little as $2,000, typically the minimum needed to open a brokerage account. In practical terms, though, you ll need to invest at least as much as it costs to make your first trade. Diving Headfirst into a World of Overseas Opportunities Truth is, you ve had the opportunity to buy and sell foreign securities directly overseas for years. It s just that most investors never realized they could open a brokerage account in a foreign country. Nowadays, though, if you want to directly trade in the world s major stock markets you don t even have to leave home. There are many ways to trade the world s markets on the U.S. exchanges, from exchange-traded funds to ADRs to the Pink Sheets. But in comparison to the tens of thousands of stocks that exist outside America, those U.S.-listed opportunities are exceedingly confining. What many investors don t realize is how easy (and lucrative) it is to invest in those foreign stocks, directly on foreign exchanges, in the heart of the hundreds of local markets that span the globe. And the fact that you can do so from a U.S.-based account makes the prospect that much more compelling. 3

4 As economies around the world have grown over the past decade, America s weight has shrunk. The U.S. used to be more than half of the world s total market capitalization. Today, it s less than half and it promises to continue shrinking as China, India, Brazil, Indonesia and others continue to expand their own economies and their own stock markets. Given that, why limit your investment universe when you don t have to? Why let other savvy investors grab all the profits in foreign markets when you can invest there, too? Because we don t think you should limit your options, we re not limiting ours. For years, our research has included trekking to the far corners of the globe kicking the tires on the companies that capture our attention, immersing ourselves in the culture and witnessing firsthand the economies of these countries in action. However, we ve often limited ourselves to the ADRs and Pink Sheet-listed shares for logistical reasons. But given the expansion of U.S. brokerage firms that make several foreign markets available to U.S. investors, we at The Sovereign Individual will be writing increasingly about the opportunities that exist directly on foreign markets. Our primary focus will be Western Europe and the major markets in Asia like Singapore, Hong Kong, Japan and Australia. Not only are these the places where consumerism among a booming middle class is escalating at a rapid clip, but you ll also find it easy to open, fund and manage trading accounts here in the U.S. that give you access to these markets. 4 Before I explain where to find the best brokers that will let you trade overseas, there s something you should know there are a lot of overseas markets, and U.S. brokers don t let you trade in all of them from your account. This is why our recommendations will focus on Western European and major Asian exchanges. One or more of the brokerage firms we detail below will let you trade on those markets from inside the U.S. As a general rule, our recommendations typically fall into one of three categories: Deep value: These are typically blue chip stocks that are undervalued. The trades may take months to play out, and they are ideal for income-oriented, conservative investors. GARP (Growth at a Reasonable Price): This kind of growth drives the trades we place in rapidly expanding emerging market economies. The companies that fit this category are typically smallto mid-cap stocks that have the same explosive growth potential of the economy they are in. But they re more than just momentum-riders they tend to represent good value, which helps to minimize risk. Real assets: Unlike traditional stocks and bonds, commodities like gold are real assets traded on a global scale and subject to a different world of market forces, but with incredible opportunities for profit.

5 Our reasoning behind the trades we recommend through The Sovereign Individual will become clearer the more you use this service. Now let s turn our attention to making your first trade. Where to Find the Brokers That Will Let You Trade Overseas For the most part, you can forget about the big-name Wall Street brokerage firms. Merrill Lynch, Morgan Stanley and the like will not trade in overseas markets for individual investors unless those clients are, generally speaking, putting $50,000 to $100,000 to work per trade. Instead, if you want to start building your global portfolio by owning shares in the local markets, you should consider the firms listed below. These are brokerage houses that not only cater to individual investors, but they re also the ones that offer trading directly on foreign stock exchanges: EverTrade, the St. Louis brokerage unit of Jacksonville, Fla.-based EverBank. ( E*Trade, the discount online brokerage firm. ( Fidelity, the online brokerage, mutual funds and retirement-services giant. ( Interactive Brokers, an online brokerage firm. ( Charles Schwab, the original discount trading firm. ( Each of these firms offers varying degrees of access to overseas markets, and each has its pros and cons. So we ve pulled apart the offerings and compared them to one another so that you can determine which account makes the most sense for your needs. Ultimately, your decision should center on three variables: cost, breadth and access. Cost: Fees for trading overseas run from standard, low-cost online commissions of less than $10 a trade, to $50 or more per trade. Breadth: Some firms offer trading in a relatively small number of major markets, while others provide access to a score or more of markets, including several developing economies. Access: Do you demand online trading? Or, are you OK calling to place your orders over the phone? The challenge is that no firm offers both the lowest cost and access to the greatest number of countries via online trading. That would be too easy. As such, you have to weigh the different variables to determine what is most important to your needs. So let s take a look at what each of these firms has to offer: Fidelity Let s start with the biggest obstacle at Fidelity because it may deter you immediately. Fidelity s foreign-markets access is available to investors who either: Trade a minimum of 120 times a year and have $25,000 in household assets at Fidelity, or; 5

6 Have at least $1 million in household assets on deposit at Fidelity. If you don t meet either of those two criteria, then Fidelity is not for you. (The firm does offer what it calls Foreign Ordinary Share Trading, but be warned: This simply allows customers to buy and sell foreign stocks that trade in the U.S., generally in the Pink Sheets and, in most cases, that is a far riskier proposition than trading foreign shares directly in their local markets.) If you do meet Fidelity s requirements, then here s what the firm offers you: Access: 12 markets: Australia, Belgium, Canada, France, Germany, Hong Kong, Italy, Japan, Netherlands, Norway, Portugal and the United Kingdom. Trading: You can trade online, unless you want broker assistance and if you do want broker assistance, your commission costs will increase. Live trades only execute during the hours in which the market you re trading is open. So, if you happen to be trading Tokyo or Hong Kong, for instance, then you ll have to be at your computer in the evening when tomorrow s trading day is getting under way in Asia. Or you can place limit orders and not worry about it, knowing your orders will fill when (and if) the stock price reaches your predetermined level. Cost: Online trades are: Australia, AUD$32; Canada, CAD$19; France, Germany, Belgium, Italy, Netherlands, Portugal, 19; Hong Kong, HK$250; Japan, 3,000; Norway, kr160 NOK; United Kingdom, 9. (As of fall 2010, in U.S. dollar terms, those fall in the $14 to $35 per trade range.) For broker-assisted trades: Australia, AUD$70; Canada, CAD$70; France, Germany, Belgium, Italy, Netherlands, Portugal, 50; Hong Kong, HK$600; Japan, 8,000; Norway, kr400 NOK; United Kingdom, 30. (As of fall 2010, in U.S. dollar terms, those fall in the $47 to $77 per trade range.) Note: Fidelity imposes additional fees in some markets. In Hong Kong, fees on all buy and sell orders include a transaction levy of 0.004% of principal, a trading fee of 0.005% of principal, and a stamp duty of 0.1% of principal. In the United Kingdom, fees include a PTM Levy of 1 on transactions where the principal amount is greater than 10,000 and a stamp duty of 0.5% of principal on buy orders only. Paperwork: Assuming your accounts meet eligibility requirements, you can sign up online for Fidelity s International Trading platform by logging into your account and navigating to International Investments. (It s under the What You Can Trade link in the Investment Products section.) E*Trade E*Trade has the smallest footprint of all the brokers offering direct overseas access, and that tends to be its biggest weakness. Access: Six markets: Canada, France, Germany, Hong Kong, Japan and the U.K. Trading: As with Fidelity, you can trade online, unless you require broker assistance, in which case commission costs rise. Live trades execute during the hours in which the market you re trading is open. Or you can place limit orders to execute when (and if) the stock hits your predetermined price. 6

7 Costs: Online trades are: Canada, CAD$19.99; France and Germany, 19.99; Hong Kong HK$299; Japan, 3,399; United Kingdom, (In U.S. dollar terms, those fall in the $16 to $40 per trade range.) For broker-assisted trades: Canada, CAD$55; France and Germany, 35; Hong Kong HK$350; Japan, 5,500; United Kingdom, 25. (In U.S. dollar terms, those fall in the range of $40 to $65 per trade range.) Paperwork: You need an E*Trade Complete Investment Account. Once that s established, log in and go to the global trading tan and click the link to activate your global-access account. EverTrade Access: 22 equity markets, mainly in the developed world, but including a few interesting developing markets: Australia, Austria, Canada, Denmark, Finland, France, Germany, Hong Kong, Italy, Japan, Mexico, Netherlands, New Zealand, Norway, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Thailand, United Kingdom. Trading: All trades are phone-based. As such, many orders, particularly in Asian markets, are generally overnight orders. This means that you call your broker and place your trade, and your broker places the trade to execute overnight in the U.S., when the local overseas market is open. Cost: A flat $35 per trade. EverTrade also charges additional fees that vary by market for stamp duties, exchange fees and other internal fees. Paperwork: All you need do is open a basic EverTrade brokerage account. You can fill out the account application online and send the signed document to EverTrade. Charles Schwab Schwab offers the broadest selection of markets, but also charges the highest commissions. Access: 36 markets, including several interesting developing markets in Asia, Eastern Europe, Africa and the Middle East: Argentina, Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary, Indonesia, Ireland, Israel, Italy, Japan, Luxembourg, Malaysia, Mexico, Netherlands, New Zealand, Norway, Philippines, Portugal, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Thailand, Turkey, United Arab Emirates, United Kingdom. Trading: All trades are phone-based. Schwab operates an international-trading desk in Phoenix. All overseas trades go through that trading desk during U.S. trading hours, and are executed in local markets during U.S. overnight hours. Trading desk hours are 7:00 a.m. to 5:30 p.m. EST. Costs: Trading Canada online is US$8.95. Other foreign markets cost a minimum of $100 per trade or 0.5% of the principal amount, whichever is greater. Paperwork: If you already own a Schwab account, there is no additional paperwork. You just phone Schwab to place an order to buy/sell foreign shares and you will be connected with Schwab s foreigntrading desk. 7

8 Interactive Brokers Interactive Brokers is largely designed for traders rather than investors. The firm s commission structure is built around relatively active trading, and if your account does not generate a certain amount of income each month, either from commissions or other fees, the firm will impose a minimum charge on the account. As such, if you are not an active trader, meaning that you are more of a buy-and-hold investor, then you will have to pay money each month to keep your account in good standing. Interactive Brokers imposes an account minimum of $10,000, or $5,000 for an IRA. Access: 16 markets, all generally developed: Australia, Austria, Belgium, Canada, France, Germany, Hong Kong, India, Italy, Japan, Mexico, Netherlands, Spain, Sweden, Switzerland, United Kingdom. Trading: Trading is online and tied to various types of platforms Interactive Brokers offers. The firm, for instance, offers a Trade Workstation that you download to your computer. It is, as the company calls it, relatively complex with a steep learning curve. Conversely, the firm also offers a basic Web Trader platform that is simplified for those who don t need the complexity of a workstation. Costs: Compared to other firms, Interactive Brokers commission structure is, like its workstation, relatively complex. You can choose to pay based on a bundled or unbundled commission structure. All new accounts, by default, are bundled, which means all fees, duties, levies and such are wrapped into a fixed commission rate per contract. Active traders might want to unbundle for various reasons, though for an average investor the bundled approach seems to be more cost-effective. Minimum bundled costs are: Canada, CAD$1; Mexico, 60 pesos; Euro markets, 4; India, 50 rupee; Sweden, 30 kronor; Switzerland, 10 francs; United Kingdom, 6; Australia, AUD$6; Hong Kong, HKD$18; Japan, 450. (In U.S. dollar terms, those fall in the $1 to about $10 range.) Paperwork: Applications are available online. You must choose which market you want to trade in, and once the account is open you can add additional markets. Sometimes, I find that visuals help. That s why I ve included a chart at the end of this trading manual that examines these brokers side by side with the exception of Fidelity. At this point, the next step is up to you. 8 Now You re Ready to Make Your First Trade You have to determine which of those accounts best fits your investment needs. Once you decide, contact that firm and get the process going. If your plan is to trade according to the recommendations our council of experts makes through The Sovereign Individual, remember that the bulk of our trades require access to the U.S., Western Europe and major Asian markets. It d be wise to factor that into your decision. With that completed, you re ready to go global and you re ready to follow us into the opportunities we see emerging all over the world.

9 As we uncover those opportunities, we will tell you exactly how to place the trade using whichever brokerage firm you ve chosen. And that s it. That s how easy it is to go global without ever leaving the comfort of U.S. shores. You won t have access to all the opportunities that exist overseas; for that you ll need to venture outside America and open brokerage accounts directly in foreign countries (also very easy). Still, you will have a great many chances to put your wealth to work in the world s major equity markets, such as London, Tokyo and Hong Kong. In doing so, you will be protecting your wealth against the long-term decline of the U.S. dollar, and you ll be profiting off the growth of companies that are serving the needs of consumers and businesses in other economies around the world. In the modern age, where cash easily flows across borders, the truly sovereign individual has money at work globally. That s where the real opportunities are these days. And now you have an easy way to access those global markets through U.S. brokerage accounts offering you access to the wider world of stocks. See pages 10 and 11 for an easy-to-read chart detailing the various brokers. Go forth now and open an account a world of profits awaits! Jeff Opdyke As a lifelong world traveler, Jeff Opdyke has been investing directly in the international markets since 1995, making him one of the true pioneers of foreign trading. Jeff s passion is finding the renegade plays on the ground in overseas markets, and uncovering those explosive trends long before they become mainstream. After nearly two decades as an author and reporter for The Wall Street Journal, Jeff is the Senior Editor of The Sovereign Individual and editor of the new Emerging Market Strategist investing service at The Sovereign Society. Follow Jeff s blog at GlobeTrottingInvestor.com, and learn more about EMS at SovereignSociety.com. 9

10 Broker E*Trade International Investing ETRADE-1 Minimum Investment USD 500 CAD Commission Available Markets Best Suited For: EUR HKD JPY 3, GBP 9.99 Canada, France, Germany, Hong Kong, Japan, United Kingdom For the self-directed trader who is comfortable trading online (or on your smartphone), E*Trade offers access to six overseas markets, with low account minimums and commissions. EverTrade All foreign trades are phone based. Fidelity No account minimum USD 25,000 in household assets and trade 120+ times per year, or USD 1 million in household assets on deposit $35/trade AUD 32, AUD 70 CAD 19, CAD 70 EUR 19, EUR 50 HKD 250, HKD 600 JPY 3,000, JPY 8,000 NOK 160, NOK 400 GBP 9, GBP 30 Austria, Australia, Canada, Denmark, Finland, France, Germany, Hong Kong, Italy, Japan, Mexico, Netherlands, New Zealand, Norway, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Thailand, U.K. Australia (online trades, broker-assisted trades) Canada (online trades, broker-assisted trades) France, Germany, Belgium, Italy, Netherlands, Portugal (online trades, broker-assisted trades) Hong Kong (online trades, broker-assisted trades) Japan (online trades, broker-assisted trades) Norway (online trades, broker-assisted trades) EverTrade gives you access to 22 markets with no account minimums. You can apply online, but all foreign trades are done by phone. The trading desk executes your trade when the foreign market you chose is open, which means with Asian markets the trades will execute overnight. The company just lowered commissions to a flat $35 a trade. This is aimed at the highernet-worth individual or the active trader. You ll have access to a dozen overseas markets in real time, but you ve got to trade a lot or keep a lot of money invested in Fidelity to even qualify for the account. United Kingdom (online trades, broker-assisted trades) 10

11 Broker Charles Schwab All foreign trades are phone based. Interactive Brokers Platforms: WebTrader Trader Workstation IB- BRKR Minimum Investment USD 1,000 USD 10,000; IRAs: USD 5,000 Commission Available Markets Best Suited For: Canada, US$8.95; other, $100. AUD 6 EUR 4 CAD $1 HKD 18 INR 50 JPY 450 MXN 60 SEK 30 CHF 10 GBP 6 Argentina, Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary, Indonesia, Ireland, Israel, Italy, Japan, Luxembourg, Malaysia, Mexico, Netherlands, New Zealand, Norway, Philippines, Portugal, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Thailand, Turkey, United Arab Emirates, United Kingdom Australia, Austria, Belgium, France, Germany, Italy, Netherlands, Spain, Canada, Hong Kong, India, Japan, Mexico, Sweden, Switzerland, United Kingdom You get access to an impressive 36 overseas markets at Schwab, but the trade-off is that it ll cost you $100 per transaction. The account minimum is low (at $1,000), and like EverTrade they take your orders during the day and execute them overnight. Investors may shy away from the word Active in Interactive. You can avoid fees if the account generates a minimum amount of income for the firm each month. IAB offers both a Web platform and desktop software designed with traders in mind, which means you can trade its 16 overseas markets online. 11