How to Trade and Invest in Foreign Stocks

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Foreign stocks offer wide range of opportunities through geographical diversification and exposure to growing economies. Trading and investing internationally enables acquisition of stocks beyond one’s geographical boundaries including stocks, bonds, and indices. However, this includes exposure to capital risk, which can be handled through smart plan execution. Here are the guidelines which can help in supervising one’s own international portfolio with less or entirely no dependence on costly professional advice.

Foreign Stocks for Beginners

International markets rarely move towards a single direction. Research and analysis of various factors which can cause significant changes must be done. Knowing these factors will enable mixed asset decisions regarding percentage of allocation to various international investments. According to CIBC, these major factors include:

  • Geographical area
  • Country selection
  • Asset allocation
  • Currency translation
  • Stock selection

Vital Steps to Trade and Invest

Nowadays, foreign stocks have become more accessible due to computerized trading services and online brokerages. One must be familiar with the tools of trading to become a successful trader and investor.

Choosing Stocks

This can be done through fundamental or technical analysis. The fundamental analysis relies of financial reports and public statements to analyze the performance of a business. While technical analysis depends on the patterns of swings in stock market price. Before buying or selling any stocks, it is fundamental to make a thorough research of the company, leadership, and competition.

Choosing the Right Broker

Consider the cost of service and level of support required. The News Daily offers overview of the top brokers with their services, ratings of fees, research tools, mobile access, and investments offer. Beginners are advised to find a broker which will provide personal advice for investments. However, the advanced traders may need brokerage tools for advanced trading, short selling, and margin trading. Some companies even offer functions similar to banks, with ATM, and quick loan options.

Develop Trading and Investment Skills

One may opt to read news, financial websites, watch courses, and listen to podcasts to gather information. However, since reading is not a substitute for experience, it is also suggested to practice new skills through an online stock simulator available online.

Investment and Trading Calculation

The foreign stocks process is not straightforward because of the different forms of charges that come with it. According to Time, there are three simple equations to predict possible profit or loss.

Equation 1

This formula is important to determine the value of return earnings. The value of S&P index must be determined as well as the expected dividend growth.

S&P 500 Dividend Yield + Expected Dividend Growth = Expected Long Term Return

Equation 2

Finding the true value of long term cost of fund can be done using mutual fund fees calculator. This depends on the fact that even mutual fund or adviser expenses are small at the beginning yet they add or multiply over many years.

Percent Expense Ratio = Expected to Add Up in Years

Equation 3

The return of equity refers to the classic measure of a company’s ability to use the shareholder’s money efficiently. According to Robert Zagunis of Jensen Funds, one must consider opting to invest in companies with consistent ROE of 15 percent. This is computed using this formula:

Net Income / Shareholder’s Equity = Return on Equity

Foreign Stocks Investment and Trade Goals

According to Chief Investment Strategist Brian Belski, even history suggests that long term investment goals produce better results. For instance, the Brexit referendum has caused panic that lead to the temporary decline of $2 trillion off the global stocks, but putting a longer hold period opens opportunity to recoup losses. Long term goals make handling of short term disturbances like this, possible.

Entering foreign stock investment will require dedication and patience from anyone who wishes to get the highest possible returns on their investments. Use the six tips above to gain a solid footing on the foreign stock market. It will take time to master it and be profitable, but the learning curve and monetary risk are definitely worth taking.

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