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international stock exchange

The risks of dealing with an international stock exchange

The risks of trading on an international stock exchange can impact your bottom line.

International stock exchanges give you access to many more investment options than those listed on the Australian Securities Exchange (ASX), the National Stock Exchange of Australia (NSX) and Chi-X Australia, and a portfolio of diversified investments, including international shares, protects you from loss if a stock exchange experiences a downturn.

However, international share trading can be more risky than investing in domestic markets. Risks such as foreign exchange rate risk, liquidity risk and risk from foreign governments can significantly impact your bottom line.

Compare share trading accounts

Rates last updated July 26th, 2017
Name Product Monthly Fee Standard Brokerage Fee Margin trading - Online IPOs / Floats International Description
IG Share Trading
$0
$8
Yes
Yes
Yes
Low brokerage fees on Australian and international shares.
Saxo Capital Markets Share Trading
$0
$9.90
Yes
No
Yes
Access over 19,000 Australian and global shares.
CMC Markets Stockbroking Account
$0
$11
Yes
Yes
No
Trade shares, warrants, options, EFTs, managed funds, bonds and IPOs with CMC Markets today.
HalifaxOnline
$0
$14.95
Yes
Yes
Yes
Trade US and Australian shares, options, futures and CFDs with no registration fees. Trade 24/7 on your desktop, tablet or smartphone.
FP Markets Share Trading Account
$0
$14.95
No
No
Yes
Trade in ASX Stocks and CFDs, International CFDs, CFD Futures, Forex, Indices and Commodities.

Compare up to 4 providers

Exchange rate volatility

You will need to convert Australian dollars into a foreign currency to buy shares listed on an international stock exchange.

When you convert the money back to Australian dollars, there’s a risk the exchange rate will be worse than when you purchased the foreign currency.

  • When volatility can work in your favour. Volatility can also be a benefit. If the Australian dollar strengthens in the time that you hold your investment, capital gains will be higher when you sell your investment and exchange the money back to Australian dollars.

Liquidity

Capital gains (or losses) are only realised once a sell order is settled. Overseas stock exchanges can have fewer participants and a lower trading volume, so if you’re trading on a small international stock exchange, there’s a chance you may not be able to find a buyer for your shares. It’s particularly important to take heed of liquidity risk if you’re trading on emerging overseas markets.

Foreign policy and taxation

Just as the Australian Government’s policies can impact your bottom line on domestic investments, overseas governments can introduce policies and restrictions that can reduce your return on international investment.

Foreign policy risk includes differences in taxation laws and government instability. Overseas and domestic investments are regulated and taxed differently and capital gains from foreign investments are taxed differently to capital gains from domestic investments as well. You will need to seek the advice of a tax professional before you embark on trading on an international stock exchange.

Many companies also have operations running in politically unstable regions. Political turmoil such as a military coup or civil war can derail foreign investment. This type of risk is out of your control. Investigating foreign governments and sector regulations should be part of your due diligence before you invest in international shares.

How to find the best online share trading platform.
Foreign policy, currency and liquidity risks can significantly impact the overall performance of your international investments. Time differences are another point to consider. Important events and news can easily occur when you’re asleep, and the market can move quickly. Pay attention to the open and close of international stock exchanges if you have a vested interest in the performance of the market.

Jacob Joseph

Jacob is a writer and video journalist with finder.com.au. Credit cards, personal loans and savings accounts are his bread and butter, and he likes nothing more helping people understand the sometimes overly complex world of personal finance.

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