Buying Stocks

Silly question you may say! Of course you buy stocks via your broker or online using your brokerage account.

But …

It’s not necessarily that easy if you want to buy foreign stocks which you shouldn’t really underestimate nor neglect. There’s a whole batch of foreign stocks out there that make great investments but that are not available in your country, or only with difficulty.

And that’s the reason for this article. Several of my subscribers emailed me saying that they were interested in a stock but couldn’t purchase it in their country. Now why is that?

If you want to buy Microsoft or Wall Mart stocks for instance, you will not experience any problems at most stock exchanges let alone the USA. These two stocks alone already have a trading volume of over 10 million + every day on Wall Street. Even the regional stock exchanges like Chicago or San Francisco etc. have a high trading volume with Microsoft and Wall Mart. Buying and selling takes place within seconds.

But although most foreign stocks are also found on the trading floors of New York and other international exchanges, there are exceptions. Like the Canadian company Loblaw for example. You won’t see Loblaw stocks anywhere in Frankfurt, which is the largest stock exchange in Germany. There’s only a bit of volume at the regional stock exchange in Berlin. On average about 17 stocks per day. And that’s nothing!

The same is true for other big exchanges too! You will not find every single stock in New York, London, Frankfurt, Sydney or Hong Kong. It simply has to do with supply and demand. If there’s hardly any demand for a stock in XYZ country – for whatever reason – you won’t have the necessary supply. So either the stock is not available in your country at all, or only at very low volumes.

The difficulty with very low trading volumes is, that if you don’t only want to buy say 10 or 20 stocks, but maybe 500 or even 1000, this volume will be difficult to get and may take several hours or even days.

What can also happen then is, that your order will automatically be split up into several orders until the entire volume ordered is purchased. This is what happened to one of my orders a few years ago. And every order is charged with a commission. Considering the extra charges for each order at your local stock exchange, it might even be cheaper if you buy the stocks at a foreign stock exchange where volume is much higher.

And that’s exactly what you also do if you find a good stock that you are eager to get hold of, but can’t buy it in your country at all! You buy your stocks at a foreign exchange which in most cases will be the country of the stocks origin. This will also involve higher charges because you gonna have to do this via 2 brokers.

So let’s take the Canadian Loblaw again. If I would like to buy this stock, I’m gonna have to see my broker here in Germany who will then buy the stocks at the stock exchange in Toronto which will involve several extra commissions and charges. Because not only my broker will charge a commission but the broker in Canada too. So I’ll end up paying 2 brokers who are involved in my transaction.

So that’s simply how it works. My broker will contact a broker in Canada who will then make the purchase for me. And apart from extra charges involved it will also take longer before the transaction goes through.

But these extra commissions shouldn’t be overrated. If you find a great and solid stock that you really want, then go for it and because if you’re an investor and not a trader, you are probably contemplating a long-term investment anyway. And in the long run, commissions and other charges are negligible anyway.

At the end of the day it’s only important which stocks you buy and not the place where you buy them!

Yours in Successful Trading

Ricky Schmidt