How to Trade Global Stocks
Today's traders have access to shares, indices, commodities, and securities that are traded around the globe on various exchanges. While traders may have once had to jump through hoops to trade on foreign instruments, financial institutions have developed a host of technologies to make the process of trading global instruments more manageable than ever.
While the choices for opening positions may seem limitless, traders need to know which one is the best fit for them.
Local Brokerages
Traders may find it easy to find a broker in their local region who can help them open positions on shares or securities traded on the New York Stock Exchange, Nasdaq (US-TECH 100), and even the London FTSE (UK 100) exchange.
But finding a broker who can help traders reach other exchanges may be a challenge.
Some of the reasons that a local broker may be unable to help with trading global stocks may include low popularity, a lack of connections with brokers in the regional market where you want to trade, or a lack of regulatory approval.
In addition, traders should be aware of the tax implications where they live as well as in the country where they will open the position.
Mutual Funds
Mutual Funds help traders gain global exposure by pooling together various shares and securities, then selling them as a package. When purchasing a share in a mutual fund, traders do not buy the individual securities that make up the fund, but instead buy a piece of the fund itself. A mutual fund purchase exposes traders to whichever underlying assets the fund manager chooses.
If a trader likes the fund but disagrees with the fund manager’s decisions, they do not have the option to avoid including that security in the fund they are holding. They can either sell their stake in the fund, usually executed only at the end of the trading day, or hold on to the asset and hope that its value rises.
Mutual funds may be ideal for traders who like to take a slightly more hands-off approach. It might also help traders avoid various fees and tax implications that may directly result from trading in foreign markets.
CFD trading
Contracts for Difference (CFDs) allow traders to gain access to global markets by opening positions that do not require purchasing the underlying asset. What’s more, people who trade with Plus500 have the option to go long or short on thousands of instruments that may not be readily available to them through local brokers.
Rapid executions, no commission, tight spreads and the ability to trade with leverage are only a part of what makes CFD trading with Plus500 a preferred choice for some traders.
For example, a trader in Spain believes that the price of Airbus (AIR.DE) shares, which are traded on the Frankfurt Stock Exchange, will drop. In order to go short on Airbus shares, they will need to find a broker who deals with the exchange and manage the fees that apply along the way, which can compound depending on how many brokers are involved.
Alternatively, they can open a CFD ‘Sell’ position with Plus500 through the online platform and gain leveraged exposure to the shares without having to find a broker. What’s more, Plus500 offers historical charts, an economic calendar, indicators, and other critical information that allows traders to plan their trades. CFD traders will still need to consider the increased risk involved when trading with leverage and any potential fees they may incur.
Ultimately, trading CFDs on global stocks, or on other assets such as indices or commodities, on an online platform such as Plus500, opens up traders to a world of trading possibilities beyond what may be available to them on their local exchanges.
