Ten years ago, the idea of trading stocks listed on overseas exchanges was virtually unthinkable for retail investors. There are now numerous options for Australian traders to buy and sell overseas stocks.
Before the internet revolution you had to call a traditional stockbroker during business hours just to get access to Australian shares. Now you can access overseas shares through traditional brokers, online brokers and even CFD providers.

Why trade overseas stocks?
There are a number of reasons for trading international stocks.
First, it gives you exposure to overseas economies. For example, not all economies perform well at the same time. Over the past year, while the Australian sharemarket has been broadly flat, US and UK markets have moved sharply higher.
Second, there is far more diversity on overseas exchanges than on the local exchange. While the Australian sharemarket has no end of banks and miners, technology, biotech and luxury goods shares are more rare.
ETrade head of retail Matthew Loughnan said they have seen a marked increase in the amount of overseas trades over the past 12 months.
According to Loughnan, this is partly because of improved access to overseas markets, and also because of the increased opportunities in other economies.
“In particular, in the middle of the year, we saw a great number of traders buying European stocks as the European debt crisis hit company valuations,” he said.

Horses for courses
The best options for trading overseas stocks comes down to your investing or trading style.
Longer-term investors are best to look for alternatives where they are not margined and in which they control the actual shares. Online brokers such as ETrade offer this type of transaction.
CFD providers will usually provide only leveraged positions. For this reason, most CFD traders look to take only short-term positions in overseas shares.
There is a difference in cost. Traditional brokers can charge well over $100 for each leg of the transaction. As for the online brokers, Commsec will charge a minimum of US$65 brokerage for overseas shares. CFD Provider City Index has a minimum charge in the foreign exchange’s currency that works out to be about $15 at current rates.
Investors with longer time frames would potentially look at holding shares through brokers, while traders, who might be holding the position for hours, days or weeks, might consider using CFD providers.

Not all platforms are created equally
While a great number of providers allow you to access overseas markets, the type of access and the detail of the market information can vary wildly.
Most importantly, having access to live prices, charting and market information is crucial for most traders.
Despite the leap forward in access, getting access to market information is a little more difficult.
The majority of CFD providers allow access to live overseas pricing, but this will often cost.
These charges will range from about $2 per month for smaller markets, such as Athens and Milan, while German and Canadian markets charge more than $10 per month. If you had ten markets with live data, you could easily be looking at more than $50 per month.
Serious traders might consider forking out for specific software solutions that provide live charts and other market data. This will usually set you back about $100 per month, but these systems also offer sophisticated charting software.
Commsec offers a wide arrange of exchanges numbering up to 30.
One of the advantages of the ETrade overseas facility is that all overseas stocks are included in your regular portfolio. ETrade also provides complete valuations in Australian currency. Overseas shares can be bought and sold in the same way as local shares.

Currency impact
One the concerns for traders looking for opportunities overseas is the effect of fluctuating currencies.
When holding overseas shares, the movement of the Australian dollar will have a direct impact on the value of your investments.
A rising Australian dollar will cause your investments to become less valuable, while a falling Australian dollar will cause your investments to rise in value (all other factors being equal).
For long-term investors in Australia, however, such movements usually have traditionally helped smooth volatility.
This is because the Australian dollar usually rises during times of improving global economic growth and falls during economic slowdowns.
Therefore, when holding overseas investments, if markets fall sharply, some of those losses are dulled by the effect of the falling Australian dollar.

How to do it
The way you approach your mix of overseas shares will depend on your overall investment strategy.
For traders, overseas shares offer plenty of opportunities. Traders would usually be looking for technical signals to take advantage of short-term movements in price. They would usually just construct overseas trades in much the same manner as local share trades.
For investors who are looking to hold shares for the long term, the picture is a little more complicated. Investors would be looking to ensure that they don’t skew their portfolio in favour of any single large position. This might include ensuring they are not overexposed to any single sector or national market.