TD Waterhouse, an online broker, said the number of investors trading in overseas shares had doubled over the past 12 months. They now account for 10% of business after it slashed the cost of dealing in US and European stocks. It charges £12.50 for online trades in US stocks, or £11.95 if you deal more than seven times every three months — the same as for UK shares.
Hoodless Brennan also charges the same fee whether you buy British or international companies. It levies a flat online fee of £7 per trade. The Share Centre charges £7.50.
Other firms still charge more if you venture overseas, however, so always check the small print.
You can also save on stamp duty. The British government levies duty of 0.5% on purchases of UK shares, but international stocks are exempt. This could save you £50 on a trade worth £10,000.
International trading, particularly in US stocks, has also been boosted by the volatile currency markets. Many investors bought American shares earlier in the year when they could get nearly $1.92 for their pound. Since then the dollar has strengthened and the pound is now worth just $1.82. Any profits on US shares are therefore worth more in sterling.
Advertisement
If the dollar continues to strengthen, British investors will be quids in. But there is always a risk that the US currency will resume its downward trend of the past few years.
Mark Dampier of Hargreaves Lansdown, an adviser, said: “If you trade frequently, you must factor in the risk that the exchange rate could move against you. But over the long term, fluctuations in foreign currency should even out.”
International trading can also help to spread the risks of your portfolio. Greg Smith of Fat Prophets, an independent research company, said: “We recommend exposure to international markets because they can diversify your portfolio. Many overseas markets perform much better than the UK in an economic upturn, for example.”
In addition, some global sectors contain virtually no British firms. For example, the UK has only one blue-chip tech stock — Sage, the software company. Dampier said: “If you want to bet on a revival in the global technology market, you will have to look outside Britain. We have nothing that can compare with Microsoft or Google.”
Smith also recommends that clients who are bullish about the gold price look beyond Britain. He said: “The UK market has many small, speculative mining stocks, but only a handful of blue-chip companies such as Rio Tinto. Even then, gold is only a small part of their business. America, on the other hand, has several blue-chip gold stocks such as Newmont Mining and Barrick Gold.”
Advertisement
If you want to trade international stocks, check the type of service on offer. Many brokers offer access to overseas markets through the London Stock Exchange’s International Retail Service. This is a secondary market in about 300 US and European stocks traded in sterling, but it is restricted to UK market hours. For example, you can trade in US stocks over the phone through Hoodless Brennan only between 2.30pm and 4.30pm UK time, although you can trade online between 2.45pm and 8.55pm.
Other brokers offer multi-currency accounts where you actually trade on the overseas market in the local currency.
Dampier recommends that you have a portfolio of at least £100,000 before you consider trading in international stocks. He said: “US stocks are known as ‘heavy’ — they might cost $30 to $40 each. Many UK traders prefer buying smaller units.”
If you have a small portfolio you might be better off buying a global investment trust. Mike Lenhoff of Brewin Dolphin, the stockbroker, said: “For most of our clients, the best way of getting access to overseas markets is through a low-cost fund that pools their assets to get economies of scale.”
More sophisticated investors could consider spread-betting on overseas stocks instead. You do not have to pay stamp duty or capital-gains tax on your profits and there are no dealing fees. Also, you need put down only a portion of the value of the shares, which is useful when US stocks can cost $40.
Advertisement
Cantor Index, for example, quotes spreads for about 30 US stocks. On Friday, the spread on General Electric was 3,368 to 3,395 — equivalent to $33.68 to $33.95. If you thought the shares would go up, you could have bet £10 a point above 3,395. If you closed your bet at 3,400 you would win £50.
ANGLO-AMERICAN INVESTOR
ORESTIS ROSSIDES, 52, has been trading shares for about three years and prefers to deal in US stocks.
Rossides, director of the Cyprus tourist office in London, trades between 10 and 20 times a week from his home in Primrose Hill, north London.
He said: 'I concentrate on the US because it is the biggest market in the world. The shares are very liquid and the spreads (the differences between the buy and sell prices) tend to be small. The market can be volatile, which creates opportunities as well as risks.'
Rossides recently bet on American semi-conductor companies such as ATI Technologies through his broker, TD Waterhouse. He has also made money by betting on unloved stocks such as General Motors and Pfizer.