Investing Internationally at E*TRADE
Posted by: Doug Gerlach 3/25/2007 2:38:00 PM

In February 2007, E*TRADE announced the launch of a new program that offers electronic stock trading on six foreign stock exchanges -- the Toronto Stock Exchange, the Tokyo Stock Exchange, Euronext Paris, the Hong Kong Stock Exchange, and the London Stock Exchange. The company also offers broker-assisted trades on 36 other global exchanges, with the ultimate goal of offering online trades for each of those markets. But just because E*TRADE customers can now buy stocks on the Tokyo or Paris exchange, does that make it a good idea? In February 2007, E*TRADE announced the launch of a new program that offers electronic stock trading on six foreign stock exchanges -- the Toronto Stock Exchange, the Tokyo Stock Exchange, Euronext Paris, the Hong Kong Stock Exchange, and the London Stock Exchange. The company also offers broker-assisted trades on 36 other global exchanges, with the ultimate goal of offering online trades for each of those markets.

But just because E*TRADE customers can now buy stocks on the Tokyo or Paris exchange, does that make it a good idea? Adding foreign company stocks to a portfolio has often been recommended as a method of adding another level of diversification to investments. When the U.S. is in a recession, other countries might be in expansion mode (and vice versa). And emerging markets often offer red-hot growth opportunities.

Traditionally, U.S. investors have used mutual funds, American Depositary Shares (ADRs), and exchange-traded funds in order to gain international exposure for their portfolios. Relying on the experts who manage an international mutual fund is much easier than trying to translate a company's reports on your own, for instance.

There are other risks in investing internationally, as well. Changes in currency exchange rates could reduce (or increase) the returns from a particular investment. Political situations could change abruptly, particularly in less stable countries, adversely affecting your investment. Economies in less developed regions of the world may be dominated by only a few stocks, industries, or sectors. And the requirements for disclosing corporate information to shareholders in many countries are well below the standards for companies in the U.S.

Fortunately, the stocks of many internationally-based companies can be purchased as ADRs in the U.S. These companies agree to report financial and other information according to U.S. standards, and the markets in these shares are very liquid.

In the past, many brokerage firms have offered customers the chance to invest in other global securities with the assistance of a live broker, but at generally quite high commission rates. E*TRADE's move to allow direct online trading in those stocks doesn't help reduce any of the risks of international investing, and so the onus remains firmly upon each investor to research each investment thoroughly before clicking the "Buy" button on a brokerage firm's web site.