How to Make Trade in Foreign Market …!!
Investors like to explore different markets. It provides them the opportunity to learn from different markets as well as helps them in diversifying their portfolio. But many investors rarely see the global equities as a diversified means as they have a strong belief that Indian stock market will outperform their peers. But it’s mainly remains a myth. There are various instances where global companies have outperformed the Indian counterpart with high margin. In case, if an investor had invested a modest amount of $100 in Amazon’s opening IPO, which was at a price of $18 per share, it would have given enormous returns of approx. $1,20,762 .
Similar is the case with Apple, which has given good returns to its investors. Various US stocks like Apple, Amazon, Google and Facebook have provided great returns to the investor in a short period. Apart from that, they are also showing upward trend. If you are thinking to take a position in foreign markets, it’s not a big deal. But before investing in foreign market, an investor must look for the reason why he wants to invest in the foreign market:
- Better opportunities: Foreign market does open a window of better opportunities. Once an investor starts investing in a foreign market, you can hunt for good opportunities across different markets.
- Diversification of the portfolio: Investing in the foreign market does provide diversification and reduce risk. Suppose in case if the domestic stock market is in a bear market, due to local reasons. Then investing in the foreign market will reduce the risk of your portfolio.
- People want to invest in favourite companies: Companies like Amazon, Facebook, Apple and Google are favourite companies to the investor, as they have exponentially increased the wealth of the investor over the course of time. So, they trust these companies to make a stable return in future.
Let us understand the various ways to create an international equity portfolio. There are mainly four routes to taking exposure in the market abroad.
- The first one is to buy the mutual fund; which stocks are listed on exchanges outside India.
- The second is to buy ETF or Exchange Traded Fund using a trading account. ETFs are quite like mutual funds.
- The third way is to buy ETFs investing in a foreign stock market, which is listed on foreign exchanges. This requires a special trading account with international broking firm.
- The fourth way is to buy direct equity from the firm using the same trading account. As per RBI notification guidelines, an Indian investor can invest up to $250,000 per year in the foreign markets.
To invest in foreign stock market, an Indian investor must do following things:
- Open an account with Indian broker having tie-up with foreign brokers.
There are various Indian brokers such as HDFC, ICICI Direct, Kotak security and Reliance money who have tied up with other foreign brokers who provide this facility.
- Open an account with foreign broker:
Few International brokerage firms such as Charles Schwab, Interactive brokers, TD Ameritrade permits Indian citizens to set up an account and trade in US Stocks, mutual funds.
- Buying Indian MF/ETFs with global equities:
There are several mutual funds, ETFs who invests in international market. You can invest in those ETFs to indirectly invest in the foreign market.
*Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.