How to trade international equities

What are international equities?

International equities are shares in companies listed on exchanges outside the investor’s home market. For example, if you’re in the UK, international equities are stocks in companies listed on exchanges such as the New York Stock Exchange (US), the Tokyo Stock Exchange (Japan), and the Shanghai Stock Exchange (China).

For a UK-based investor, equities listed on the London Stock Exchange are usually considered local-market equities. For an investor based outside the UK, equities listed on the London Stock Exchange may be considered international equities.

US equities are international equities for investors whose home market is outside the US. Because US markets are large and widely followed, some investors discuss US equities separately, but they are still international equities for non-US investors. For this reason, US stocks may be treated as a separate category in some market commentary, even though they remain international equities for non-US investors.

Potential benefits of international equities

International equities may play a role in a diversified portfolio, but returns are not guaranteed, and losses are possible.

International equities may provide exposure to countries, sectors and companies that are not available in the investor’s local market. Common reasons investors review international equities include:

Geographic and sector diversification

International equities may spread exposure across a variety of countries and sectors. This can be important when you consider the impact of economics and politics. Although every country and major trading region is linked in a general sense, there are regional differences.

For example, one country or region may face weaker economic conditions while another may be performing differently. International equities may provide exposure to regions with different economic conditions, but they do not guarantee gains or offset losses in weaker regions.

It’s the same principle with regards to sector diversification. The US market has significant exposure to large technology companies. So, if you’re in the UK and want more exposure to the tech industry, trading US equities may increase exposure to that sector, but outcomes are uncertain and sector concentration can increase risk.

Different sectors may perform differently across regions and market cycles. Having equities that span a variety of industries may help spread risk, but diversification does not guarantee gains or prevent losses.

Exposure to emerging markets

Some investors look at international equities to access markets or sectors that are less represented in their local market. Emerging markets often carry higher political, currency, liquidity and governance risks than developed markets, which may lead to greater price volatility. Higher risk may come with higher return potential, but losses can also be larger, and volatility can be significant. As a result, investment values can change quickly.

Risks of international stocks

Some risks associated with international equities include:

Additional fees and possible liquidity issues

Buying and selling stocks outside your local region or in less-liquid markets may involve additional costs. Some orders may be harder to execute at the expected price if liquidity is limited. Finally, there can be currency exchange costs. When a trade involves a foreign currency, exchange-rate movements, conversion spreads, and FX fees may affect the final cost and return.

Less familiarity with foreign markets

Investors may find it harder to assess a company or market that is outside their usual economic, regulatory or cultural context. Many listed companies publish primary information, such as financial reports, but language, accounting standards and disclosure practices can vary by market. Also, secondary information, such as local commentary, analyst coverage or market context, may be harder to interpret or access.

For example, someone living in the US may have more day-to-day familiarity with the local economy than an investor based elsewhere. This familiarity may come from local news, employment conditions, consumer behaviour and everyday experience.

In contrast, a German-based investor may not have the same day-to-day exposure to US economic conditions. They can read news reports, review data, and follow market commentary, but that may not provide the same level of local context. These insights can be useful when weighing a stock's value.

Lack of availability

Another potential drawback is that certain regions or markets may not be available through every broker or account type. Access to certain exchanges may depend on local laws, broker permissions, account type, investor classification and product availability.

Currency fluctuations and tax

Two additional variables to consider when trading international equities are currency movements and tax. A UK-based investor may buy UK-listed equities in GBP.

However, if a UK-based investor trades US-listed equities, the trade is usually settled in USD. This may require currency conversion if the account is funded in another currency. Currency conversion may involve FX charges, and exchange-rate movements can affect the cost of buying and the value received when selling.

You also need to consider the tax implications of international equities. Tax rules differ by country, and the same investment may be taxed differently depending on the investor’s residence, account type and product. Tax treatment can vary by jurisdiction, product and investor circumstances; investors may need to consider relevant rules, and, where appropriate, seek professional advice.

Cost considerations when trading international equities

Trading international equities involves market risk, currency risk and transaction costs. These costs can vary by market, exchange, broker and account type. Pricing may differ by exchange, country of residence, account tier and applicable taxes or fees. Reviewing available exchanges, trading costs, FX charges and custody or platform fees may help you understand the total cost before trading international equities.

Saxo publishes stock trading costs by market and account type. For current pricing, investors should review the relevant Saxo pricing page or platform trade ticket before placing an order.

Always remember that, even when costs and trading conditions are understood, profits are not guaranteed. International equities can rise or fall in value, and losses are possible.