Trading in the US Market

We often hear that the Australian economy makes up just 2% of world market capitalisation. Therefore, if an investor wants exposure to global markets then it makes sense to investigate trading on other markets.

In terms of choice of brokers and availability the most accessible for Australian investors is the US equity markets. Benefits of investing into the US include:

• Portfolio diversification
• Access to the largest global brands such as Microsoft, Facebook, Apple, Disney and Google
• A very broad range of securities and ETF’s
• Extensive liquidity

Over the last 12-months the ASX has risen +13.2%, yet the S&P 500 has gained +22.7% and the NASDAQ has increased +35%.

Looking at the broader picture, many parts of the Australian market, namely stocks outside the ASX-50, have struggled to regain the losses suffered in the GFC. Indeed the Small Ordinaries remains some 50% below its peak of 2007. The same can’t be said for the small caps in the US represented by the Russell 2000 index. Not only has it surpassed its 2007 peak, but has done so by 40% and since the 2009 lows it has increased some 250%.

Certainly a worthy pursuit.

Access

Historically the easiest way to access international markets was via a managed fund. In more recent times the rapid increase in Exchange Traded Funds (ETFs) has added a cheaper point of entry and diversification for many individual investors.

Historically the easiest way to access international markets was via a managed fund. In more recent times the rapid increase in Exchange Traded Funds (ETFs) has added a cheaper point of entry and diversification for many individual investors.

E*TRADE, for example, offers access to eleven major international exchanges including the US, where they offer trading on the following exchanges:

• New York Stock Exchange (NYSE)
• Nasdaq
• NYSE AMEX Equities.

On the NYSE you’ll find all the big names, whilst the NASDAQ is the dedicated exchange for technology stocks. AMEX is yet another exchange primarily responsible for the massive increase in ETFs, but is also the key exchange for smaller and mid-cap companies.

Costs & Risks

Naturally there are costs and various risks involved in accessing these international markets so it’s imperative that investors understand all of these before making the decision to trade internationally. Some of the factors for consideration include:

• Brokerage costs and charging structure
• Custodial fees
• Exchange rate fees
• Currency risk – movements in the currency rates have the potential to reduce your gains or increase your losses from trading
• Security of funds – is your account a segregated or pooled account.

Nick Radge heads a team of technical analysts at The Chartist, reviewing individual stocks and markets. AFSL 288 2000.

For more information on the stock exchange, visit E*TRADE.

This article was sponsored by E*TRADE Australia. The opinions in the article are the personal opinions of the author and not of E*TRADE Australia. To the extent permitted by law, E*TRADE Australia does not accept any liability or responsibility in connection with the use or reliance on the information in the above article. ETRADE Australia Securities Limited (trading as E*TRADE Australia) (ABN 93 078 174 973, AFSL No.238277) is the provider of the ANZ E*TRADE online investing service.