How to trade the US markets from Australia- ( AIE). The Australian ASX200 leading market index gained 14.9% in 2013. According to a study conducted by the Australian Stock Exchange (ASX) (ASXReport). For the 20 years up to 2012, the Australian shares had returned 8.7% per annum. The gains in 2013 are a 71% increase on the 20 year average! But despite this spectacular return, the US stock market, as represented by the S&P500 index, gained a whopping 27.4% in 2013.
So why aren’t you trading stocks in the US?
According to this Forbes table (SP500), the US S&P500 index has averaged 8.21% over the last 20 years, slightly behind the ASX leading index. So this data would suggest that investing in the Australian market over the last 20 years would potentially have been more profitable.
But as the governing body of Australian investment activity defines for all investment, “Past performance is no reflection of future performance!” A slowing Chinese economy is clearly having an impact on the Australian economy. And by no means would the average Australian suggest they would be feeling “wealthy” in the current economic environment.
Technology Sector in the US
While the US economy has many of the same influences as Australia; China is their largest trade partner; resource rich; a well developed nation, they have one defining factor that provides a distinct advantage for the savvy investor: Technology.
The world’s leading Information Technology (IT) companies are listed in the US, and as this article is being written, some of the leading Chinese Technology companies are in the process of listing in the US stock markets as well. The likes of Apple Computers, Google Inc, Oracle, Facebook, Twitter, Netflix and LinkedIn are driving the US markets higher year after year. The soon to be listed Alibaba, China’s largest Internet based e-commerce company, will also help to drive investor returns for years to come.
Investing in the US Stock Market from Australia
Investing on the United States stock exchanges, from Australia, has never been more simple. When I first started in the industry in 1998, to buy US stocks you needed to use an International broker and have a Full Service account. It would be quite reasonable to pay between $100 and $150 minimum in brokerage fees, compared to the discount price of $15 minimum that is charged through the Halifax Trader Work Station (TWS).
There are 3 key components that you need to be aware of when investing in the US stock market from Australia. These are:
- Company Analysis and your decision making process
- Broking account access and trading activity
- Currency fluctuations
Company Analysis and your decision making process
Company information for US listed companies is far more accessible than Australian listed companies. In fact, you can access more information for free than you can purchase from subscription services. Simple financial websites such as Yahoo! Finance or Google Finance will provide you with as much information as you will require. It is then up to you to decipher how to interpret that data.
Broking account access and trading activity
Here at Halifax Investment Services, we use the Trader Work Station (TWS). This is an online brokerage platform that will give you access to trading almost any stock, option, currency or futures product in the world. The back-end is developed by one of the US’s leading online brokers. And the cost to trade is exceptionally low.
As with all online broking platforms, if you are unfamiliar with them, it may take a little while before you are efficiently placing orders. But a demonstration model (demo account) is provided to help you learn the ropes.
The final point of currency fluctuations is an often overlooked aspect of trading internationally. If you were to open a broking account, transfer capital and then begin trading US stocks, for example, a rise in the Australian dollar (AUD) means the value of your US currency (and stock positions) will be reduce when converted back to AUD.
Now, you may not transfer your capital back into AUD any time soon. But the value of your account will show a decline (with all other things being equal) on a rise of the AUD as the platform converts the value back to the local currency.
But don’t fear! There are strategies you can implement to hedge or offset a potential rise in the AUD. An FX Margin position or purchasing shares in FXA (Guggenheim CurrencyShares Australian Dollar Trust Exchange Traded Fund), are two methods of hedging your currency exposure.
Some investors actually look for the opportunity for changing foreign exchange to improve their profitability. For example, if you perceive the AUD to be at high levels and to have the potential of falling, you could transfer funds into USD to benefit from the decline in value. Then, when the AUD is lower, transfer funds back or then implement a hedge position.
There are literally tens of thousands of companies listed on the various US stock exchanges, as well as thousands of Exchange Traded Funds (ETFs) that provide you the opportunity of gaining exposure to almost any market, industry or company in the world. All of this industry is supported by a highly regulated governing body.
TOP 100 Stocks
If it seems all too overwhelming, you could simply focus on the top 100 stocks, or key companies in certain industries. Alternatively, we provide a recommendation service for medium-term and short-term strategies that are suitable for larger investors to small investors.
The US stock market has more volume activity than the next top three exchanges put together. It is a great way to diversify away from the risks of exposure to Mining and Banking that is so predominant in the Australian stock exchange. At the same time, the risks that previously had deterred many investors are today not as valid; such as cost of trading, accessibility of information, and by implementing strategies to negate currency risk.
If you would like to know more about investing or trading stocks in the US stock market, contact us today.
Matthew Brown – US Stocks & Options specialist
US Equity & Option Client Advisor
Halifax Investment Services
ASIC Australian Financial Services License Number – 225973
Matthew is an Authorised Representative of Halifax Investment Services (Halifax). Halifax provides broker services, including Full Service and Discount Services using multiple trading platforms.