How To Invest In Overseas Equity Market?

For those who would like to diversify their portfolio investments beyond the local shore, this article sets to explore the ways to do so. Just to emphasize, I am articulating on direct or active investment instead of passive investment such as investing in unit trusts.

Thanks to globalisation and increased investors' appetite for better investment returns, many Malaysians have started investing offshore (In part this is also due to the fact that Malaysia stock market is no longer favoured by foreigners and is lagging far behind stockmarkets in Hong Kong, China or even Singapore in both performance and liquidity).

If you are interested in investing in multiple key global markets, the one that instantly comes to my mind is Interactive Brokers (IB). IB offers a very comprehensive list of financial markets to invest in, ranging from North America (U.S, Canada, Mexico) to Europe and Asia Pacific (Australia, Hong Kong, India and Japan) region. The products offered are also wide ranging, from equity to forex, derivatives, bonds, ETFs, CFDs and so on.

IB's brokerage rate is also one of the lowest available. For instance, to trade in U.S. stocks, the brokerage charge is only US$0.50 per lot (of 100 shares) with a minimum $1 brokerage per order!

Application for an account can be done easily through the web (online). Even Agreements can be digitally "signed" online! The only manual work which you need to provide them is a copy of your Passport and a signed copy of certain local Authority Form such as W-8BEN in the case of trading in U.S. For added convenience, you may fax them a copy of these documents or simply scan and email a copy to them.

One word of caution though, the trading software for IB is not that user friendly. So it may take some time for you to get used to it. However, step-by-step guides are readily available from their website. All you need to do is to run the videos.

For those who are interested in trading in the U.S. market only, my preferred broker is ThinkorSwim (ToS). Brokerage rate is higher at $1.50 per lot or fixed at $9.95 per trade (whichever is lower and subject to a maximum of 50 lots for fixed rate) but the trading software is much more user friendly and feature packed. Among them include the ability to display multiple chart patterns all in one screen.

The beauty about these online brokers is that you can also do virtual trading, that is, trade without real money! This will give you a sense of better confidence before starting real trades, and is ideal for beginners who would like to get familiarise with the trading platform and/or test certain trading strategies.

To start real trading, you will need to deposit funds first into the trading account. In other words, there is no more T+x day type of settlement. All trades are cash up front but you may choose to trade with a margin facility.

Funds can be easily transferred from your local banking account to the U.S. designated account using wired transfer or more commonly known as Telegraphic Transfer (TT) in Malaysia. You will need to bear the TT charges (charged by both local and foreign banks) as you do the transfer. Just inform the broker about the transfer and they will notify you once the amount is successfully banked in. Normally, this should happen within the same business day.

Trading platform is much more sophisticated compared to our local markets as you can literally set your trading criteria (e.g., entry price, stop loss and profit target) and walk away without ever watching the screen again! You can even set orders such as market order, stop order with or without limit and OCO (One Cancel Other) orders. Once you learn how to do it, trading is very easy and a peace of mind in case you are busy at work or go to sleep!

Other than signing up with online brokers, the other viable option is to trade via your local investment bankers or stock brokers. A number of local Investment brokers have for the past couple of years rollout offshore trading in order to cater for this increased interests. Among the Investment Brokers offering this service include CIMB, OSK, Kenanga, Maybank and RHB Investment Bank.

However, do take note that this type of trading is not done online. The arrangement is between yourself and your local broker. Orders can be instructed by you and your broker will forward the trade instruction with their respective counterpart in the particular country of trade. Exchange rate is determined by the broker on the day of trade. There is no standard brokerage rates apply so you will need to verify with your preferred broker before trading. There will also be some signing of paperwork required before you want to start trading offshore.

Generally, this type of 3rd party or indirect trading will be more costly than online trading. It will probably be fine if you do not intend to trade offshore frequently and do not have the time or patience to learn a new trading platform. Also bear in mind that there will be a delayed trading execution given the offline mode of instruction and involvement of 3rd party.