Expert panel Trading international shares using CFDs Harley Salt, Senior Sales Trader, IG Markets
I’d like to trade international shares but many brokers don’t offer much variety. I’ve heard that CFDs offer a good range of international shares. What sort of international shares are on offer? What extra factors are involved when trading CFDs over international shares – or is it exactly the same as trading CFDs over Australian shares?
Today's expert: Harley Salt, IG Markets
CFDs offer a great way to access and trade a wide range of international shares.
Close to 10,000 individual share CFD can be traded from all points of the globe all from the one trading account. CFD traders have the ability to trade share CFDs almost 24 hours a day following the various markets around the world. Australia and Asia are followed by the opening of the UK and European exchanges which are then overlapped by the opening of the US and Canadian markets.
In the US you have a smorgasbord of companies that traders like to get involved in. Microsoft, Google, American Express, Boeing Co, Berkshire Hathaway, eBay, Exxon Mobile Corp, Hewitt-Packard Co, Tiffany & Co and McDonald’s Corp some of the more popular stocks.
The UK market also has a number of well traded and familiar stocks such as BHP Billiton, RIO Tinto and Xstrata PLC. This is particularly attractive to Australian CFD traders given the stocks available and workable time-zone. Many CFD traders will trade both BHP Billiton and RIO Tinto in Australia then continue trading them in London after Australian market hours. Having these stocks trade on another exchange also enables traders to hedge positions should overseas markets start moving sharply against them. This means not having to wait until the Australian market opens the following day to manage your positions.
Share CFDs can be traded on all the major exchanges around the world. Other popular stocks and markets include: Nestle SA Switzerland, Renault SA France, Ericsson Sweden, Bank of China Hong Kong, Singapore Airlines Singapore and Sony Japan.
The mechanics of trading international share CFDs are exactly the same as trading Australian share CFDs. Orders can be placed directly into that exchanges order book from the comfort of your desk with instant execution and confirmations. The positions can be managed from the one screen, no matter how many different exchanges you trade across.
Currency exposure is something you will need to consider on any international trade. The deposit and any profits/ losses, commissions, dividends and interest will be in the foreign currency while your account balance will more than likely be in Australian Dollars. So making US$1000 on a Google trade, if the AUD/USD exchange rate is 0.8000 the profit converted back to Australian Dollars is A$1250. On the other hand, if the AUD/USD was at 0.9000 the profit will only be A$1111. The currency exposure can work for and against you; a favourable exchange rate may increase your profits, while a less favourable rate can reduce your profits. For larger, long term trades it can be worthwhile hedging currency exposure. That is a topic in itself.
It is worth noting when entering a trade if you do not have multi currency on your account, the deposit required on the trade will automatically be converted from Australian Dollars into the currency required. Traders will not have to worry about depositing foreign currency into their account before opening a trade.
Interest on holding long positions overnight can be lower for holding international stocks given that the interest is calculated against that countries cash rate. In the US for example, the cash rate is 4.75% while Japan is 0.5%. This compares to the current Australian rate of 6.50%. So as you can see the interest component for some international stocks is actually lower than here in Australia. On the other side though, short positions may not be earning as much interest as trades taken on Australian share CFDs.
Disclaimer: The views expressed in this article are those of Harley Salt, a representative of IG Markets and is not intended as general advice. This does not constitute a recommendation nor does it take into account your investment objectives, financial situation nor particular needs.
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