Foreign Securities Fees
Investing in international stocks can diversify your portfolio across different countries and currencies. However, investing in foreign securities often involves hidden costs that may surprise new investors, such as foreign securities fees.
What is the Foreign Securities Fee?
A foreign securities fee is charged by brokers for trading foreign stocks. Although brokers do not hide these fees, they are not typically advertised. To find out how much your broker charges, you should check their fee schedule.
This fee is usually a flat rate, ranging from $25 to $50, and applies both when you buy and when you sell foreign stocks. The fee does not depend on the number of shares you trade.
Not all foreign securities incur this fee; it depends on the exchange and the type of stock being traded.
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Types of Foreign Stocks
There are several ways to invest in foreign stocks: American Depository Receipts (ADRs), foreign ordinaries, and foreign stock ETFs.
American Depositary Receipts (ADRs)
ADRs are certificates issued by U.S. banks that represent shares in foreign companies. They are traded on U.S. exchanges, and their value follows that of the foreign company. ADRs do not usually incur foreign securities fees because they are traded locally.
Foreign Ordinaries (traded on the U.S. OTC market)
Foreign stocks traded directly on the U.S. over-the-counter (OTC) market can be riskier due to lower liquidity, wider price spreads, and the impact of international economic conditions. Buying and selling these stocks usually involves foreign securities fees.
Foreign Ordinaries (traded on foreign exchanges)
You can also trade foreign stocks on international exchanges. Each broker has different procedures for this, and not all brokers offer this service. Trading directly on foreign exchanges often involves additional fees, and you may need to deal in foreign currency.
How to Avoid the Foreign Securities Fee
To avoid foreign securities fees, consider not trading foreign ordinaries on the OTC market. Instead, you can invest in foreign markets through foreign stock ETFs and ADRs, which usually do not carry the same risks or fees.
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Updated on 7/22/2024.
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