The Internet has made global communications available instantly. You can read about business deals and company performances so easily that, when you decide to invest, sometimes it comes as a surprise that you can't always buy a foreign stock using your normal broker. However, there are several brokerage firms that can do the trade online if a U.S. citizen wants to buy a stock traded on a foreign exchange.
Toronto Stock Exchange
The Toronto Stock Exchange, known as the TSX, is the main Canadian securities exchange, where common stocks are traded. It traces its roots back to the mid-19th century, when a group of Canadian businessmen formed the Association of Brokers to facilitate the purchase and sale of stocks in Canadian companies. The exchange was formally created in 1851 and is now one of the largest securities exchanges in North America. Regardless of its extensive history, size and worldwide recognition, it is sometimes difficult for U.S. investors to figure out how to trade a TSX-listed stock.
Some major brokerage firms that operate in the U.S. also have subsidiaries that trade on foreign exchanges. For the TSX, these firms are called participating members, and a list of these companies can be found in the Resources section below. Raymond James is one well-known company that trades on the TSX and offers online trade services. Other firms also offer accounts that provide their clients with global access to trading in stocks that are not traded as American Depository Receipts, or ADRs, on a U.S. exchange.
Trading on Foreign Exchanges
The first thing to remember about trading on foreign exchanges is that your price will be expressed in the currency of that country. On the TSX, shares are traded in Canadian dollars, which fluctuate in value vs. the U.S. dollar. Some brokerage firms provide a way to convert your U.S. dollars to Canadian for your trades, while others don't. Ask a customer service representative about the policies and procedures of the brokerage firm you're using. Also ask if you would be investing directly in the stock or if the firm is using a proxy -- an ADR or Pink Sheets stock that represents an investment in a foreign stock and trades in U.S. dollars. If you expect the U.S. dollar to decline in value against the Canadian dollar, investing using Canadian dollars is a good way to profit from such a decline. If this is your aim, check to see whether you can maintain your account's cash position in the Canadian currency rather than having it automatically converted to U.S. dollars.
Details to Remember About TSX Stocks
Before you invest, check the volatility and average shares traded daily on your stock. For example: If you are interested in buying a mining stock, the TSX is home to 60 percent of the world's mining stocks. Even though the TSX is a large and active exchange, some of the mining stocks on that exchange trade infrequently and represent very small companies. Do your stock research carefully whenever trading on a foreign exchange, no matter what type of stock you are eyeing. Remember that the U.S. has strict securities regulations that are not always followed on foreign exchanges.
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