International stock-trading is coming soon at E-Trade Financial.
Sometime in the second quarter, E-Trade will join Fidelity Investments and Charles Schwab offering international stocks to its customers. This is a great platform for global investors and I'm excited about this development because it'll allow investors in the United States to finally trade stocks, including REITs, listed overseas. Some of the best values now include distressed REITs in Hong Kong.
E-Trade will allow investors to trade in six foreign markets initially, eventually widening the scope to include 42 international markets. Currently, Charles Schwab and Fidelity Investments offer over 40 global markets.
What some investors don't know is that many ADRs, or American Depositary Receipts, don't provide good liquidity. ADRs are foreign company stocks traded in the United States in U.S. dollars, either on the NYSE or the OTC market.
Though ADRs are convenient to buy for U.S. investors, many of them are very illiquid, offering poor spreads. In fact, most of the time, investors would be far better off buying those foreign-traded stocks in their home market, not in the United States.
That's because foreign-traded stocks usually harbor greater liquidity from a broader base of domestic institutional investors. Some exceptions apply, mainly to large multinationals traded in New York, like British Petroleum and Deutsche Bank, to name only a few. But for smaller stocks, including many emerging market large-cap stocks, you're much better off buying domestically.