Money and Markets

"When asked about foreign exchanges, most American stock brokers will offer guarded appreciation while warning of loose financial controls and political, economic, and currency risks. And even if your broker does offer access to foreign stocks, it's likely that they trade through domestic market makers. Typically, these middle men pocket the difference between the bid and offer prices on the thinly-traded U.S. over-the-counter markets. Sometimes the spreads are really wide — as much as 10%! In most cases, investors don't even realize just how much of their money winds up in the pocket of market makers. To avoid these extra costs, seek brokers that have relationships with on-the-ground traders in Sydney, Auckland, Toronto, Singapore, Hong Kong, Tokyo, London, and more. By executing orders directly on foreign exchanges, they can cut out the market maker, and pass the savings on to the customers. Sure, they charge a trading commission, but the net charge is substantially less than going through a market maker. The advantage: You'll be able to buy the kinds of foreign stocks that aren't typically included in global mutual funds or traded on U.S. exchanges as American Depositary Receipts (ADRs)."