Updated: 04/24/2024

Buying International Shares from the UK: A Guide

stock market basics
.02 Feb 2024
author avatar image Chad Smith

Table of Contents

In this complex, ever-evolving world of finance, it is essential to understand how to harness the potential of various investment avenues. One lucrative option is buying international shares from the UK, which holds immense potential for savvy investors. This pursuit requires not only a fundamental understanding of the stock market and its many facets, such as various types of investments, but also a detailed knowledge of international trading regulations, selecting the right brokerage, and crafting the ideal investing strategy. Comprehending the variables that sway market prices and becoming versed in the specific terminology used in trading establish a vital foundation for navigating these dynamic waters. Furthermore, familiarity with UK regulations in context of purchasing international shares ensures adherence to the law whilst enhancing understanding of the associated tax implications and legal considerations. By sifting through myriad online platforms to pinpoint the best for trading international shares from the UK, one can begin to develop a well-rounded, tailor-made investment approach.

Understanding the Stock Market

Understanding the Basics of the Stock Market

The stock market is simply a marketplace where individuals, companies, and institutions can buy and sell shares. Each share represents a portion of ownership in a particular company. As the value of the company changes (based on profits, losses, market anticipation, etc.), so does the value of each individual share.

Different Types of Investments

Investing is not just about stocks – there are numerous types of investment assets. Bonds are essentially loans that an investor gives to the government or a corporation. In return, the bondholder receives interest payments over a specified time and the principal sum on its maturity. Mutual funds are a type of investment where multiple investors pool their money to buy a diversified portfolio of stocks, bonds, or other assets. Then there are Exchange-Traded Funds (ETFs), which are investment funds that are traded on stock exchanges, much like individual stocks.

Working of Different Investments

Stocks provide ownership in a company and potentially a claim on a portion of the company’s earnings or assets. Bonds are a form of debt investment where an investor loans money to a company or government for a fixed period at a variable or fixed interest rate. Mutual funds allow investors to purchase a large range of stocks within one fund, spreading the risk. ETFs, like mutual funds, offer a way to buy and sell a basket of assets without having to buy all the components individually, but unlike mutual funds, they can be traded at any time when the stock market is open.

Influencing Factors on Market Prices

Numerous factors can impact market prices, such as economic indicators, news, company earnings, and investor sentiment. Economic indicators include aspects like interest rates, inflation, and employment figures. Breaking news or significant global events can lead to market volatility – causing prices to fluctuate quickly and wildly. The earnings report of a company can significantly impact the price of its shares. Positive earnings lead to a rise in share price, while negative earnings can lead to a drop. Lastly, investor sentiment, driven by fear and greed, can sometimes skew market prices as well.

Key Terminology in Trading

When buying shares internationally from the UK, it’s essential to understand some key terms. The ‘Ask’ is the lowest price an owner is willing to accept for their shares. The ‘Bid’ is what buyers are willing to pay. The ‘Spread’ is the difference between the highest bid and the lowest ask. ‘Bull market’ refers to a general rise in prices, while a ‘bear market’ denotes falling prices. ‘Liquidity’ refers to the ability to buy or sell assets without affecting the asset’s price drastically. Lastly, ‘volatility’ refers to the rate at which the price of an asset increases or decreases for a set of returns – high volatility means that an asset’s price moves drastically in short periods, making it possible for investors to experience significant gains or losses.

Buying International Shares from the UK

You can buy shares in international companies based in countries like the US, China, Australia, etc., from the UK. To do this, you need to have a trading account with a platform that offers access to the international stock market. After setting up and funding the account, you can purchase shares in the foreign company of your choice. However, remember that investing in international shares involves additional risks including currency exchange rates and potential withholding taxes on dividends. Therefore, it’s crucial to research thoroughly and potentially seek advice from a financial advisor before investing internationally.

Illustration of a stock market with different assets, such as stocks, bonds, and ETFs, representing the concept of understanding the basics of the stock market.

International Trading Regulations

Understanding The Basics of Buying International Shares

To begin with, you must understand that buying international shares from the UK involves more than just selecting a global company to purchase shares from. There’s a multitude of factors to take into consideration, such as dividend taxation, currency risks, fees, and legal regulations.

Researching UK Regulations For International Shares

Foremost, you should start by familiarising yourself with the UK regulations for buying international shares. The Financial Conduct Authority (FCA) in the UK regulates investing and trading, and they provide important information for individual investors. You may need to consider implications of UK investment policies or any restrictions that may be applicable when investing in shares from a specific international market.

Comprehending The Tax Implications

Next, it’s relevant to understand the taxation processes tied to international share trading. In the UK, international shares are generally subject to Stamp Duty Reserve Tax (SDRT) at 0.5% of the purchase price. Furthermore, any dividend income will typically be subject to UK income tax. However, tax treaties between the UK and overseas countries can sometimes reduce this liability. It’s worth consulting a financial advisor or doing thorough research to understand if any tax credits or exemptions are available to you.

Legal Considerations When Buying International Shares

Legal implications are another critical aspect to consider. These include not only the local laws of the country you’re investing in, but also international regulations. Ensure that the shares you’re buying comply with the legal and regulatory framework of both, the UK and the respective foreign country. Reviewing the prospectus of the international shares you wish to buy can prove to be beneficial in providing relevant legal information.

Accounting For Currency Risks

As for currency risk, UK investors buying shares abroad should consider the exchange rate fluctuations which could impact the returns on your investment. If you’re investing in a country where the currency is weaker than the pound, you may face losses if that currency depreciates further.

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Choosing the right Brokerage

Choosing the Right Brokerage for Trading International Shares from the UK

When selecting the right brokerage to trade international shares from the UK, it’s crucial to consider several key components. These include the broker’s fee structure, user interface and usability, customer service reliability and availability, and quality educational resources on offer. Comparing different platforms based on these factors can help you make an informed decision.

The fee structure of a brokerage profoundly impacts your potential profits.

Keep in mind that different brokerages might have varying types of fees, including transaction fees, service fees, and other hidden charges. Choose a brokerage that offers reasonable, transparent fees without hidden costs. Bear in mind that a cheaper brokerage might not offer the best service, so balance cost against the service level’s quality.

Ease of use is another key consideration when choosing your brokerage platform.

A user-friendly interface can make the process of buying and selling shares quicker and easier, thus enabling faster transaction times. Look for a platform that provides essential tools and graphs to aid your decision-making process and is accessible via different devices including your smartphone.

Good customer service is often overlooked, but it can make a significant difference in your trading experience.

Opt for a broker with an excellent reputation for customer service, particularly one that offers prompt and comprehensive support. Reliable customer support can prove incredibly beneficial should any issues arise.

Access to educational resources can be a valuable bonus when selecting a brokerage.

These resources can include how-to guides, tutorials, webinars, research reports, and data analysis tools. These can be particularly useful for people who are new to trading international shares and can add value to more experienced traders. It’s beneficial to find a broker that offers in-depth learning resources and up-to-date market analysis.

Research thoroughly before choosing a brokerage.

Read reviews and verify the broker’s legality and certification. Trading international shares from the UK also means you have to ensure the broker has access to the markets you’re interested in.

In conclusion, choosing the right brokerage requires considering several factors, and ultimately, what works best will depend on your individual needs as a trader.

Though fees, usability, customer service, and education are essential, your personal comfort level with the platform should also be taken into account.

Image depicting different brokerage platforms to choose from for trading international shares from the UK

Developing an Investing Strategy

Developing an Investing Strategy

Before you begin investing in international shares from the UK, it is essential to develop a robust investment strategy. This involves determining your financial goals, risk tolerance, investment horizon, and understanding the market and company performance.

Understanding Market Trends

When investing in international shares, it is crucial to understand market trends. Market trends are significant patterns of behaviour in a specific market over a given period. You can analyse market trends by looking at changes in price direction, trading volume, interest rates, and economic indicators among other factors. For instance, growing businesses and economies tend to attract more investments, whereas political instability or economic recessions might, inversely, indicate a declining trend.

Analysing Financial Statements

A company’s financial statement is a wealth of information about its financial health and performance. It is a snapshot of the firm’s assets, liabilities, income, and expenses. Key elements to analyse include the balance sheet, income statement, and cash flow statement. Look for stable or growing revenue and profit margins, low debt-to-equity ratios, and positive cash flow.

Understanding Performance Indicators

Performance indicators are statistical metric-based tools and benchmarks used to measure the performance of an investment. Critical performance indicators might include a company’s earnings per share (EPS), Price/Earnings (P/E) ratio, and its return on equity (ROE). Historical data for these indicators will reveal the company’s performance over time and predict future performance, helping you make informed decisions.

Develop a Well-balanced Portfolio

The key to risk management in investing is to develop a well-balanced portfolio. This means diversifying your investments across different asset classes and geographic markets. A balanced portfolio might include a mix of shares, bonds, and other investment types from a range of sectors and countries. The exact allocation will depend on your personal investment goals and risk tolerance.

Understanding Your Risk Tolerance and Investment Horizon

Before investing, it’s crucial to understand your risk tolerance and investment horizon. The higher your risk tolerance, the more you might lean towards high-risk shares that potentially provide high returns. Conversely, if you have a low risk tolerance, you might prefer investing in safer securities. Your investment horizon refers to the length of time you’re willing to keep your money invested before you need it back. A longer-term investment horizon usually means you can take on more risk.

Remember, investing in international shares can carry additional risks compared to investing domestically, such as political risk, currency risk, and economic instability. Therefore, proper due diligence and a solid understanding of the international markets you are investing in are vital.

Image of a person analyzing investment charts and graphs

Investing is not merely putting money into different baskets; it is a meticulous process demanding keen market analysis, comprehension of corporate financial statements and performance indicators, and a nuanced strategy that aligns with one’s financial aims and risk-bearing capacity. Investing in the international market from the UK opens up a world of opportunities but should be approached with caution and knowledge. Hence, gaining an in-depth understanding of various aspects like the types of investments, international trading regulations in the UK, and the selection of the right brokerage platform is crucial. By assimilating these elements and forging a well-planned, diversified portfolio, one steps into the global market arena armed with confidence and competence, poised to make the most of their international investment journey.

author avatar image
Chad Smith

Chad Smith is the Director of Research & Analysis here at ForexBrokerListing.com. Chad previously served as an Editor for a number of websites related to finance and trading, where he authored a significant number of published articles about trading and the impact of technology in transforming investing as we know it. Overall, Chad is an active fintech and crypto industry researcher with more than 15 years of trading experience, and you can find him teaching his dog how to trade in his free time.