Trading ADRs: What’s the Point?

Many investors question the notion of branching out to foreign markets. Why bother, they might think, when there are so many domestic markets to be active in? It’s just so much extra work!

Of course, this line of thinking has a touch of merit. It is different, and if you choose to trade ADRs, you’ll be stepping into a new territory. It can seem daunting to a novice. (If you’re an experienced and practiced investor, however, I can’t imagine that you’d take the “it’s too hard” stance and defend it!) There are upsides to taking your capital overseas, and it’s not just a function of taking extra steps to trade stocks.

The point, of course, is putting your money where the profit is. By reaching out beyond the bounds of domestic markets, you’re able to potentially leverage a broader variety of high-ROI opportunities. Massive growth in China or India? An ADR can put you there. Market volatility in Europe? ADRs give you the ability to profit from a debt crisis in a foreign economy.

Trading foreign stocks with ADRs – an easy way to leverage foreign economic situations:

All of this is accomplished without actually trading on a foreign stock exchange, thanks to ADRs.

 The American Depositary Receipt simplifies matters considerably, although you’re still going to need to analyze the market before stepping into it. Continue to execute technical analyses of individual stocks, as well as monitoring broad-sweeping trends, and you could very will make a few lucrative additions to your portfolio.

You’d be wise to employ the same strategies in foreign markets as those you employ in the NASDAQ, NYSE, or AMEX. Follow the data closely and apply appropriate strategies to the correct markets. In a growth market such as China’s, you may just want to seek out growth stocks. In Europe, you’d likely want to search for stocks with a high price-to-earnings ratio.

ADRs make it easier to follow the data.

One common complaint about trading in foreign markets is the lack of quality information that’s available. Without solid data, it’s hard to make informed decisions after all – and this can put an investor in a very unwelcome position.

This is another reason why ADRs are so well-liked among savvy investors. Level II and Level III ADRs are regulated by the SEC, which means that they’re required to provide the same level of transparency as any domestic publicly-traded company. When you’re holding an ADR, you can rely on accurate periodic reports of financial standing and plans, just as you would with a domestic stock.