Investing in foreign stock exchanges gives you the opportunity to diversify your investment holdings. If you’re a Forex trader, paying attention to these exchanges can also pay big dividends overall. So how exactly do these exchanges work?

Foreign Equity Exchanges

Many different countries have their own stock exchanges. While those in the US are familiar with the New York Stock Exchange or the NASDAQ, traders around the world participate in exchanges in many different countries. For example, you could participate in an exchange in London or Hong Kong, regardless of your location. These exchanges take place during their own trading hours.

During the day in that particular country, the exchange is open and traders participate. If you’re in another country and also participate in your own domestic market, this gives you the opportunity to trade even after your own market is closed.

Advantages

One of the major advantages of trading in these markets is that they allow you to diversify your account. If you only invest in domestic stock markets, you’ll feel the pain when that particular market is struggling. For example, when the American economy is struggling, most of the stocks in the New York Stock Exchange also decline in value.

If you branch out into some of the other exchanges in the market, a few problems in one particular market may not impact your portfolio as drastically. For example, if you live in the United States, you may want to invest some of your portfolio in the Hong Kong stock market. This way, your portfolio may not be decimated if part of your account is held in another stock exchange. Through diversification, you can keep the balance of your account up.

Disadvantages

One of the problems of getting involved in this type of investing is that you may not know enough about the other countries to make educated investing decisions. You may have to rely on someone else to research and choose the stocks for you. Otherwise, you may find yourself investing in something that you have no business putting your money into.

Relation to Forex

This is a Forex website and foreign stock exchanges tend to affect the foreign exchange market on a regular basis. Forex traders pay attention to the various exchanges across the world to see how currencies will be affected. For example, if you are located in London and you’re thinking about placing a trade in the GBP/USD pair, you may want to pay attention to the New York Stock Exchange. If it rallies, the value of the Dollar might increase relative to the Great Britain Pound. If you’ve never invested in currencies before, you may want to check out our Forex market page and get a little more info about how it works. You can also check out our Forex trading guide if you want to get a little bit more info about how it all works. Thanks for stopping by Forex Trading Rookie.