International Trading: Understanding the Pros and Cons

Learn why investors consider global markets, understand how home bias can affect your portfolio, and explore if diversifying internationally is right for you.

Chapter 2 – 9 International Trading Questions Answered + What to Know to Get Started

Now that you understand why investors diversify globally, we’ve answered some questions to help you get started.

When choosing investments, Canadian investors often stick close to home - a tendency known as home country bias. This isn’t surprising; after all, home markets are generally familiar, comfortable and easily accessible. But, with a whole world of investment opportunities out there, investing globally can also be worth exploring for many reasons, and it may be easier than you think.

Benefits of Investing Globally

One of the key benefits of investing in international stocks is diversification of your portfolio. Investing in securities from across different asset classes and sectors is a common way to diversify, but increasing your global exposure by investing in markets outside of Canada is another way you can do this.

Increasing your global exposure may also help manage the volatility of your portfolio. For example, if your home market is heavily reliant on cyclical sectors that can experience higher levels of volatility, adding global holdings that may respond differently to macro-economic factors like central bank interest rates, exchange rates and inflation may help provide some balance.

International diversification may also reduce country-specific risk, such as economic or political factors, and it could expose you to economic activity and innovation in other parts of the world.

Some Risks of Investing in International Stocks

Like with all investing, there are risks to consider when investing outside of your home market. Here are a few to keep in mind.

Currency risk: Changes in global exchange rates can have a significant impact on the value of your investments, resulting in unpredictable gains or losses.

Geopolitical risk: Depending on where you’re investing, the potential for political unrest or economic collapse could affect your foreign investments.

Liquidity: Some international stocks trade in smaller markets, which could mean a lack of buyers and sellers, which in turn could impact the price you get for your security when you decide to trade.

Reporting requirements: Securities regulations vary from country to country, and some markets or companies may not provide the information you’re used to using to inform your trading decisions.

To learn more about key considerations when investing internationally, check out our next chapter >>

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