Explained: Foreign or Overseas Markets

Scott Longley looks into trading foreign markets, and finds our friends across the pond have a lot to offer

By Scott Longley

So what’s this month’s financial betting update about?

We’re going to look at a lil’ spot of trading Stateside.

Say again, and take off that ridiculous cowboy hat.

OK. We’re going to introduce you to day trading on the US markets and US shares.

So you’ve learnt your lessons on the FTSE and you now fancy something a bit more exotic?

Something like that. I’ve turned my attention to the main US indices and some of the most heavily-traded stocks in the US markets to diversify my exposure.

Diversify your what?

My exposure. As I’ve said previously, the FTSE is in the middle of a bull run of something approaching epic proportions – well, kind of – and I thought it might be wise to go chasing some more profits further afield.

So you’ve decamped to the US?

Not exactly. But as the US is the world’s largest economy and has the most liquid financial markets, anyone looking to profit from financial spread betting should look at the possibility of getting involved in the action across the pond.

But trading a market far away sounds that much more tricky. Is that the case?

No, not necessarily. Trading the US is no more tricky than trading the UK. The only slight difficulty is the time difference, but in this 24-hour age that shouldn’t cause too many sleepless nights.

What about knowledge of the market and all that jazz you spoke about previously?

Clearly you shouldn’t get involved in any market if your knowledge is less than fulsome. However, just because a market is international shouldn’t mean that you can’t gain the information you need to trade it. After all, if you’ve been enjoying trading the FTSE, you’ll know that up to 70% of the businesses those companies are involved in do business outside of the UK. In other words, you’re already trading international companies – they just happen to be listed in the UK.

So trading the US markets is just as easy – or tricky – as trading those in the UK. Is it enjoying the same bull run as the UK?

It is indeed, but not that the majority of UK punters would guess it. According to the spreads boys, there is a difference in the way UK punters view the two markets. Understandably, in the UK they have been ‘long’ – that is, optimistic – on the markets for quite a while now, whereas in the US they have been ‘short’ – pessimistic.

Why’s that then?

It’s hard to pinpoint, but they may have been spooked by the so-called imbalances in the US economy and be afraid that the market could go pear shaped, and are betting accordingly.

Are they right?

Arguably, no. The Chinese economy may be the fastest growing, and the Chinese central bank might well own most of the US national debt, but the US economy remains the world’s driver and there’s no indication that it is going to seize up any time soon.

So what do I bet on?

Well, there are the indices. The Dow is perhaps the best known, but there is also the Nasdaq and the S&P 500, and then there are the big US stocks. One of the key differences between the US and UK markets – and a major reason why it’s worth thinking about getting involved ‘over there’ – is that the two markets have a difference in make-up. The UK market is defensive, comprising a lot of banks, resources and mining companies. The US has far more giant technology and telecom companies.

But I have been doing very well out of the resources and miners. Why should I switch?

It’s not a matter of switching, it’s about diversification. Miners and oils have done very well recently, but there is money to be made out of the US companies of the future, such as eBay and Google. But beware; these stocks tend to be very volatile.

Anywhere other than the US?

The other major indices you might be tempted by are the Japanese stock market, the Nikkei 225, the German Dax and the French CAC. But as a wise man once said: ‘These places, they are like a foreign country.’ Tread warily, especially with the CAC.