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A stock is traded on NASDAQ in USD. But I can also buy it on XETRA in EUR.

What are the advantages and disadvantages for a European to purchase on a US stock exchange? Let's say my broker let's me buy wherever and the fees are the same.

  • 1
    A foreign individual trading shares on US exchanges needs to register with the US tax authorities by filing a W8-BEN. US taxes paid on dividends are then translated into a tax credit with your local tax authority, leaving you to pay any taxes due over and above those already paid to the US. As a foreigner, there is no US tax payable on capital gains. Another potential disadvantage is the cost of exchanging your EUR into USD - a transaction which is typically very costly from an investor's point of view. – Nick R Apr 25 '17 at 16:44
  • @NickR And changing USD back to EUR when you cash out... – D Stanley Apr 25 '17 at 16:47
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Liquidity on dual listed equities is rarely the same on both exchanges. More liquidity means you would typically get a better price assuming you execute the trades using the same order types. It's recommended to trade where the liquidity is greater unless your trading method benefits somehow from it being lower. It's important to remember that some ADRs (some European companies listed in US) have ADR fees which vary. USD/EUR transaction fees are low when using a decent broker but you're obviously participating in the currency risk.

  • I have a quick and dumb question with regards to your answer. So if i buy BP shares through NYSE, can i sell them on the LSE? If so, would there not be arbitrage opportunities? – MH.Q Apr 26 '17 at 9:01
  • To my knowledge, that's impossible unless you have a specific contract with a bank to convert shares but I'm not aware of any cheap and convenient way to do that. You can still have arbitrage opportunities when being long on one market and short on the other. – misantroop Apr 26 '17 at 14:48
  • It just came across me that if i bought shares of the company on one exchange and that company decides to delist from that exchange for any reason, what would of happen to my shares then. I'm thinking they would automatically be converted into the exchange they are left on. Thanks for the answer! – MH.Q Apr 26 '17 at 14:53
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IMHO

No, there are neither advantages nor disadvantages. I'll take on this question from an accounting standpoint.


Financial statements, the tools at which the market determines (amongst other things) the value of a stock, are converted at year end to the home currency (see 1.1.3).

If Company A has revenue of 100,000 USD and the conversion to EUR is .89, revenue in the European market will be reported as 89,000 EUR. These valuations, along with ratios, analysis, and "expert" opinions determine if a person should own shares in Company A.


Now, if we're talking about comparing markets this is a entirely different question.

Example:

Should I buy stock of Company A, who is in the American market (as an European)?

Should I buy stock of Company B, who is in the European market (as an American)?

I would recommend this as additional level of diversification of your portfolio to inlcude possible large inflation of either the currency. The possible gains of this foreign exchange may be greater if one or the other currency becomes weak.

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    One advantage that comes to my mind - a stock traded on home stock exchange has much larger volume than on a foreign exchange. – egze Apr 25 '17 at 18:29
  • That's usually true for European companies but it's not a rule worldwide at all. For example BP plc trades more (shares*volume) on NYSE than on LSE. Many smaller mining companies are only listed in foreign territories. – misantroop Apr 25 '17 at 20:52

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