CommSec
Updated - 26 February 2021
There’s been recent hype around share trading, specifically in the international markets. Whilst this has caused much excitement and may be an attractive option for some investors, it’s important to understand the risks involved and differences between domestic and international markets.
The difference in regulatory rules - Australian vs overseas
The Australian market is highly regulated. And while the overseas markets that CommSec allows trading in are regulated too, it’s important to note that each market is regulated in a different manner with a different set of rules.
Domestically, the Australian Securities & Investments Commission (ASIC) supervises real-time trading on Australian markets. ASIC ensures that market operators and participants (such as CommSec) adhere to ‘Market Integrity Rules’, which aim to keep markets operating in an orderly and fair manner.
When trading conditions deviate from normal activity, such as when the trading price of a security increases above or decreases below a certain threshold, the ASIC Market Integrity Rules encourage intervention from securities exchanges such as the Australian Securities Exchange (ASX) and Chi-X Australia (Chi-X). In such instances, these exchanges may apply a ‘trading halt’ (the halt of trading in a particular security), to stay in place until such time that conditions return to normal (i.e. acceptable parameters).
In overseas markets however, regulators that govern these jurisdictions have different standards/powers when it comes to intervening, specifically the intervention when trading conditions deviate from the norm. This means that when there is increased market volatility and fluctuation in share price, investors may be more exposed to larger losses – particularly when prices are artificially inflated.
Other risks to be aware of when investing in international markets
- Currency risk – As international securities are denominated in a currency other than Australian dollars, the value of your investment may be affected by changes in currency exchange rates.
- Political and regulatory risk – International shares are held by an international custodian, and are subject to risks relating to political, economic and regulatory changes in the country of the custodian or stock exchange.
- Taxation risk – Taxation implications can be different from investing in Australian securities and may vary depending on your individual circumstances.
- Time differences - The market where you’re trading international shares might operate in a different time zone, meaning trades and information could be delayed.
You can find further information on the risks of investing in international markets in the Risk Disclosure Statement.
Finally, ask yourself. Does international trading align with my investment goals?
While it might be tempting to react to news or hype around particular securities in order to ‘make a quick buck’, you should also ensure your investments are aligned to your goals and strategy. It’s a good idea to always exercise your independent judgement before making an investment decision and understand that a trading strategy which works for someone else may not necessarily work for you.
