It is no secret that the Internet has created an environment where online trading is more accessible to the masses. As a result, the number of day traders has increased dramatically in recent years, and this trend is expected to continue. However, while the Internet has expanded access to international markets, why do day traders tend to focus on their own domestic markets?
There are several issues to consider, although ultimately, it is down to the individual. Some day traders may feel comfortable trading international stock markets, although, as covered below, they may need to change their working ways.
Different regulations
Collectively, stock markets around the world try as much as possible to operate on the same/similar trading regulations. However, there may be different regulations for different types of investment, and in some cases, overseas investors could be restricted. As an online trader, it is crucial to operate in markets with as few restrictions as possible to increase activity and liquidity. Therefore, if you are an online traderlooking overseas, you must be aware of potential regulatory differences.
Currency risk
Historically, short-term currency risk has not really been prevalent in the minds of day traders. This is because, in years gone by, there were fewer periods of volatility in the currency markets compared to what we see today. Since the turn of theturn-of-the-century, we have seen periods of sustained economic volatility which have shaken the foundations of some financial markets. So as a UK online trader looking at US stocks, do not discount short sharp shocks in the currency market!
Time zones
The network of global stock markets offers online traders the opportunity to day trade 24 hours a day, five days a week. Between the UK, US and Far East markets, the time zones drop into place ideally to create a liquid 24-hour trading period. However, as an investor looking to trade overseas stocks, different time zones can cause havoc with your physical and mental well-being. While not necessarily one of the main reasons why day traders stick to their domestic markets, it can be an issue for some online traders who begin work as soon as the UK opens. It can be a long day!
International companies
While some vast conglomerates are based in the UK, in practice, many of these have a more significant international presence. Consequently, day trading individual stocks in the UK in sterling may indirectly expose you to their overseas operations without the potential currency risk. The share price of international companies can also be impacted by activity in foreign markets, dictating how they open on the UK stock market. Do you really need to go overseas to gain international exposure as a day trader?
On a more positive note, some elements of overseas markets may attract the attention of day traders, who are prepared to accept the additional risk. One of the main positives is:-
Investment culture
The number of day traders in the UK has increased dramatically in recent years, while online trading has been more prevalent in America. However, there are undoubtedly different investment cultures worldwide, attitudes towards day trading and investor interest in particular sectors. For example, the technology sector in the UK is in its relative infancy compared to that in the US.
Technology companies in the US account for a much more significant element of the leading indices compared to the FTSE 100 and the broader UK indices. The NASDAQ is seen as the primary technology market around the world. Therefore, as an online trader, do you need to look any further than this technology-focused market?
Summary
The stereotypical online trader will tend to stick to their domestic market, although some day traders may venture overseas. It is essential to be aware of the pros and cons of dealing in foreign markets, potential risks and rewards. Day traders tend to be attracted to volatile liquid markets, with some online traders not particularly concerned about the location.