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Herman,
>could you post the link to the UKB article on the UKB?
I tend to avoid giving the links because of wrap around.
To fix it I have to go off and do a tiny URL etc.
A UKB search for american-depository-receipts will land you right on
it.
http://www.amibroker.org/userkb/2007/09/14/american-depository-
receipts/
>Thanks for the link http://www.adr.com/ I'll have a close look at
>that site. I don't remember where but there were some negative
>comments about foreign ADRs on the Internet... something about their
>process being padded bu foreign markets or market makers. Ever heard
>of that?
>best regards,
>herman
There are so many good questions in your thread that I can only give
a bits and pieces answer to each of them (sorry about the vagueness
in some areas).
I haven't used them.
I am only aware of them.
I reminded you about them because of their relevance to some parts of
the discussion.
I understand that, say for the US, they are 'sponsored' by an
American securities dealer/bank/institution etc, who take a % for
their trouble (they have to physically hold the international shares
in question plus administer the transactions?).
Plus you will then pay the brokers commission on top of the sponsors
fees, so they carry a double commission (x2 for the round trip?)
The point I am trying to make is, that if we focus on trading, and
push the other stuff to the background, we are left with an almost
virtual enviromment comprising the trading platform, our strategies
and a range of assets we can buy and sell.
Talking about the assets:
I think it is an American thing to call them assets (the English tend
to call them instruments) - Howard calls them assets - I am OK with
that, since buying and selling assets is all we do.
There are so many different assets that we can use.
In some cases, a new type of asset can give raise to a new strategy
(one that wasn't possible before or one that we hadn't thought about
before until after we learnt about the asset).
All of the assets have specialist properties which can vary between
countries, exchanges, brokers etc.
You started talking about trading in international stocks.
I extended the discussion to include other assets (multi-asset
trading) because I feel your view is too narrow.
The context I am putting it into is to ask "why do you want to trade
in international stocks?".
I am saying that the answer varies, depending on the traders profile
and the strategy they want to use.
To summarise, I am suggesting that traders should:
a) have a strategy, or strategies, in mind.
b) focus more on knowing what assets are around
c) pick an asset to optimise the strategy
If you accept those points then you might also accept the corollaries:
a) TA (studying entries/exits etc) is a small part of trading
b) System design and evaluation is a small, albeit important, part of
trading
c) money management, business management and stategy application are
equally important parts of trading
d) a trading platform is the place where we apply our strategies,
using asset acquisition and disbursement as the method.
That is why I am suggesting that there is as much trading value in
spending time reading the brokers product manuals as there is in
backtesting.
Also why I am suggesting that the trading platform is the market:
http://www.proactivefutures.com/?gclid=CPyMh8fp45MCFQ77iAodIyGfVw
BTW
If people want to back AB up to a broker, and dock with them as a
trading platform, I have no problem with that.
Similarly, if they want to privately develop AB as a trading
platform, or Tomasz wants to go down that path, I have no problem
with that - developer/programmers can probably achieve sophisticated
things there that I will never do.
Good luck to them.
Back to the point (which you seem to be resisting):
using ADR's as the example....
Why would a trader want to trade in international shares?
a) because they believe another market/stock will outperform their
local assets?
b) because they believe another market, and it's currency, will
outperform their local equivalent asset (this is a double play ==
stock trade + currency trade).
c) because they have good local knowledge
d) some other reason?
IMO the profile of the trader, the strategy employed and the
properties of the asset shape THE TRADE.
Example:
A US trader.
Long term view.
Trades as an IRA (== a retirement account with regulatory limits on
the risks they can assume).
Adverse to business risk anyway.
Does not want to open a foreign account OR trade in foreign currency.
Likes company A which is a mining company domiciled in country B.
He/she might elect to buy an ADR for that company, via their local
broker.
It is not a currency play.
They will pay extra, in commissions, but since they are going to hold
for the long term that is small bickies.
They are comfortable with the trade - they are dealing through a US
company and all gains/dividends are paid in US dollars.
The tax/business implications/paperwork are easy to manage.
Another trader, with a different profile/strategy might elect to use
US ADR's for an entirely different reason and use them in an entirely
different way.
Note: I don't know what the carry costs of ADR's are - people who
might want to use them need to find that out for themselves - if it
doesn't add up don't use them (I am talking hypothetically to
illustrate a concept not giving trading advice).
What I am saying is:
if we don't know anything about ADR's we are limiting the possible
strategies that we can employ.
if we are thinking about using them then we have to read the fine
print (several times)
There are hundreds of exchanges/dealers out there.
There are scores, maybe even hundreds of assets that we can trade in.
IMO we are likely to find ways to increase our bottom line, as much,
if not more, by studying the properties of assets, as we are by
learning another programming language and tring to squeeze a little
more juice out of the backtesting orange.
Paul Ho - I like your post - thanks.
Ron - I am feeling a little nervous - perhaps I went too far? - at
least one person gets it so that makes it worthwhile.
The subtle point is that I am making trading psychology observations -
as traders we need to be on our guard against the psychological
bombardment that we are exposed to from all sides - it can have a
very subtle negative influence if we give it any purchase.
brian_z
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