Technology which enables advisers to buy direct global shares on behalf of their clients more efficiently has created new options for portfolio construction. But there are practicalities that can influence the outcomes of an offshore trading strategy.

The golden rules when buying and selling global shares include:

• Keep an eye on the clock: It’s important to know the active trading hours of each offshore market and to plan trade execution carefully. Each market has high-liquidity windows that may generate the optimal outcome for an adviser’s clients. For major global markets, these include:
  • US: 12am – 3am AEDT
  • UK/Europe: 7pm – 10pm AEDT
  • Asia (ex-Japan): 11am – 1pm AEDT.

Market opening and closing periods are typically associated with heightened volatility, which can lead to increased price slippage – particularly for manually placed orders. 

The first and last 90 minutes of any trading session generally have higher volume and higher volatility.

Some trading platforms support pre-loaded orders for overnight execution, helping align trades with preferred timing. These standing instructions, or automations are commonly used when trading via wrap platforms or model portfolios.

International holidays and earnings seasons are known to influence market conditions, often leading to reduced liquidity and increased price volatility. These periods can result in irregular trading patterns and unpredictable pricing behaviour, which may affect execution quality.

• Plan your order placement: It’s ideal to use limit orders where possible. This allows you to set a specific price at which to trade to control execution price. It is a particularly valuable strategy for thinly traded stock names or in periods of low liquidity.

Market orders – which execute trades immediately at the best available price – potentially can be used when liquidity is very deep. For example, market orders for US mega-caps are best placed during core trading hours.

Advisers can consider asking their broker to place large trades as “icebergs”, especially in European and Asian markets. This means only part of the order is disclosed at any one time and the rest remains hidden to avoid signalling the transaction to others.

It’s also wise to avoid using a single exchange venue as best execution in both Europe and the US often requires Smart Order Routing across multiple lit and dark venues. 

For larger scale traders, it can be worth conducting Posts-Trade venue analysis to ensure orders are routed effectively and not completed at sub-par prices.

• Beware platform constraints: Some Australian platforms only support batched or delayed execution for offshore equities. This may result in overnight slippage in the price at which a trade is executed. 

It can also introduce “queuing effects” to a transaction. In other words, orders further down the queue may take longer to execute as other orders need to be filled ahead of them.

Trading platforms which offer direct market access help overcome this challenge by allowing advisers to place orders directly with an exchange, rather than via an intermediary. It can also be worthwhile using brokers which offer a special execution service for time sensitive trades.

It is important that your platform has a multitude of order types. Advanced order types including conditional orders, trailing Stop Loss and One Cancels the Other (OCO) may provide improved precision over execution price.

In addition, different order duration options such as Good until Date (GTD) may also be useful to achieve target prices either buying or selling.

• Be dollar aware: Rather than relying on retail Foreign Exchange (FX) conversions, some brokers offer mechanisms to net FX exposures across clients or trades – if permitted.

The real-time FX hedging offered by some brokers is a real advantage as it allows advisers to match trade timing with currency execution. Multi-currency Wallets offered by some brokers such as AUSIEX can help advisers manage currency risk for clients by allowing them to maintain cash holdings in chosen denominations over time.

Dividends can also accumulate in the Wallet, allowing advisers to be somewhat strategic in terms of precisely when to convert the foreign currency back into Australian dollars.

AUSIEX International Markets offers a range of trading and reporting features to help advisers access and manage their clients’ overseas exposures. Learn more