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Want to trade in global stock markets? Read this

Last updated on: November 29, 2011 18:49 IST

Want to trade in global stock markets? Read this

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Investmentyogi.com

Hurrah! Indians can invest in global derivatives markets now. Let's try to figure out how exactly this arrangement works and how an individual investor can gain from this opportunity.

Advancement in technology has erased international boundaries. Now the whole world behaves like a single market. Distance has lost its meaning due to globalisation. This year SEBI's (Indian stock market regulator the Securities and Exchange Board of India) move to allow the Indian investors to trade in almost 24 major global indices including that of US, Europe and Asia, sitting in their comfortable homes, strengthens the proposition that everything is local now.

As SEBI has opened the gates partially (you can only trade in derivatives of global indices for the time being not directly in equity markets) here's how Indian investors can now participate in global markets.

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Image: Nasdaq.
Photographs: Courtesy, Nasdaq.
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Benefits of investing in global indices derivatives

Opens a new avenue of investment for investors. The key benefits of the instrument are listed below:

1. With this instrument in hand, even individual investor can get international exposure and benefit by global diversification.

2. Trading will take place in Indian market hours and under strict supervision of SEBI so that individuals can trade with trust and accuracy.

3. Contracts are denominated in rupees, so no hassle of currency conversion leading to currency risk.

4. Trading will be similar to the trading of Nifty so it's simple and reliable. You need no extra training for trading in these derivatives.

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Image: The London Stock Exchange building.
Photographs: The London Stock Exchange building.
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Eligibility criteria

1. For trading in derivatives of global indices you have to be an Indian resident.

2. You need to have an overseas trading account (it's now available with almost all banks and brokers).

3. For existing members and participants of NSE, no new documentation is required. But, new clients and members need to furnish mandatory documents as per SEBI guidelines.

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Image: NYSE Euronext.
Photographs: Reuters
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Available indices for trading

Foreign indices who wants to get listed on NSE should have following characteristics

1. Derivatives of foreign indices should be listed on any of the foreign stock exchanges authorised by SEBI.

2. Eligible foreign index should have a market cap of $100 billion or more.

3. Eligible foreign index should be a broad based index (comprising of at least 10 stocks wherein no single stock has weight of more than 25%).

Important indices which are available for trade are S&P 500, Dow Jones, FTSE 100 and many more.

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Image: People look at an electronic board at a brokerage house in Shanghai.
Photographs: Aly Song/Reuters
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How to start

If you are a new investor and do not have an overseas trading account you will have to open an overseas trading account first. For this you need to fill up a new account opening form. You will also have to furnish copies of the identity and residence proofs as mentioned below:

Proof of identity / residence:

1. Copy of valid passport (as a proof of identity and residence), or

2. Copy of valid driving license (as a proof of identity and residence), or

3. Copy of PAN card (as a proof of your identity) and banker's letter (as a proof of your residence)

Conclusion

If you possess good knowledge of foreign market, SEBI's step provides you with nice opportunity to extract benefit by going global. It's high time you match your wits with global investors.


Image: A woman drinks coffee in front of the stock exchange in Sao Paulo.
Photographs: Nacho Doce/Reuters
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