Differences between ADRs and regular stocks Differences between ADRs and regular stocks Differences between ADRs and regular stocks

Differences between ADRs and regular stocks

Sean Teo

Sales Trader

What are American Depositary Receipts (ADRs)?

ADRs are financial instruments that represent ownership in shares of foreign companies. They are issued by US banks and trade on US exchanges. ADRs provide global investors with a convenient way to invest in foreign companies without the complications of trading on foreign exchanges.

Differences between ADRs vs Regular stocks

Advantages of ADRs vs Regular stock

  1. Diversification: ADRs enable investors to diversify their portfolio by gaining exposure to international markets which may not be available in the US. This reduces risk and potentially enhances returns by investing in foreign markets.
  2. Accessibility: ADRs offer investors an easy way to invest in foreign companies without the complexities of international investing including exchange rate fluctuations and transaction fees. This opens a wider range of opportunities beyond US stocks.
  3. Avoiding FX conversions: ADRs trade like regular stocks, making it convenient for investors to invest in US dollars without FX conversions. Dividends are also paid in US dollars, which simplifies the process of receiving dividend payments. But please note the implicit FX risk of investing in a company with non USD balance sheet in USD remains.

Disadvantages of ADRs vs Regular stock

  1. No voting rights: Regular stocks typically offer voting rights in company decisions while ADR holders are not necessarily entitled to the same rights.
  2. Liquidity: Regular stocks usually have better liquidity as they trade on the domestic exchange while ADRs could have lower liquidity which means you could be paying higher spreads to trade them.
  3. Costs: ADRs may have additional fees i.e. administrative and currency conversion costs. Administrative costs include charges from the Depository Trust Company in the US for holding ADRs and that can be in the range of 1-5 cents per share per year. Currency conversion costs exist because the ADR is priced in USD instead of the local currency.
  4. Company data: ADRs have differing regulatory requirements which could affect the levels of information investors can get their hands on. E.g. US uses GAAP (Generally Accepted Accounting Principles) and Hongkong uses IFRS (International Financial Reporting Standards)
  5. Trading hours: ADRs will be restricted to the trading hours of the US stock exchanges while regular stocks will follow the local stock exchange trading hours. Domestic investors who wish to trade during their daylight hours might prefer to buy domestic shares to facilitate management of their positions and orders.

Which is better?

Despite the advantages of ADRs, regular stocks may still be preferable for investors who look for the purest form of equity ownership, with currency exposure, voting rights and liquidity. Regular stocks have lesser fees compared to ADRs and they have a higher level of transparency. For those investors who are looking to build a well-diversified portfolio, direct regular stocks widen the universe of available stocks.

Ultimately, investors will need to weigh the advantages of both ADRs and regular stocks based on their strategies, risk appetite and investment objectives.

Introducing Saxo: Easy access to international markets

A leading investment platform like Saxo offers investors a wide range of investment opportunities, including stocks, ADRs, futures and leveraged instruments.

Saxo offers both the regular domestic stocks and ADRs which investors can leverage on to make better informed decisions that are aligned with their investment strategies and objectives. For example; we have Alibaba listed in Hong Kong as a regular domestic stock while also having its ADR listed in the US, Germany and Switzerland. The wide range of product options Saxo offers will ensure that investors will find something that suits their investment objectives.

Sign up for a Saxo Account here: https://www.home.saxo/en-sg/accounts/openaccount
Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.