American Depositary Receipts (ADRs): A Beginner's Guide

The ADR is a commonly used investment tool in order to invest in foreign corporations. Here are the basics of the ADR and how it can be beneficial to you as an investor.

ADR

The term ADR stands for American depository receipt. This is a type of investment that you can purchase on the stock market. With this type of investment, an investment bank purchases a certain number of shares from a foreign corporation. They will then create their own shares that they will sell on the stock market that represent the shares that they purchased from the foreign company. In this way, you can invest directly into a foreign company without having to go overseas to purchase the security.

Benefits

This type of investment can provide you with a few different benefits. For example, many investors do not like to go through the process of purchasing foreign stock because of the difficulty involved. With the ADR, you can avoid any potential problems and invest into a domestic investment bank.

This type of investment can help you create diversification in your account by investing in companies that are not in the domestic economy. In this way, you will not have all of your funds tied up in one stock market.