Want Access to Foreign Small-Caps? Schwab, E-Trade Widen Your Options

Correction: This article removes the commission in the eighth paragraph, which previously stated a dollar amount.

NEW YORK (TheStreet) -- Recently I've written on how investors should check out the London Stock Exchange. With a record bull market for the Dow Jones Industrial Average (DIA) and the Standard & Poor's 500 Index (SPY), savvy investors should be looking to hedge their bets. I suggest looking to foreign small caps.

So how can investors make this jump?

One easy way is with a Charles Schwab (SCHW) Global Account, which makes foreign transactions as simple as buying and selling blue chips on the Dow or S&P 500.

When dealing with Charles Schwab, forget whatever you saw on "Boiler Room" or "The Wolf of Wall Street."

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Schwab is set up to help, not hose, investors on any financial exchange. The Schwab Global Account offers online access to 12 foreign markets in real-time trading with the local currencies. For the large-cap stocks on the London Stock Exchange, American Depositary Receipts (ADRs) can be purchased. But for promising small caps like American (BOOM:London), called the "Youtube of Radio" due to its social media presence, and Litebulb (LBB:London), a consumer products company selling items in over 30 countries, transactions must go through the London Stock Exchange.

After opening an account, investors deposit U.S. dollars.

The investor has the option of converting to pounds (or another foreign currency) immediately or when ready to trade. To maintain maximum flexibility, it is best to keep the account in U.S. dollars. Each time a conversion to a foreign currency takes place, a fee is charged. It is always best to minimize trading costs, so keeping Greenbacks in the account until ready to trade is the most prudent way to proceed.

In terms of expenses, commissions are higher for the London Stock Exchange than for U.S. exchanges (commissions vary by market with Schwab).

But that is balanced out with the higher volume. More liquidity leads to better execution. That should result in better pricing. Any stock should always have more volume on its home market exchange. That facilitates transactions more to the benefit of the investor, not the exchange.

The British economy is also more conducive to small cap stocks succeeding.

Robert Proctor, CEO of Audioboom (BOOM:London), pointed out that former Prime Minister Margaret Thatcher was the most recent to describe England as, "a nation of shopkeepers." Both Napoleon and Adam Smith used that phrase too to make a point about the mercantile spirit of Great Britain.

There's truth in the adage, and that leads to many appealing small caps available.

To buy these London-listed small-cap stocks, an individual investor can log onto a Schwab Global Account. If the funds are already in pounds, then the trade can be executed by a few keystrokes if the stock is eligible. (This protects the investor by limiting buying and selling to the major foreign exchanges). Should the currency conversion need to take place first, that is easily accomplished. If there are any questions, there is plenty of research from both Schwab and third parties. For personal service, Schwab has a 24-hour hotline that is very knowledgeable (and was a big help in preparing this article).

Not interested in switching brokerages? E-Trade (ETFC) and several other brokerage houses also allow for online trading with the London Stock Exchange and other foreign markets.

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Keep an eye out for stocks rated highly by stockbroker.com. The bull market in blue chips has treated those owning stocks on the Dow Jones Industrial Average and Standard & Poor's Index well for over half a decade now. Diversifying with foreign small caps will expand a portfolio, providing needed risk management along with a tremendous potential for profits from global commerce.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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