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What is an External Market?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 01 December 2016
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An external market is a market for investment opportunities which are offered outside the jurisdiction of a specific country. These investments are typically put up for sale in multiple countries at once, allowing international investors to pick and choose from a range of investment options. Things traded on the external market can include stocks, mutual funds, futures, and bonds. There are both risks and benefits with such investments which are carefully evaluated before people and institutions make investment decisions. Companies known for the reliability of their issues in this market will tend to attract more investors.

There are a number of alternate names for this market. People may refer to it as the offshore or international market, for example, referencing the fact that the trading takes place beyond national borders. The term “Euromarket” is also used. In contrast with the external market is the internal market, which covers investments available within the boundaries of a given country. Something like a municipal bond, for example, would be traded on the internal market.

The biggest flaw with investing in the offshore market is that it is less closely regulated than the internal market. Because these investments are offered outside national boundaries, there are fewer regulations and the regulations can be inconsistent and confusing. For example, if a German bank offers bonds in American dollars to investors in Britain, Spain, and Japan, it can be difficult to determine which regulations should apply to protect investors.

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Because of the risks, the people who invest in the external market are usually experienced individuals and institutions with diverse portfolios. As an incentive to invest, the people offering these investments also usually offer higher rates of return than they do on the internal market. Trading securities on the external market can be a way to generate steady returns, as long as people invest wisely.

New issues are made on the offshore market on a regular basis. When a financial institution plans to issue a new security on the offshore market, a formal announcement is made providing information about the investment and the estimated rate of return. People can access this information through financial publications or financial professionals who keep up with new investment opportunities as part of their work. Individuals who would rather not deal with the external market directly can opt to invest instead in funds which may hold some investments in the offshore market.

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stoneMason
Post 3

So is investment in countries of the European Union considered external market investment or internal market investment?

bear78
Post 2

@ankara-- I think your take is a bit exaggerated. Of course there are risks and investing in an external market requires much more research and experience than investing in an internal market. But this doesn't mean that every offshore investment is going to go badly.

If people work with financial advisers (and maybe also lawyers) who are familiar with the laws, regulations and taxes in these countries, the risks of an external market can be greatly reduced. It's also important for investors to only work with firms that they completely trust. Because filing lawsuits against firms that function in multiple countries is very difficult.

There is a lot of offshore investing taking place despite these potential risks. The good thing is that financial advisers and investors are becoming more and more familiar with how things work. Things are not as difficult as they used to be a decade ago.

bluedolphin
Post 1

I agree that investing in external markets are too risky. It's not easy for governments to regulate these activities when the investments take place in different countries. Laws become confusing and the scary part is that some investors take advantage of this confusion to carry out illegal activities. I personally would not want anything to do with it such investments.

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