Why a US-Traded ADR Can Fall When the Local Stock Rises

A London share finishes higher. Its American depositary receipt finishes lower in New York. Both prices can be perfectly sensible. The missing entries on many traders’ scratchpads are the depositary ratio, the units of the London price and the time printed next to it.

Start with deposit agreement and contemporaneous local share quote. Look for shares per receipt and currency units of the share price. The calculation you want is the dollar translation of the ADR’s underlying shares. A common reason for a discrepancy is stale local close or a ratio changed by a corporate action. The first worked figures below are illustrative. The historical section identifies the actual observations used and lets you change one assumption at a time.

Translate pence into pounds first

Take an illustrative local close of 428.6 pence. One ADR represents two ordinary shares, and sterling trades at USD 1.2746 per pound. Divide 428.6 by 100 before multiplying by two and by 1.2746. The result is about USD 10.93 per receipt. If the receipt represented half a share, the multiplier would be 0.5. Read the issuer’s depositary terms and check the current ratio after any corporate action.

If the local shares rise 1.2% and sterling loses 2.1%, the translated move is 1.012 × 0.979 minus one, or about negative 0.93%. A foreign stock can deliver a positive result to a local investor while the same underlying exposure loses dollars. This calculation assumes constant ratio and ignores distributions, fees and premiums or discounts.

Reconcile the clocks on two exchanges

When London is closed, the last local share price is stale. US market participants can still reprice news, futures, FX and liquidity. An apparent premium over an old London close does not establish an executable conversion arbitrage. Record both venues’ trading calendars and a simultaneous two-sided quote if you need to compare transferable value.

A dividend is a separate cash flow. Identify the ordinary shares represented per receipt, the declared local dividend, currency conversion date, applicable withholding and depositary fee from the actual advice. Reinvested dividends and raw closing prices answer different return questions. Keep that cash ledger separate from the screen comparison.

A dividend reconciliation in dollars

Suppose an ordinary share declares 12.4 pence per share and a receipt represents two shares. Gross sterling income per receipt is £0.248. At a hypothetical conversion of 1.2654 dollars per pound that is about $0.314 before any applicable withholding, depositary charges or rounding. Multiply by the actual receipts on the record date and reconcile the payment advice. A current exchange quote can differ from the depositary’s conversion on the actual distribution date.

A ratio change is another trap. If the program changes the number of underlying shares per receipt, the ADR share price, holding quantity and comparable historical series may all need adjustment. Use the depositary’s notice to confirm effective date and new quantity. A large change in the unadjusted price can be mechanical even if sterling and the underlying business changed little.

How to check the figures yourself

Start with the ordinary share identifier. A company can have more than one class, and the ADR may represent a specific one. Write the ratio in words, multiply the local share price by shares represented and convert the result to USD. Compare with a contemporaneous receipt quote after costs.

A screen showing a London quote in GBX is displaying pence. A sterling cash dividend may also be quoted in pence per ordinary share. Before blaming FX for an apparent discrepancy of a factor of one hundred, reconcile the local units and depositary ratio against the issuer notice.

Historical cases and a reproducible dollar comparison

To see what changes the dollar decision, take one clearly defined exposure: two UK ordinary shares at 586.4p per receipt. The historical column follows GBP/USD, using daily Federal Reserve exchange-rate observations distributed through FRED as DEXUSUK. The exercise uses 96 complete or selected calendar months from 2017-01 through 2024-12. The fixed research window runs from January 2017 through December 2024. Rates are publicly observed. Retail fees, contract terms and decision rules in the examples are assumptions.

Divide 586.4 pence by one hundred to express pounds, multiply by two ordinary shares and then by spot dollars per pound. Keep the ratio and share price constant. The output isolates FX translation from corporate news and from a US market premium.

The modeled output is measured in US dollars. Its sign and units are essential when you work backward from a chart. Write the initial reference, the final reference, their dates and the modeled result in separate columns. Calculate with unrounded inputs, then round for display. A dollar-cent display may conceal small changes in the reference, especially where the model floors an outcome at zero. A currency-only estimate is most useful beside a simultaneous local share quote. Applying it mechanically to different closing times folds new information into the apparent ADR premium.

Across these months the exchange quote rose 48 times, fell 47 times and was unchanged 1 times. The median absolute endpoint change was 1.66%. The 25th and 75th percentiles of signed endpoint returns, using the sorted observation at the floor of the fractional rank on a zero-based scale, were -1.48% and 1.69%. These are descriptive sample figures. A frequency of rising quotes is neither a rate of profitable trades nor the chance of a favorable outcome on a future payment.

The largest rise | 2020-07

Start with the largest signed monthly rise in this sample. At the last observation of 2020-06, the quote was 1.23690. At 2020-07-31 it was 1.31330, a signed change of 6.18%. Applying the exposure rule to the earlier price gives 14.51 US dollars. Applying it to the later price gives 15.40 US dollars. The resulting difference is 0.90 US dollars. The quote and the modeled amount need not move in the same direction. Read the numerator and denominator of the actual contract before interpreting a rising candle as a higher bill.

For a plausible contemporaneous alternative, use the first observation of the new month, 1.24740 on 2020-07-01, as the budget anchor. The modeled change to the same ending date becomes 0.77 US dollars. You have altered only the starting timestamp. That small adjustment matters when the prior month ended before a weekend or holiday. A report that chooses the better anchor afterward mixes performance evaluation with hindsight. Use the timestamp of the actual invoice, forecast or mandate if one exists.

Translate an ordinary share into dollars per receipt

Assume one receipt represents 0.5 ordinary shares and the starting local quote is 356.8 pence. Divide by 100 and multiply by the ratio and the initial sterling quote to find USD 2.21 per receipt. Give the ordinary shares a hypothetical return of 1.8%. Repeating the calculation with the ending sterling quote gives USD 2.39, a translated change of 8.09% before distributions and charges.

Freeze exchange at the first mark and the receipt would instead translate to USD 2.25. Subtract that amount from the new translation to get USD 0.14 per receipt attributable to translating the ending local value at a different rate. A USD market quote can differ from both calculations if the London cash market has already closed. Confirm the ordinary share identifier before calling the difference an arbitrage opportunity.

The largest decline | 2022-04

The steepest fall among the remaining months went from 1.31520 to 1.25650. The cross rate expressed in reverse would instead move from 0.76034 to 0.79586. Its signed percentage change is 4.67%, whereas the original quote changed by -4.46%. Reversing a percentage sign is only an approximation. Arithmetic returns in reciprocal currencies have different denominators. Use full-precision quotes when translating a dollar budget in either direction.

In the working example the unchanged exposure generated a modeled 14.74 US dollars at the end, against an original 15.42 US dollars. At the arithmetic midpoint of the two observed rates the modeled result would be 15.08 US dollars. By comparison the mean of the two modeled endpoint amounts is 15.08 US dollars. A linear conversion can make these coincide; a reciprocal or an option-like floor can separate them. This is a practical unit test for a budget spreadsheet built by averaging rates before conversion.

The quietest finish | 2019-11

A quiet monthly finish concealed a sequence of 19 observations. The first budget mark and last mark differed by only 0.00% in absolute quote terms. Between them, the lowest sampled exchange rate was 1.27900 on 2019-11-08 and the highest was 1.29650 on 2019-11-18. Their ordering is observable at the daily reference frequency. It says nothing about whether a stop or limit was touched first inside an individual trading day.

Including the original budget mark, the lowest and highest modeled amounts were 15.00 US dollars and 15.21 US dollars. A payment falling due inside this interval would use the terms available on its own date. Picking the cheapest date after seeing the month grants an option the original decision maker may never have had. Ask whether the underlying agreement allowed early settlement, whether the counterparty would accept it, and what financing or fees would accompany changing the date. The end-to-end change alone leaves out all three questions.

The widest daily range | 2020-03

For the widest remaining sample range, compare the recorded low of 1.14920 with the high of 1.31000. That spread is 12.58% of the previous month-end reference. If the exposure were valued separately at those two observations, the modeled amounts would be 13.48 US dollars and 15.36 US dollars. A full intraday high-low range could be larger than this sampled range. Treat these as independent reference valuations, not executable bid and offer quotes sitting on a dealer screen at the same instant.

Now place an administrative review on the middle observation, 2020-03-16. At 1.22780 the modeled amount was 14.40 US dollars. The remaining change to the final observation was 0.21 US dollars. This separates currency exposure before and after the person responsible could act. It is especially useful when a headline about the full month sounds alarming but the invoice was approved or the policy decision released much later. Use an actual approval timestamp for a real case.

The busiest path | 2022-11

This month has the greatest remaining sum of absolute observation-to-observation log changes: 18.86 percentage points. Its net endpoint change in ordinary percentage terms was 3.88%. Offsetting moves can make the first number large while leaving the second small. Absolute log movement is a path statistic. It includes both directions and must never be booked as the return someone earned by holding the exposure. Collecting every move would require knowing each reversal and being able to execute it after costs.

The annualized sample standard deviation calculated from the 20 log changes was 18.79%, using 252 observations per trading year. The mean level across this month’s daily exchange marks was 1.17274, whereas its median was 1.17985. Valuing the exposure at those two central rates gives 13.75 US dollars and 13.84 US dollars. The mean answers a question about evenly weighted observations and the median is the middle observation or average middle pair. Neither is necessarily the benchmark named in a specific agreement.

A month near the middle | 2018-03

Extreme outcomes attract attention. This case was chosen for being close to the median absolute monthly move among the remaining candidates, with an absolute change of 1.69%. Its 22 daily marks give an average modeled value of 16.39 US dollars. Valuing the same exposure only at the last mark produces 16.45 US dollars. The final observation therefore differs from the typical daily valuation measured by that average by a signed 0.06 US dollars. The difference can go either way; the average has no privileged status for a one-date settlement.

Suppose a report allowed one person to choose a monthly average and another to use the last observation. They could disagree by that amount while applying identical formulas and the same published data. Settle the disagreement by identifying the decision the figure supports. A month of evenly spread expenses calls for transaction weights or a stated approximation. A single invoice calls for its conversion date. A policy announcement needs a timed quote. The right measurement rule follows from the economic event and should be fixed before examining the answer.

Translate an ordinary share into dollars per receipt

Assume one receipt represents 1.0 ordinary shares and the starting local quote is 564.8 pence. Divide by 100 and multiply by the ratio and the initial sterling quote to find USD 7.79 per receipt. Give the ordinary shares a hypothetical return of -1.4%. Repeating the calculation with the ending sterling quote gives USD 7.81, a translated change of 0.27% before distributions and charges.

Freeze exchange at the first mark and the receipt would instead translate to USD 7.68. Subtract that amount from the new translation to get USD 0.13 per receipt attributable to translating the ending local value at a different rate. A USD market quote can differ from both calculations if the London cash market has already closed. Confirm the ordinary share identifier before calling the difference an arbitrage opportunity.

A sharp single step | 2022-09

The largest remaining single-step move was from 1.12690 on 2022-09-22 to 1.09210 on 2022-09-23. In ordinary percentage terms that is -3.09%. Against the exposure rule, this step changes the modeled amount by -0.41 US dollars. Because the observations can be separated by nonbusiness days, describe this as an observation-to-observation change. The file cannot reveal which hour accounted for it or whether liquidity was available at either published level.

To check a claim about that step, identify the calendar of releases and local holidays for both currencies, then match each event with its precise published time. Look for an independent price series that actually traded in the proposed interval. A gap between daily reference marks invites a hypothesis; following the sequence of executable quotes is how you could test it. Changing an amount solely because of the two marks is an accounting exercise. Attributing the difference to a particular trader, institution or economic release needs additional evidence.

A split-date budget | 2018-01

Take the average modeled valuation on the first five available dates, 15.90 US dollars, and on the last five available dates, 16.61 US dollars. Their difference is 0.71 US dollars. This case has the largest remaining absolute gap by that definition. A plan fixed in advance to value half the exposure against each group would give a weighted amount of 16.25 US dollars if the exposure and its charges can be divided proportionately. The result is a comparison of timing policies. It does not reveal an optimal execution date.

A fixed charge can break that proportional assumption if two actual transactions each incur the full charge. An indivisible futures contract or option can prevent splitting the quantity at all. An announcement time cannot be averaged across ten dates. Before applying the exercise, identify the specific constraint: stale local close or a ratio changed by a corporate action. Then identify which of the two windows an actual mandate would allow. Where the timing choice is unavailable, read the two amounts as a sensitivity range instead of an executable plan.

Build a same-minute comparison when both venues are open

Pick a timestamp at which both the local shares and US receipt are trading. Record the local bid and offer in local price units, the relevant FX sides, the depositary ratio and the US bid and offer. A putative purchase of the local exposure costs the local offer converted on the customer’s buying side. Selling the US exposure realizes its bid. A difference computed from two mids can vanish before allowing for conversion, settlement or depositary costs.

London and New York change clocks on different schedules in parts of the year. Use named exchange time zones and check the actual calendar when aligning quotes. If the London venue is closed for a UK holiday while the US venue remains open, the apparent discrepancy includes an entire information gap. Mark the evidence as a stale local comparison. There is no need to infer mysterious institutional demand from the mere fact that two asynchronously observed securities have different reference prices.

How to identify a usable GBP/USD setup on a chart

Open a five-minute GBP/USD replay and hide everything to the right of your intended decision. This is a hypothetical long case, constructed to show how stale local close or a ratio changed by a corporate action fits into an execution record. Use New York local time for the chart, retaining the actual offset for the date. For a restricted or offshore currency, this drawing describes a price sequence, not the availability of a US retail contract. An economic reference period, a release time and a bar timestamp belong in separate fields.

In the first diagram the reference low is 1.28277. The candle that trades below it reaches 1.28218 before price returns into the range. To describe that move as a sweep in ICT terminology, mark the existing level first. If the level only becomes obvious after the reversal, save the observation as a retrospective pattern. An increase in volume or a financial headline cannot reveal whose orders traded there.

The displaced leg reaches beyond 1.28423. Read bars five, six and seven as a sequence. A gap between the outer wicks brackets the interval from 1.28377 to 1.28413. It is a chart definition of an imbalance. Price could fill that interval, pass straight through it or never revisit it. Only the first return that satisfies a rule written in advance can provide a candidate entry for this particular exercise.

How to trade the idea on demo and define failure

For the rehearsal, a buy at 1.28394 follows a return into the marked interval. If the order fails to fill, record an unfilled setup and retain the original timestamp. Moving the order toward the next favorable candle after that candle forms changes the test. Keep the macro or account question separate: The independent document check concerns stale local close or a ratio changed by a corporate action. A convincing answer about that issue cannot make a missed entry executable.

The protective exit is 1.28185, beyond the sweep, and the planned target is 1.28770. For this long idea the favorable direction in the pair is higher. A live position can experience partial fills, a spread jump or a gap past the stop. For this drawing only we assume all levels execute exactly as stated. The second chart displays one favorable sequence so that the accounting can be checked. It supplies no evidence about how often such a sequence occurs.

Set an expiry for the entry and cancel the study if the invalidation trades before entry or if the spread makes the gross plan infeasible. If a coarse chart touches stop and target within one bar, lower-frequency OHLC cannot settle the order of events. Use properly timestamped executable quotes if available. Otherwise keep a separate ambiguous sample, and state that rule before counting wins. For this rehearsal the underlying document remains the source for the dollar translation of the ADR’s underlying shares.

Worked example in a US dollar account

Calculate the distance before calculating the money. The entry-to-stop distance is |1.28394 minus 1.28185| = 0.00209, or 20.9 pips. The target distance is |1.28770 minus 1.28394| = 0.00376, or 37.6 pips. Keeping absolute distances here avoids giving a short setup a negative risk amount. The sign of the actual result belongs on the fill record after closing.

At 16,000 base units, the distance to the stop represents 33.44 USD and the distance to the target represents 60.16 USD. The quote currency and the account currency are both USD, so no additional conversion is needed. Gross reward divided by gross risk is USD 60.16 / USD 33.44 = 1.80. Written as risk:reward this is 1:1.80.

Assume a round-trip cost of USD 2.20 on either completed outcome. We use executable entry and exit prices, so a spread already inside those prices must not be charged again. The simplified net reward is USD 60.16 minus USD 2.20 = USD 57.96. Net planned loss is USD 33.44 plus USD 2.20 = USD 35.64. Net R:R is 1:1.63 because USD 57.96 / USD 35.64 = 1.63. Financing, slippage and tax are excluded from this short rehearsal.

Check the losing branch with the same care as the winning one. If the exit slips by one additional pip against you, the quote-currency impact on this size is 1.60 USD before any conversion. A plan denominated in dollars should reserve for an adverse fill or skip a setup that cannot fit the intended budget. Keep the original quote and the executed price alongside the size and currency of the exposure.

To annotate the rehearsal, mark the existing swing first, then identify displacement and the interval between the outer candle wicks. For definitions and session context, see the school’s lessons on fair value gaps, order blocks, the London session, market structure shifts, and the Judas swing.

Sources and calculation notes

SEC investor bulletin on ADRs. SEC definition of an American depositary receipt.

Historical series and original records. DEXUSUK observations and units. The calculations use observations available when checked on November 14, 2026. Subsequent revisions can change retrospective comparisons.

Frequently asked questions

For the market conventions behind the worked examples, read spot and futures basis, shared dollar exposure, choosing an entry order, and the trading journal.