Offshore forex brokers

Lesson #6: Offshore Forex Brokers.

This section of the site is dedicated to two important concepts in online forex trading: Offshore Forex Trading and Offshore Forex Broker. How are these two concepts affecting your trades?

Traders refer to the Forex Exchange Market when talking about the market in which currencies are bought and sold. It is the largest financial market in the world and one of the most flexible for its users.

An example of an offshore currency market can be done imagining a person living in Germany trading GBP, USD or stock through a forex broker that is located in Russia. As you can see, the German person is not trading his own currency, but two different ones and through a company that is not set up in Germany or the Euro zone.

An Offshore Forex Broker is a Broker that is operating from overseas in a country where the presence of less regulations and constraints makes it easier for people to trade foreign currencies. This is only making it easier and does not imply any negative sides, but just an increase in the opportunity to gain bigger profits out of your deals.

The offshore online broker represents one of the most important factors in the forex market and this is due to the fact that much of the flexibility of a customer is linked to the Broker that they are dealing with.

Every user can decide to trade using a broker in your own country or one that is located in an area whose competitive advantages are going to benefit your trading conditions.

All of that falls into the area of competence of trading offshore and PaxForex represents the ideal choice to get the best trading conditions and a safe trading environment.

The main advantage connected with the use of a offshore forex broker is related to the low requirements concerning the due diligence.

Offshore trading accounts.

Forex Brokers refer to due diligence as the bureaucracy that is necessary to open an offshore forex account. This brings a reduction of the effort that is necessary to open an offshore forex account for a potential client.

Offshore Forex Trading has many advantages. First of all, you are going to trade at lower spreads and with better leverages. Secondly, you would be able to receive promotions that are highly valuable because offshore brokerage is less tightened to different kinds of taxes and therefore they can transfer their savings to their clients. One example of those transfers can be seen in PaxForex’s unique promotions to its clients, such as the 100% Deposit Bonus.

The Offshore Forex Trading Market is very big in size and has many participants. This brings the market to be characterized by great earning opportunities that cannot be taken advantage of through the use of an on-shore broker. Currently, the market did not stop its growth and actually increased the opportunity of profit for traders.

Trading through an offshore broker does not involve any limitation and therefore you are be able to make all the trades you want and using all the techniques you want and might be familiar with.

Concluding, the Offshore Currency Trading market is characterized by:

The transactions in each currency take place in a different place than the country of its issue. More room for profit More opportunities for traders Better trading conditions Less due diligence is expected from traders More forex bonus promotions and therefore better services are offered to traders.

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All Forex brokers that accept US residents as clients.

US regulated forex brokers.

Note: We don't include IBs(introducing brokers) in this list.

US Brokers are regulated by NFA & CFTC. They follow strict standards and procedures, which are often found too strict for free trading than other parts of the world. Some examples:

Limited Leverage Maximum: Forex 1:50 Options 1:20 (released in 2010 US Forex brokers with high leverage? Some US brokers have international branches in other countries. They offer leverage higher than 1:50.(Note: these branches operate differently and are not regulated by NFA or CFTC) No Hedging & FIFO US brokers don't allow hedging and they must implement FIFO (First In First Out). If you open more than one position on a currency pair, you must close the first before closing the second one OFAC Restrictions The Office of Foreign Assets and Control (OFAC) has placed limitations on who US forex brokers can accept as a client. Furthermore, US brokers tend to restrict their business to a certain class of traders. Credit Card are not allowed to fund forex account.

Why many offshore international forex brokers don't accept US residents as clients.

Mostly because Dodd-Frank Act in the US requires that Forex brokers that want to attract US citizens must be registered with NFA & CFTC. Many international forex brokers find this costly and difficult. Many of them are also not willing to be registered by the two bodies in the US .(Read more: corpgov. law. harvard. edu/2014/04/03/dodd-frank-rules-impact-end-users-of-foreign-exchange-derivatives/)

What is Dodd-Frank Act? The Dodd–Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111–203, H. R. 4173; commonly referred to as Dodd-Frank) was signed into federal law by President Barack Obama on July 21, 2010 at the Ronald Reagan Building in Washington, DC. Passed as a response to the Great Recession, it brought the most significant changes to financial regulation in the United States since the regulatory reform that followed the Great Depression. It made changes in the American financial regulatory environment that affect all federal financial regulatory agencies and almost every part of the nation's financial services industry.

Offshore forex brokers that still accept US Clients:

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I’d like to say that it’s not that if broker is regulated then your money is in safe. Regulated brokers can be scam. There are good and very popular brokers among unregulated .

Forex Brokers Guide.

Your capital is at risk. Trading on margin involves high risk, and is not suitable for all investors. Before deciding to trade forex or any other financial instrument you should carefully consider your investment objectives, level of experience, and risk appetite.

Market News.

Offshore destinations are famous for its light touch regulation, if any. They are attractive locations to forex and binary options brokers, as it is relatively easy and cost-effective for startups to register and run a brokerage business. Besides, offshore zones are generally known for their lax regulation and non-existent corporate taxes.

One of the most popular offshore jurisdictions are Belize, Mauritius, Saint Vincent and the Grenadines, Marshall Islands, British Virgin Islands, Cayman Islands, the Seychelles, Dominica and Vanuatu.

Forex brokers registered in some of these offshore zones have to satisfy some prerequisites, such as capital adequacy to demonstrate their good financial standing:

$100,000 - Cayman Islands;

$28,000 (MUR 1 000 000) - Mauritius;

By comparison, brokers regulated by UK’s FCA and by Cyprus’ CySEC are required to maintain net tangible assets amounting to minimum EUR 730 000 and keep the client funds in segregated accounts.

Trading with offshore brokers is extremely risky. Many of these brokers are scam companies seeking to cut financial and regulatory corners. Unlike with the FCA and other EU financial watchdogs*, regulatory bodies in offshore zones place little emphasis on compliance-checking, reporting and supervision and, more importantly, companies are not required to report individual transactions. This means that an offshore broker can simply delete your profitable trade or deny withdrawal, and you can do nothing to get your money back.

We are not suggesting that all brokers regulated offshore indulge in fraudulent practices, however we advise traders to be extremely cautious when dealing with such. Clients of offshore brokers basically have no protection in case something goes wrong - none of these companies is obliged to arrange a compensation scheme in the event of insolvency.

That is why it is highly advisable that traders avoid offshore brokers and invest with brokers supervised by proper regulators, such as UK’s Financial Conduct Authority (FCA). All clients of FCA-regulated brokers are protected by the Financial Services Compensation Scheme up to £50,000 per person, in case the company goes bankrupt. All CySEC-licensed brokers, on the other hand, are members of the Investor Compensation Fund, which is able to pay compensation up to €20,000, If the company is in default.

*MiFID I introduced a harmonised transaction reporting regime across the EU in 2007. MiFID II (which will come into effect in 2018) broadens the scope of instruments subject to reporting and expands the current objective of detection and investigation of potential market abuse into monitoring of the fair and orderly functioning of markets.

FXTM is a EU regulated forex broker, offering ECN trading on MT4 an MT5 platforms. Traders can start trading with as little as $1 and take advantage of tight fixed and variable spreads, 1:1000 leverage and swap-free accounts.

easyMarkets is a CySEC and ASIC regulated broker offering access to over 300 trading instruments, tight fixed spreads, no slippage and a 50% deposit bonus.

HY Markets is global forex broker with more than 30 years of operational experience, regulated by FCA in the UK. Trade Forex with spreads as low as 1.8 pip.

XM is broker with great bonuses and promotions. Currently we are loving its $30 no deposit bonus and deposit bonus up to $5000. Add to this the fact that it’s EU-regulated and there’s nothing more you can ask for.

FXCM is one of the biggest forex brokers in the world, licensed and regulated on four continents. FXCM wins our admirations with its over 200,000 active live accounts and daily trading volumes of over $10 billion.

FxPro is a broker we are particularly keen on: it’s regulated in the UK, offers Metatrader 4 (MT4) and cTrader – where the spreads start at 0 pips, Level II Pricing and Full Market Depth. And the best part? With FxPro you get negative balance protection.

FBS is a broker with cool marketing and promotions. It runs an ongoing monthly $999 forex contest, offers a $5 no-deposit bonus for anyone willing to try out its services, and an FBS MasterCard is also available for faster deposits and withdrawals.

FxChoice is a IFSC regulated forex broker, serving clients from all over the world. It offers premium trading conditions, including high leverage, low spreads and no hedging, scalping and FIFO restrictions.

Grand Capital is a MT4 forex broker, offering $500 no deposit bonus and 40% bonus on all deposits.

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Offshore Forex Broker Account with Debit Card.

There are many reasons why people decide to open bank accounts offshore. They can include a better privacy protection, access to better banks where money are safer or simply better services that home based banks don't offer. The same reasons apply when it comes to brokerage accounts, whether it's stock trading accounts or offshore forex broker accounts.

There is a big misconception about the term "offshore" when it comes to the general public. Since the mass media tends to sensationalize everything and to make a big deal out of things that are not even newsworthy, there is a huge media campaign against "offshore tax havens" where journalists with zero legal background and economic understanding express their outraged opinions about scandals such as "The Panama Papers" without having a clue about what they are talking about. Considering all the bad reputation the media has given to the very idea of everything "offshore", I think it would be a good idea to first explain what the term "offshore" stands for and the actual truth behind offshore accounts.

What are offshore accounts? Are they legal?

The term "offshore account" refers to any account located in a different jurisdiction from the country of residence. For example, if a French resident opens a bank account at Barclays Bank in the United Kingdom during his trip to London, that is considered an offshore account. The same logic applies to any other pair of countries: Greek residents may have offshore accounts in Sweden, German residents can have offshore accounts in Switzerland and Chinese residents can have offshore accounts in Singapore. You get the idea.

Figure 1: Banks in Singapore are considered among the safest in the world.

The mass media narrative is that people open offshore accounts to hide their illegal activities and ill-gotten money or to evade taxes. While this may be true in the case of a very small number of people, we don't have to forget that most people doing illegal activities and evading taxes use domestic accounts. There is nothing wrong with offshore accounts as compared to domestic accounts. Both of them can be used for legal activities and legitimate reasons while criminals may use them for evil purposes. Another argument against offshore accounts often used by the media is the famous "tax haven" status of some countries where many people open offshore accounts. They think it is somehow evil to move your money into a tax haven, because you could have kept them somewhere else (as if your already taxed money are not yours to do whatever you want with them).

There are two main things many people fail to understand about the concept of going offshore:

1) Offshore does not necessary mean Tax Haven.

2) Tax Haven does not mean illegal activity.

For the first part, it is worth mentioning that most offshore activities are happening in high-tax jurisdictions (a lot of foreigners do business and have accounts in the United Kingdom and United States which are not tax havens for sure). For the second part, it is worth pointing out that the vast majority of business and money that move through tax havens are legal and legitimate.

Actually, because of the continued pressure from the OECD and the international community made against those so-called tax havens, many of them now have stricter rules for opening accounts and the due-diligence requirements are so severe that it is much easier for criminals to use home-based banking institutions than to move into tax havens.

As a conclusion, it is 100% legal to have offshore accounts , from bank accounts to brokerage or forex trading accounts. There may be restrictions for people from certain undemocratic countries such as North Korea, but for people living in free countries it is perfectly legal to have offshore accounts. However, for people who reside in certain jurisdictions such as the United States, there are some mandatory reporting requirements for those who hold offshore accounts. If you live in such jurisdiction and you want to open an offshore account, it is highly advisable to consult a tax lawyer or an accountant to make sure you do the correct reporting and stay on the safe side.

Should you choose an offshore forex broker account?

Going back to forex trading, which is the main topic of this website, I will discuss about the benefits of having an offshore forex trading account. First of all, it is worth noting that not all countries have home-based forex brokers. If you live in a country where there are no domestic forex brokers, you have no choice but to go offshore if you want to trade forex. Even if you live in a country where there are several domestic forex brokers, you may find their conditions to be less attractive than those offered by the leading international brokers. Also, if you intend to open a large forex account it is important to trust the broker and be confident that your funds are secure.

In most countries, the financial industry is not very developed and advanced services such as forex trading are not available. Financial institutions offer only basic services and forex trading is not regulated so there are no brokerage companies offering them to retail clients. Even in many developed economies you will find it very hard to encounter a good retail forex broker that can offer competitive trading conditions such as advanced charting, tight spreads, good execution and high leverage.

From my vast experience about forex trading, I can say that there are only a handful of countries where you can find reliable forex brokers. Those countries are: United States, United Kingdom, Switzerland, Denmark, Cyprus, Ireland, South Africa, Hong Kong, Japan and Australia. I might have missed one or two countries that also have good domestic brokers, but you get the idea. If you don't live in one of the countries mentioned in the list, it is very likely that you are unable to trade forex using a domestic broker and benefit from all the advantages modern brokers offer to their retail clients. This means that except for people living in about ten countries, the rest of the world willing to trade forex should choose an offshore broker (actually there may be good reasons for people living in the mentioned countries as well to choose a foreign broker, because you may find that the best broker for you is from another country).

Having an offshore forex brokerage account also has a side benefit. By moving some of your money offshore you diversify the risk of having all your eggs in the same nest. Most people in this world only have a domestic bank account (or several domestic bank accounts) and are totally exposed to the financial system of their home country. History shows us many situation when local banks collapsed or when hard currency held in local banks was forcefully converted into local currency just to be devalued afterwards. Just as it is good to hold foreign currency to diversify from the risk posed by the devaluation of your country's currency, it is also good to hold a foreign account (a bank or a brokerage account are equally good) to diversify from the risk of a domestic financial meltdown.

Offshore account with debit card.

The best way to benefit from having an offshore account is to have a debit card attached to it. This way you will be able to use the money held offshore instantly and without additional repatriation expenses. With an offshore debit card you can make online purchases, you can pay at any POS where Mastercard is accepted (most offshore debit cards are Mastercard, but some institutions also offer Visa cards) or you can just withdraw cash from any local ATM. Another advantage offered by your offshore debit card is the possibility to have a debit card in an international currency such as the US Dollar or the Euro and avoid paying conversion fees when buying online or when going abroad.

Local banks in many less developed countries don't offer debit cards that work internationally. Such cards will prove to be useless if you vacation abroad. In such situation, having a Mastercard issued by a solid international forex broker will be more than useful.

If you want more arguments for having an offshore account with a debit card attached, think about the countries experiencing a shortage of foreign currency reserves that are implementing different types of capital controls. Just look at what Nigeria did in 2016 because of the oil price crash that left the country without much needed US dollars. Because of reduced foreign exchange reserves and a local currency (the Naira) pegged to the US Dollar, the National Bank of Nigeria was forced to limit the amount of foreign currency local banks are able to provide to their clients when traveling abroad. Many Nigerians traveling to Dubai discovered that their local debit cards had very low daily spending limits and had their vacations ruined, although they had enough money in their local bank accounts. This happened because their country was experiencing economic hardship, and even if they had US Dollars they were not totally insulated from the economic problems of their country, because they could not use them freely abroad. Having an offshore debit card would have proven to be amazing in such circumstances.

Another good example of a local shortage of money is the Greek debt crisis. During the bailout negotiations the Greek National Bank was forced to impose very strict capital controls and people were forced to queue at local ATM machines to withdraw a few Euros every day, because they were not allowed to withdraw more by their local banks which were running out of cash. However, Greeks who had debit cards from foreign banks were able to withdraw their regular amounts of cash even during the crisis, because their banks were well capitalized and not vulnerable to the bailout negotiations.

Figure 2: Capital controls can make your money inaccessible for a long time. (Image source: internationalman)

There are many other examples of capital controls or currency pegs gone wrong only if we look in the past decade. Venezuela, Argentina, Iceland, Cyprus, Greece and Nigeria come to mind, but I am sure I have missed many others which didn't make big headlines in the international news but affected local people.

Forex brokers with debit card.

Finding a forex broker that offers a debit card attached to your trading account is not easy, as most brokers don't offer this benefit to their clients. I personally know only a few high profile forex brokers that offer debit cards.

XM is one of the largest forex brokers in the world judged by the volume of daily transactions and the number of clients (it recently announced that it surpassed 500,000 clients). It is a real global broker serving clients from all over the world (except The United States, North Korea, Iran, Myanmar, Cuba, Sudan and Syria). Their website is available in 23 languages and their platform has received awards in many countries from different continents (including China, Saudi Arabia and Nigeria among others).

The broker is based and regulated in Cyprus (CySEC license number 120/10) so it has to adhere to the financial regulations of the European Union (MIFID). It also holds an Australian license from the Australian Securities and Investments Commission (license number 443670). XM is also registered with the financial regulators of the following countries: United Kingdom, Germany, Spain, Hungary, Italy, France, Finland, Poland, Netherlands and Sweden. This means XM is one of the most regulated brokers in the world.

Figure 3: A sample debit card from XM.

I personally like XM very much and consider it to be one of the best forex brokers in the world regardless of the debit card, so this extra feature coming from such a Tier 1 broker is amazing. They offer everything a forex trader may think of in terms of trading conditions (high leverage, segregated accounts, virtual private servers for electronic advisers, a lot of deposit and withdrawal methods, very fast STP execution, no requotes, low spreads, they allow scalping and the list goes on). On top of that, XM keeps client funds in a segregated account at Barclays Bank which gives an extra layer of safety to your funds and ensures excellent processing for your offshore debit card worldwide.

I think anyone who is serious about forex trading should open an account with XM and give it a try. It is one of the best forex brokers I have ever used. To learn more you can visit XM Website.

Hot Forex is a very good broker from Saint Vincent and The Grenadines that offers a Mastercard debit card for quick access to the money in your account. Hot Forex offers all the tools a trader may need, and the money in your account are very easy to manage since you can transfer money from the Hot Forex Wallet to the debit card or to live trading accounts instantly at no cost. More information can be found on their site: Hot Forex Website.

Figure 4: Hot Forex Mastercard.

While I don't know for sure about other forex brokers offering debit cards, I do know about one more broker that used to have debit card in the past, but no longer advertises it on the website. The broker is Ava Trade from Ireland (Ava Trade is a large broker but it's a market maker so it is not among my preferences). I don't know if Ava still offers a debit card, but they used to provide it in the past and may still be doing it.

As for US traders willing to open an offshore forex account (even without a debit card), I'm sorry but I can't recommend anything because the brokers I work with and the ones I know more about don't accept US traders. I really don't know if there are any solid brokers outside of the US that are willing to work with US clients considering the US regulations and the huge amount of paperwork and reporting required from foreign financial institutions that work with US residents. The only foreign broker I know of willing to accept US clients is Binary Mate which is a binary options broker, so not exactly a forex broker or something I would endorse myself.

More articles about forex brokers:

Choosing a forex broker can be a very daunting task because the number of available options is overwhelming. With so many brokers advertising themselves as being the best, people go to specialized websites to read reviews and see broker rankings hoping they will find which broker is their best choice. Read More.

A lot of traders think that a big broker is better than a smaller one because a larger company has many advantages such as economies of scale, a better liquidity position and is the subject of higher scrutiny from the public and the regulators. While this basic assumption has some merit. Read More.

Since there is a lot of confusion among retail traders about the overall quality of forex brokers, we have decided to create an advanced rating system and evaluate all the major forex brokers in the world according to the same set of criteria. Because we are aware that it is impossible to evaluate all forex brokers. Read More.

For the second consecutive year, Nigeria has been the fastest growing market for retail forex trading. The industry is seeing a stable growth rate around the world, especially in Africa and Asia, but among all countries Nigeria is growing at the fastest pace. What makes forex trading so attractive to Nigerians. Read More.

1. CYSEC (Cyprus Securities and Exchange Commission)

2. ASIC (Australian Securities and Investments Commission)