This article is about the pros and cons of opening an overseas currency trading account.
New rules were introduced to regulate the currency trading market during 2010. This is applicable to the US market. One of the chief reasons for this was to offer the investors in the market some protection. In line with the 2010 US regulatory implementations, some other major currency countries also implemented similar rules.
Should You Open an Overseas Forex Account?
There are a couple of benefits to opening an overseas account. Some countries may offer higher leverage to your country. Another benefit could be the tax benefits related to forex earning. The different countries treat forex earnings in different ways. In some countries the income is treated as tax deferred. This means that the gains are taxable at the capital rate when the funds are withdrawn from your account. In some countries, foreign exchange earnings are treated on an accrual basis which means it is added to your normal earnings when you submit your annual tax return.
Risks of Overseas Currency Trading Accounts
There are a few risks linked to opening an overseas currency account. Unless you are fully aware of the mechanics of the rules related to forex brokers in the country you wish to open the account in, you could be at risk of unscrupulous brokers. The detection and prevention of scams becomes more complicated and more difficult to recognise in time to save your funds. The competitive levels between brokers may not exist in a foreign country which means as the trader, you will not receive the benefit of tighter spreads. You should consider the protection you are offered by your domestic regulatory body and try to determine if you will obtain similar protection with an overseas account.
The rules for forex brokers change from one country to the next. In certain countries brokers need to be registered with regulatory bodies. There are certain conditions applicable for them to maintain their membership of certain bodies. If you intend opening a foreign currency trading account, you should do the regular checks on both the broker and the regulatory body. You should do checks on the broker to determine if they are indeed registered and which boards they are registered with. You should check on the regulatory body to determine the rules and regulations that they stipulate for the brokers.
When you require a forex broker, there are certain steps you have to follow. Making the decision to open an overseas account does not relieve you from this task. You should follow the same procedure as you would for a local forex broker. You should consider that it will become more difficult to keep in touch with your broker due to time differences. If you need to place a telephonic order, you may experience problems if your broker offers support only during its local trading session.
Opening an overseas trading account has distinct benefits and pitfalls for traders. You have to ensure that you will be receiving the same high standard of service that you would look for in your country.