Who Benefits From Forex Trading?
If you have ever traveled abroad and exchanged currency, technically you traded forex. Yet, you did it from the practical standpoint: to be able to purchase goods and services in another country. For the same reasons, individuals and institutions participate in the forex market every day.
However, wherever there is a need, there can also be speculation. By analyzing the market patterns and studying seasonality and central bank decisions, you can profitably speculate on currency movements. In turn, you are helping to keep up the market’s liquidity, making the transactions cheaper for everyone.
Why Choose an Offshore Forex Broker?
There are 2 particular reasons why you might consider using an offshore broker.
- Leverage: While limited to a reasonable 1:20 to 1:50 ratio in the U.S., it is practically uncapped offshore. You can expect crazy leverage ability like 1:500 or more, but that doesn’t imply it is a good idea to use it.
- Higher flexibility: Offshore brokers don’t fall under restrictions, allowing them to offer a better selection of tradable financial instruments. For example, contracts-for-difference (CFDs) are popular worldwide, but they are banned in the U.S.
Why Avoid an Offshore Forex Broker?
Here are the top 2 reasons why you might avoid an offshore broker:
- Lack of regulation: Lack of overseeing regulatory agency leaves the broker unsupervised. They are free to do as they like, especially regarding issues like know-your-client (KYC compliance) and holding client’s deposits segregated.
- Fraud risks: Offshore territories are often a playground for anything from questionable marketing tactics to outright fraud.
Some examples include:
- Bonus lock-ups: Marketing ploy to lock-up the funds in a bonus scheme until meeting a high turnover target.
- Managed account fraud: Attracting gullible investors into managed funds that don’t exist.
- Price manipulation: Causing artificial moves to trigger stop-loss orders.
You can read more about the dangers of forex in Benzinga’s guide to the most common forex scams.
What to Look for in a Forex Broker
Here are several vital options you should have in mind when evaluating a forex broker:
- Reputation: A broker’s reputation takes years to build, but it can be destroyed overnight. While it is hard to find a popular broker out there that doesn’t have a single complaint, there is a fine line between reputable and shady. Personal recommendations and word-of-mouth can be of enormous help there.
- Account features: Beyond the always present leverage, other essential features include minimum deposits and deposit and withdrawal options. Iit also concerns the selection of tradable financial instruments. Make sure to check that the broker offers the ones you’re planning to trade.
- Costs: Trading comes at a price in the form of spreads and commissions. While they are always going to be costs, they also need to be reasonable. Keep an eye out on brokers that might overcharge you.
- Customer support: Usually underrated because it is not important until the moment you need them. Remember to check reviews about customer support to determine whether they provide help in a reasonable amount of time.
- Platform: While MetaTrader 4 has been an industry standard for a long time, you might have other preferences. A good broker will usually offer more than 1 option.
Offshore Forex Brokers Accepting U.S. Clients
While there are many offshore brokers, we took a look at 2 options for those who consider trading offshore.
Headquartered in North Macedonia, LMFX is an unregulated offshore broker that has been operating since 2015. However, its owner Global Trade Partners operates as a legal entity in North Macedonia.
It offers leverage up to 1:1000, but its spreads and commissions are slightly above average. EUR/USD spread starts from 1.4 pips, and commissions at $8 per round lot. The company is transparent about being a market maker, which means they’re taking another side of your trades. It offers 105 tradable assets, primarily forex and equity CFDs.
The minimum deposit is $50. Funding and withdrawal options include bank wires, credit or debit cards and a few payment services like Skrill or Neteller.
Headquartered in the Marshall Islands, LQDFX has served as an unregulated offshore broker existing since 2015. It offers leverage up to 1:500, competitive spreads from 0.1 pips and commissions between $5 to $7 per round lot.
The minimum deposit is set at $20 for the Micro Account, and traders can choose between trading 107 different assets. Traders can choose between several fiat and cryptocurrency deposit or withdrawal options.