Every day, investors are limited when they want to invest outside their country. Most local financial institutions only offer popular markets such as the US, Canada, and some European markets. Offshore brokers give access to more international markets to broaden everyone’s investment spectrum and offer more diversity. Since they are not always regulated, it is important to choose a reputable broker. We will examine the pros and cons of opening an offshore broker and the best options.
Table of Contents
What Is an Offshore Broker?
Before we begin, ensure everyone understands that offshore brokers aren’t always regulated. Unfortunately, this means the funds deposited aren’t always safe.
If and when the business closes, the funds may be gone forever. Therefore, before signing up, it is important to see the broker’s terms, conditions, and regulations. Then, in a later section, we will list the best available.
Offshore brokers allow investors to buy securities outside of their country’s jurisdiction. Unless otherwise stipulated by your job or country’s laws, it is perfectly legal. We usually have little to no legal rights against the broker chosen. Hence, once again, the importance of choosing a trustworthy one.
For US citizens, it is important to choose one who deals with US accounts. Due to American tax laws, it is more complicated for brokers and citizens to transfer information between platforms. Each platform has its pros and cons. Let’s take a look at the general advantages and disadvantages.
Pros, Cons and Things to Look For With Offshore Brokers
Regarding offshore brokers, we will look at what to watch for. Like anything, each broker we will look at has pros and cons. Let’s look at what we should consider.
Flexibility: First, stock markets in various countries become available. However, don’t forget offshore brokers operate in different time zones. As a result, the opening and closing hours differ from the US stock market. Second, many investments are available (stocks, fractional ownership, forex, futures, funds, options, precious metals, etc.). Finally, the account can be opened regardless of your credit score and financial position. This isn’t the case across the board, but it remains possible.
Tax Advantages: Some countries do not tax capital gains. This list includes Switzerland, Singapore, and Panama. In addition, taxes do not need to be paid when a profitable trade is closed. However, they might still have to be declared in the country of residency. Think of tax heavens. There are also benefits when registering as a business instead of as an individual.
Example: At home, an investor has $10,000 in his margin account and has access to $20,000 to trade during the day. With an offshore broker, that number becomes $50,000.
Privacy: Since it is an offshore account, the financial activity and transactions aren’t always shared with the country of residency and third parties. Unlike at home, it can remain confidential.
Wealth protection: This advantage is for investors residing in an unpredictable country. When political and economic tensions domestically and with other countries, funds aren’t always safe in a domestic financial institution. However, there can be more safety abroad during a war or conflict at home.
Account fees: Many features vary across all platforms. The minimum deposit, transaction, monthly, and commission fees are important factors when determining which account to open. Some offshore brokers are more expensive but offer better service and features.
Risk: Scams have been around for ages. Some brokers have closed their doors and taken their clients’ funds. Before joining, read the reviews and research the broker.
Things to Look For With Offshore Brokers
Mobile application: A measurable proportion of investors transact with their mobile phones. It is important to have a good platform for mobile and desktop.
Periodic withdrawals: Some offshore brokers limit the number of periodic withdrawals and their amount. When we need our funds, we don’t want to wait longer than we should.
Day-to-Day banking uses: With our financial institution, we are used to having a bank account, credit card, loans, etc. Some offshore brokers offer the same products to attract more clients. Why not give them a chance if they offer them?
Customer support: Issues happen. When they do, we need to call customer support without wasting our entire day.
Tools: The best brokers will include real-time quotes, watchlists, charts, options, and other important features. Offshore must offer them as well to attract investors.
Now that we know what to look for, we must consider all our options.
Which Offshore Broker to Choose?
The good news with offshore brokers is that you have a choice. We will look at some of the most popular brokers you can use offshore. And now that you know the pros, cons, and things to look for, you can make an educated decision.
Offshore Brokers: eToro
eToro has over 20 million desktop and mobile users. It has many attractive features. However, it isn’t only a brokerage platform. eToro is a social media platform where investors can discuss various investment ideas.
Users can even copy the exact portfolio distribution of another user. Did I mention it was 100% commission-free and the minimum required investment is $50? It is also regulated, which ensures capital safety. It is perfect for beginners.
The platform allows trading in 17 international exchanges: NYSE, Nasdaq, Frankfurt, London, Paris, Madrid, Milan, Zurich, Oslo, Stockholm, Copenhagen, Helsinki, Hong Kong, Lisbon, Brussels, Saudi Arabia, and Amsterdam. It is mainly in the US and Europe, but some Asian markets are available. Canadian, Chinese, Japanese, and Korean markets are unfortunately unavailable.
As for stocks, eToro allows fractional ownership of stocks. They also have a crypto platform with 19 digital coins. Therefore, there is no need for a crypto wallet unless the investor wants one. The eToro crypto wallet is supported on Android and iOS and gives access to over 120 digital coins.
For forex traders, eToro offers 49 trading pairs 24 hours a day. They also offer over 250 funds and 31 commodities. Finally, the platform offers margin trading.
To conclude this eToro review, is there anything negative? In terms of fees, they are minimal. There is an inactivity fee, a withdrawal fee, and a non-US deposit fee. The bid/ask spread might be higher than your average broker.
The platform is very user-friendly for beginners. However, the big downside is the lack of stock research and analysis tools. A third-party platform is necessary for anything technical. Otherwise, it would be one of the complete platforms.
Plus500 isn’t as big as eToro when it comes to offshore brokers. It’s an Israeli publicly listed company trading on the London Stock Exchange.
They have subsidiaries across Europe, making it highly regulated. US traders aren’t accepted on the platform. Plus500 has more features and is attractive for intermediate and expert investors trading CFDs.
This platform offers 24 international exchanges and is available in 32 languages. Tokyo and Sydney are the main ones that aren’t offered on eToro. However, Plus500 offers the same type of securities. Both the desktop and mobile applications are excellent.
What are its main features? First, there is a €40,000 demo app that allows its users to practice trading in real-time and to use its tools. Tools! That’s what was missing with eToro. Plus500 offers a variety of charts and 110 popular indicators.
What about the price? The minimum deposit is $100. There aren’t any commission fees. Like eToro, they make money from a higher bid/ask spread, foreign currencies, and inactivity. One of the big disadvantages is their customer support. It is almost inexistent. The platform has a WhatsApp number and an email only. Overall, it is still a quality option.
Robinhood is a public company as well and effectively offers deposit security. It is also commission-free and doesn’t require a minimum investment.
Robinhood specializes in US stocks, cryptocurrencies, and ETFs. Unfortunately, it only supports 250 foreign stocks. As for forex and commodities, it isn’t available at the moment. On the bright side, Robinhood is looking to expand its trading department. The desktop and app versions are both excellent. The platform has some charts and technical analyses available. It is enough to satisfy the everyday investor. Advanced traders will find it too basic.
What about a margin account? It is a feature of the Gold Account at $5 per month. A $2,000 minimum balance is required. Robinhood does the overall job. Until they expand their available investments, don’t expect anything mind-blowing.
Notable Offshore Broker Mentions
Many platforms try to gain some competitive advantage over their peers. Some specialize in foreign exchange, others in crypto. They are trying to be as attractive as possible at the expense of some fees. There is so much competition, and finding something tailored to our needs is easy.
Offshore Brokers Conclusion
To conclude, offshore brokers are growing very fast. It is no wonder since they give their users many benefits over conventional domestic financial institutions. However, not every one of them is perfect.
A few are better than others. However, it is important to be careful before choosing one. Some offer more features such as international markets, crypto, forex, and commodities and less risk. But, like put all your eggs in one offshore broker like your investments.
If you want to learn more about profiting from the stock market, head to our free library of educational courses. We have something for everyone, including trading options for those with small accounts.