An offshore brokerage account is a bank account kept with an overseas bank to allow the holder to buy and sell investments there. Offshore trading accounts have advantages and disadvantages compared to domestic brokerage accounts. Here is a quick guide to what you need to know about them.
- Offshore trading accounts can be more complicated to manage
- Offshore trading accounts tend to be more expensive
- Offshore trading accounts often allow multiple currencies
- Offshore trading accounts tend to be very flexible
- Offshore trading accounts are usually less regulated
- Offshore trading accounts can make taxes more complicated
Offshore trading accounts can be more complicated to manage
There can be more steps involved in opening an offshore trading account than a regular one. Furthermore, these steps can take longer to process. Once you have your offshore trading account open, you will often need to allow more time for changes to be processed. This includes making deposits to and withdrawals from your account.
Additionally, you may find it more complicated to reach and deal with customer service. Some offshore trading accounts will have 24/7/365 support. Even so, however, they may not offer their full range of support round the clock.
For example, they may have staff available to answer simple queries at any time. Higher-level staff, by contrast, may only work business hours in the country where they are based. Most, if not all, staff are likely to speak English as their second language. They will probably be fluent but there is still the scope for communication difficulties.
Offshore trading accounts tend to be more expensive
If your account is offshore, then you’re probably going to have to pay currency-conversion fees on deposits and withdrawals. Even if you don’t you’re probably going to have to pay higher transaction fees.
Additionally, offshore trading accounts tend to have higher minimum thresholds and transaction charges than regular trading accounts. This is largely a reflection of the fact that they are more complicated to operate. This increases their costs and hence their thresholds and charges.
Offshore trading accounts often allow multiple currencies
Offshore trading accounts often work with clients from multiple countries. This means that they are often set up to handle deposits and withdrawals in multiple currencies. Having trading funds available in at least the main world currencies allows investors to act on opportunities immediately. In some cases, speed can make the difference between success and failure.
Offshore trading accounts tend to be very flexible
Offshore trading accounts are typically geared to investors who know what they’re doing and/or have access to advisors who do. This means that they generally offer a wide range of investments and financial instruments to allow clients to build very customized portfolios.
Offshore trading accounts are usually less regulated
Offshore trading accounts often work more on reputation than regulation. In other words, they are governed by the honor system rather than the legal system. Potential investors must therefore do their research thoroughly before choosing one. If you’re not comfortable with this, it may be better to look at a domestic trading account with international options.
Offshore trading accounts can make taxes more complicated
If you’re using an offshore trading account, then it’s usually best to have an accountant file your taxes for you. If you do choose to file them yourself, you must be very careful to do so completely accurately. With that said, overall, using an offshore trading account can work out a lot more tax-efficient than using a regular trading account.