Offshore brokerage companies. Do you trust your broker?

Offshore brokerage companies. Do you trust your broker?

In the modern world, you just cannot imagine a simple trading process without a brokerage company and its technical support. The process automation has reached such levels that we do not necessarily have to go to a broker’s office to open a trading account, replenish funds and make deals. Today, to carry out these processes, technical capabilities are implemented that allow you to open an account and conduct trading without leaving your home. This is the result of the technical progress in the market, as well as the simplicity of trading. But at the same time, certain risks are raised, namely, the reliability of the brokerage company.

In fact, when we replenish the trading account, we become clients of a broker. Some companies request from us documents that confirm our identity, as well as a payment forum. But we, in turn, forget to ask the brokerage company for documents! After all, we do not sign any contracts and often work on some standard agreement. Moreover, we did not see and did not communicate “live” with representatives of the brokerage company, which deprives us of the opportunity to operate with normative documents in the event of non-payment of profits or delays in the withdrawal of capital. That is why, this simplicity of work, which is in a remote format, can “slip” a poor-quality company which purpose is simple and understandable – to earn our money.

In order to understand the specifics of the forex market regulation, I have tried to study this issue more deeply and I am ready to share my observations with you.

First of all, I want to note that not all the companies can work and be registered directly in your country. Often, there are cases when a broker who positions himself as a company for working with clients, for example in the EU, is registered in a completely different region. I found two explanations for this fact:

  1. In some countries, there is simply no regulatory framework that would regulate the brokerage companies. Most countries implement the interbank market only for external transactions and provide an opportunity to work exclusively for banking companies. The broker does not have the ability to provide services to conclude transactions in the forex market and do not have an opportunity to obtain licenses. Thus, they receive an informal ban on the provision of services. Therefore, the brokerage companies go through the registration procedure where there is a controlling body or where there is no prohibition.
  2. Only a small percentage of the brokerage companies are able at their first stage to satisfy the series of stringent requirements to obtain a license. These conditions relate not only to the availability of huge capital, but also the provision of accountability, constant inspections and auditors, as well as the payment of taxes without initial preferential terms. Therefore, the regions with a simplified registration procedure are chosen.

Thus, the brokerage companies in their large part began to register themselves in offshore. This special economic zone does not require a license to provide brokerage services and capital requirements. Therefore, companies that are just beginning their business choose this option. I want to immediately note that the offshore is not a reason not to trust the company. We need to understand that the choice of the offshore registration is done in order to conduct brokerage activities normally and to not burden the company at its early stages of work. Personally, my forex broker is also registered offshore, but I do not have any problems with it. Of course, I made this conclusion after several years of work, which is impossible to do that when I got acquainted with the company. To do this, you need to either look at the information on the Internet or try to work initially with small amounts.

If we speak for types of business registration in the offshore zones, I have identified a list of those that are the most common among the brokerage companies:

  1. Saint Vincent and the Grenadines: the most popular type for registering a brokerage business, because the procedure takes 3 to 5 days.
  2. Vanuatu: when opening a brokerage business in this offshore zone, you can also obtain a license of a securities dealer, which allows you to work in the legal field.
  3. Panama Islands: the most “protected” option for opening a brokerage business.
  4. Seychelles: it has a fast registration method and a minimum entry threshold;
  5. British Virgin Islands: despite being part of the UK, this economic zone is offshore;

Also, there are brokerage companies in the market that provide services in the forex market, which are licensed and fully operate in the legal field. Thus, they regularly submit their reports, strengthen taxes and come under monitoring and control of the relevant body. In this format of the brokerage company’s work, questions about its reliability are immediately eliminated.

Among the information I found in the public domain, the list of the most popular licenses is more modest than the offshores and consists of three types:

  • LFSA (Malaysia)
  • IFSC (Belize)
  • FCA (England)

To sum up, I want to note that the offshore brokers are not something bad and have the only task to take your funds. Not at all. The development of a remote cooperation format with a broker has certainly increased this likelihood and the number of such companies, but I still believe that there are enough reliable brokerage companies on the market, from which you can choose one for yourself. At the same time, they are registered in the offshore. Also quite popular is the combination, in which the business was initially registered offshore and only after several years of a stable activity and the growth of the client base, a license was obtained. Therefore, I urge you to always pay attention to where exactly the company is registered and what model it uses to conduct its business. This will allow you to save your investment capital.



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