Offshore Financial Services
There are four main reason to do offshore banking and these are (1) tax havens, (2) privacy, (3) investment opportunity, and (4) managed currency risk.
Currency Traders have the opportunity to make large amounts of money through being part of a huge market, get awesome mortgage rates, and make a lot of money.
Offshore Banks are Tax Havens
The main reason for offshore banking is for corporations to avoid taxation in highly taxed developed economies. For example, around 40% of US corporations have offshore accounts to avoid high taxation. The US has a high tax rate and most offshore banks have no taxation at all. Would you rather pay a 30% tax on your money or a 0% tax? It seems like a dull question, but it is the driving force behind corporations moving their money offshore.
A lot of large corporations hold their yearly meetings offshore, in the country that they bank in. For example, Tyco has accounts in the Bahamas and holds their yearly meetings there.
Less developed nations develop laws to help people avoid paying taxes in their country. The reason is that they want you to put your money offshore with them.
Speaking of ethics; many people that seek offshore tax havens are doing it to avoid taxes that they really do owe the government. The truth is that it is illegal to move money offshore to avoid taxes. In some cases, for corporations, it is legal. However, in many cases it is illegal. If you have a small business and just do not want to pay taxes, sending money offshore to avoid taxes is illegal.
The act of putting your money into an offshore bank is not illegal in any way. What makes it illegal is when you fail to report earnings on investments on your tax returns. You should keep in mind that there is always a paper trail. And, if you are trying to wash the money through laundering, you can expect a heavy prison sentence if you are caught.
Offshore Banks are Private
Offshore banks know that a lot of their monies are from people that want privacy. If you get a divorce or get sued, you could lose a huge chunk of your money. Some people plan ahead and put their money in offshore accounts. Anyone can call the offshore bank and they will not get any information. Offshore banks take privacy very seriously. Many offshore banks claim that the only way they will give out information is if the supreme court orders them to give it out. That means that if the IRS calls the bank that they will not give out any information.
Most offshore banks are held in number only. That means that you need to keep track of the number. Only a few bank personnel are allowed to know who the account belongs to. If you call up with your name, the bank personnel will not be able to look you up. You need the account number.
Offshore banking countries like the Bahamas, Switzerland, and Panama write laws specifically to protect overseas customers. They know that their one of the main selling points of an offshore bank is security. Some of these countries get up to 30% of GDP from offshore banking. That means the countries take their obligations quite seriously.
Offshore Banks Have Superior Investment Opportunity
The right offshore bank will offer you investment opportunities that would not be available to you domestically. Panama is known as being a huge hub of investment activity from all over the world. The right bank can offer you private investment opportunities and IPO stocks that are only available to established customers. Many offshore account holders will have the opportunity to have their money privately placed with a small or medium sized company. These kinds of opportunities have risks, but can also offer serious financial returns.
Offshore banks also pay a higher rate of interest on savings accounts, CDs, and other investments. One reason for the better returns is that they can be more profitable because they have less regulation and lower cost of labor. The other idea is that they want to give you an added incentive to bank with them. Offshore banks know that people think moving their monies overseas can be considered risky.
Offshore Banks Help Manage Currency Risk
Does your local country offer a stable currency? If your local money is being devalued through inflation, you may want to put it in a different currency to make it stabilized. A lot of countries, around 40% will hold their monies in dollars. The reason is that the dollar has historically been a very stable currency. Since the US has always been the economic leader, people know that their money is more safe in dollars than other currencies.
If you are really good at currency, you can play the currency market and make money. For example, if you know inflation is going to erode your money, you can make trades on that and profit from the decline instead of losing your money.
Some countries have made the decision to stop using their own currency. For example, Panama only uses dollars and that has made it attractive as an offshore banking center.
Currency Market is Huge
The currency market is the largest investment market in the world. Currency markets trade up to 1.5 trillion dollars per day. That is more than all the stock exchanges of the world combined. The currency market is so large that a single player can not change the entire market.
Traders will find that the currency market is profitable (good traders). You can use options to control a large amount of money with a much smaller amount of money. Currency trading has more leverage than stock future and stock options trading.
Many of the worlds top investors warn that it is very hard to be a good currency trader. The market is a lot more difficult to understand. For example, stock investing only requires the investor to understand how to value a company and how to value one economy. The currency market requires the investor to understand the economies of many countries. The ability to understand all that information is nearly impossible for most people. And, if you don't quite get it, you are gambling instead of investing. The first rule of investing is not to lose money.
Currency Mortgage Rates
Some countries offer really low rates on loans. For example, Japan has kept their interest rate near zero for many years. Imagine borrowing next to zero and only paying the interest on the loan. Most people could cut their mortgage payments into a fraction.
Then, you have one real risk. The risk of the money you earn being devalued against the currency that you must pay. For example, if a US citizen borrowed in yen and the yen appreciated in value against the dollar, then paying the loan back would be more difficult. If there were large fluctuations, you could find yourself broke in a hurry.
The way to do this is to manage the risk. You can hire a firm to manage the risk or you can do it yourself. Some companies claim that they can, in most cases, pay off the entire mortgage in a regular term. That means you can pay the low rate for thirty years and the principle will take care of itself. Now, that sounds really great.
Currency Trading Can Make You a Lot of Money
George Soros is a legend because he made one billion dollars in one trade. He wasn't wealthy before he made the trade. He didn't put up a billion dollars to make a billion dollars. He simply used a ton of leverage because he knew the way the Pound would go. George is known for breaking the Bank of England. If George Soros can make a billion dollars on one trade, you should be able to make something substantial for yourself!
The main reason currency trading is so profitable is that the leverage used is great. For one thing, the use of margin in stock trading reduces leverage when compared with currency trades that do not charge margin interest and actually pay you interest daily.
Like any investment, added leverage will magnify losses and gains. You can make triple digit gains and triple digit losses quickly.
Currency trades have historically only been available to large corporations and banks. That has changed in recent years with people developing FX trading platforms on the internet. Still, the forex market is dominated by large companies and governments. The retail portion of forex is only aroun 2% of trading volume.
Summary
If you are brave enough to go for it, you should try offshore banking and currency trading. There are many advantages to each. If you nervous about it, use a well established international bank like Barclays or UBS or HSBC. For currency trades, you migh use Xe or Oanda for the trading platform. Don't get confused with the term Forex. Forex is not a company, but the name of the market. You then need a company to offer you a trading platform.
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