What is Offshore Trading?

It?s a small world after all. The world is a global village. The internet puts you in touch with the other side of the world at the click of a mouse. This means that offshore trading is becoming easier and easier.

Offshore trading involves trading using an offshore financial centre. These offshore financial centres are countries or jurisdictions that have lenient tax laws. To take one example, the Cayman Islands are a popular centre for offshore trading, as this country does not levy income tax. Therefore, if you do a little offshore trading, with your business registered in the Cayman Islands, you don?t have to pay any tax on it.

One particular form of offshore trading, offshore banking, works in a similar way. If a bank or insurance company is located in the jurisdiction in question, then any interest, etc. is subject only to the tax laws of that country. And if there?s no tax on interest accrued, then your money.

Offshore trading is also used for asset protection. Asset protection is very closely linked with the concept of banking privacy. This is what Swiss bank accounts were famous for. If you have an offshore bank account in a jurisdiction with very tight privacy laws, then the government of your country of residence can?t find out what?s in that bank account or what you?ve earned by offshore trading and deposited in that bank account.

Not all countries offer this level of privacy to those engaged in offshore trading, so reading up about the relevant laws of that country is vital.

Offshore trading and offshore banking for asset protection is also useful during times of political turmoil. Those who live in an unstable country and fear that their assets may be seized by the government (e.g. white farmers in Zimbabwe, who had their farms seized by the government) may want to invest their money in a safe place where their government can?t touch it.

The ethics of offshore banking are widely debated. Some argue that offshore trading is a form of tax evasion and exploits small developing nations. Others argue that offshore trading brings income (in the form of bank fees, etc) into those small countries. While it is true that terrorists and organized crime use offshore trading as a form of money laundering, the old saying ?The abuse does not negate the use? applies here.

Nations that are well-known for being good for offshore trading include the Cayman Islands, Switzerland (for the renowned banking privacy), the Channel Islands of the UK, Luxembourg, the Bahamas, the Cook Islands in the South Pacific, Cyprus, Gibraltar, Hong Kong, Macau and Monaco.

Offshore trading can also take the form of investing in foreign currencies and taking advantage of how other currencies can fluctuate against your home currency.

This form of offshore trading works like this. Imagine you discover that one particular currency, which we?ll call the Kinkle is currently worth $0.50US. This means that you can exchange $1 for two Kinkles. Just say you exchange $100 for 200 Kinkles.

Where you make money in this form of offshore trading is like this: the exchange rate for the Kinkle fluctuates against the dollar because of that country?s economic situation. And because of this fluctuation, the value of the Kinkle can change. If you?re very lucky, the value of the Kinkle can rise to be worth $0.60 US. If you exchange your 200 Kinkles for dollars again, you will get $120. You have made $20 in this form of offshore trading.

The art of foreign exchange offshore trading lies in picking when to exchange currencies to get the best exchange rate, making this form of offshore trading similar to the stock market.

frank j vanderlugt owns and operates http://www.offshore-trading.org 2 Offshoretradingorg