The evolution of the internet has benefitted traders with easy access to the trading platforms in any corner of the world. With the forces of globalization garnering pace, the forex markets also has benefitted from the impending storm. While it is subjective to reason out whether the FOREX markets are suited for you or not, the core theme of this article is to ascertain the advantages of trading in the markets with an overseas account.
Before deliberating on it, one may wonder why it is beneficial to open an overseas account given the numerous challenges associated with it. The advantages are provided below.
SPECIFIC INCENTIVES IN SOME REGIONS
The first reason to open an overseas account is due to the underlying incentives in some regions which may be unavailable in other regions. For example, in the USA, the federal agency associated with the securities market-Securities and Exchange Commission (SEC), prohibits traders to hedge the positions from the similar account. Hedging implies opening two positions on the same currency pair but in two opposite directions. SEC opposes this feature with a simple logic that hedged positions embody a higher level of risk for the clients. Therefore, keeping the client's interests in mind, the facility of hedging is unavailable. However, on the other hand, there are numerous hedging trading strategies that are beneficial to the traders which are often overlooked by the traders in the USA. To corroborate the example further, suppose you use technical analysis to determine the trading signals on different timeframes. Hence, while one may give a buy signal in a 5-minute chart, a 1-hour chart can provide a sell signal. Since timeframes are spread, it is inevitable that the same currency pair in two different timeframes can display buy and sell signals simultaneously. A trader based in the USA can miss out on these opportune moments. A smart trader may open two distinct accounts but this is time-consuming and wastage of resources. To overcome this glaring issue, a trader can open an overseas account and take advantage in other markets where hedging facility is allowed i.e. a broker not based in the USA but is regulated by an apex institution in that jurisdiction.
DENOMINATED IN DIFFERENT CURRENCY
A trader trading in an overseas account has the opportunity to have the trading account denominated in a different currency. For instance, if your analysis proves that during the medium to long-term period, the Australian Dollar (AUD) is predicted to appreciate against the US Dollar (USD), then you should search for an AUD-denominated account. The way forward will be to look for a broker who would offer this facility and open an AUD-denominated account. Thereafter, along with generating profits upon the right prediction of the markets, you will also generate higher profits due to the appreciation of the corresponding currency pair i.e. AUDUSD. This strategy is widely used by traders who open an overseas account in different parts of the world. However, it is recommended to use this analysis only after careful scrutiny of the currency pair that the resident nation will observe.
OVERCOMING FIFO RULES
In most nations, traders have to respect the FIFO (First in First out) rule. This rule implies that the first position that was opened should be the first position to be closed on the same currency pair. While many may argue that it does not inflict a significant impact on the overall performance, it does, however, impact the psychological level of the trader. Settling a trade in an unfavourable territory to release some margins can be avoided by squaring a trade in positive territory opened at a later phase from a better level. However, if the account is following the laws of the FIFO system, this does not apply. While your jurisdiction may follow the FIFO system, other nations do follow the LIFO system whereby the last opened positions can be settled first to allow the initial opened positions to run their course.
The above factors highlight the various virtues of trading FOREX with an overseas account. Although these factors exemplify the reasons against trading in your domestic account, it is recommended to explore the offshore opportunities prudently before realizing the final decision.