What Sets Offshore Forex Brokers Apart from Regulated Ones

There is one decision among many that traders will make when choosing a forex broker and that is to go with an offshore broker or with a regulated one. Both options have their pros and cons, but to make a decision it is important to know what differentiates them. Because of their flexibility and easy accessibility, offshore forex brokers have become popular, however they also carry risks on top of that regulated brokers try to negate.

Generally offshore forex brokers are based in more relaxed regulatory environment countries. It can be for example fewer rules for how the broker operates and how traders are protected. This may be why offshore brokers may provide more favorable trading conditions like lower spreads, higher leverage, or the ability to trade strategies without restrictions. Most traders are attracted to these features as they make for more flexibility and potentially more return. It’s that you can trade with fewer restrictions, but you also have no regulation.

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On the other hand, regulated brokers are watched over by the strict rules of the financial authorities of the countries, or the countries in question: the UK’s Financial Conduct Authority (FCA) in the UK, the US Commodity Futures Trading Commission (CFTC). It is to protect traders from unfair brokers, ensuring licensed brokers to operate fairly and transparently. For instance, regulated brokers need to segregate the client funds meaning your own money is recorded apart from the broker’s working cash. It brings an extra warrant of security in case the broker goes off financial balance. Besides this, all regulated brokers will meet certain financial conditions and rules of account reporting and transparency.

In all fairness, the difference between offshore and regulated brokers is the level of trust and security. If there are better trading conditions from the offshore brokers, with those, come a higher level of risk. Since it is involved in the trading process, there isn’t always a governing body that will defend the interests of a trader if things go wrong, and resolving disputes with an offshore broker is indeed more challenging. Compared to regulated brokers they offer a higher degree of accountability. Regulated brokers are bound by the laws of the country in which they are licensed, which should protect traders from problems, and if there is an issue, seek recourse through a financial authority.

There is another important distinction: customer support. As the broker is held accountable for its actions, they invest a lot more in customer service. Often they provide support through multiple channels and get back to your customer questions quickly. Because offshore brokers are located in other time zones, their support might not be available as easily, and perhaps not as good as you would get from an offshore broker.

At the end of the day it will be your priorities as a trader and decide then when you should choose between an offshore forex broker and a regulated one. That’s where offshore brokers may come in if you crave higher leverage and less restriction and you can handle the risks. A regulated broker is the route if safety, transparency, and customer support are more important to you however. When you’re developing a trading strategy, you should always weigh the benefits and risk in order to be sure your choice meets your trading goals.