This is so aggravating not being able to trade with higher than 50:1 leverage, and more importantly, not being able to hedge trades!
We U.S. traders have been getting hammered by unnecessary regulations the last few years.
I want to ask if anybody has done this or has knowledge about this?..
What would be the best way to get a foreign corporation setup in another country, set up a bank account, fund that account, and then applying to my preferred overseas brokerage as a foreign corporation?
I’ve seen on many brokers websites that they do not accept U.S. citizens unless you are applying as a foreign corporation, then it doesn’t matter if you are a U.S. citizen. I just need to make sure to report all profits/losses to IRS as the funds come back in to the country.
I’m just not well versed in this area.
Maybe even one of you knows a law office that would be familiar with all of this so I can call and get legal help.
Agreed I dont care about 50:1 thats more than enough for me but I hate being regulated as hard as we are here. Then I hate more listening to cnbc and hearing about stocks and oh this is a good trade but I have a hedge on it yeah WTF. Your in america onAmerican TV saying this and there all good but me oh hell no cant happen. Its just a way to stomp on the little guy so we have to keep our money in this country. We complain about how undervalued china is well did the government ever think instead of fighting them join them and do the same here. Guess what you just accomplished the same thing with less effort. Also been said along time ago we need smaller government and have to get rid of the fed reserve. We already pay more taxes than most countries why are we held on a chain to make money when inevitably the more money we make the better our economy and the more we pay in taxes.
You’re wading into deep water, here. Be very careful.
Here’s a [I][B]Forbes[/B][/I] article that’s well worth reading. It touches on several topics related to your question about setting up an offshore corporation.
This excerpt from page 3 of the article addresses your question directly (but too briefly to be of much help) —
FBAR issues for forex traders
Over the past few years, many forex traders went offshore, not to cheat on income taxes, but to get higher leverage than in the U.S. and to avoid the NFA’s 2009 hedging rule requiring first-in/first-out trading (FIFO).
New CFTC regulations (effective October 2010) over the off-exchange retail forex marketplace reversed this trend. The CFTC blocks foreign banks and brokers from doing business with Americans unless they follow the U.S. regulations and register with the appropriate US regulator.
Some Americans insist on keeping a foreign broker to retain 200:1 leverage and spread betting, rather than succumb to CFTC rules capping leverage at 50:1 on majors and 20:1 on minors plus FIFO. Some are tempted to set up dummy corporations or hide the accounts — a big mistake!
The [I]Forbes[/I] article was written by a CPA, with the assistance of a lawyer and another CPA, so it’s probably accurate, as far as it goes. But, you really need to seek a professional opinion on your specific situation.
There are tax attorneys who specialize in tax issues for traders. And there are tax attorneys who specialize in tax issues for Americans who hold foreign assets, or who own or control foreign corporations or trusts, and for expatriate Americans. You really should invest in professional advice at this level, before embarking on a foreign business venture.
An American-born friend of mine moved to Canada years ago, married a Canadian, became a Canadian citizen, got a Canadian passport, let her American passport expire (although she retains dual citizenship), worked at several jobs, helped her husband start a business, bought some real estate (jointly with her husband), started a family, and basically forgot about the United States. She had (and has) no assets in the U.S. She has never had a problem entering or leaving the U.S. on her Canadian passport.
For almost 20 years, she has filed no U.S. tax returns and has paid no U.S. tax. It never occurred to her that she was, in any way, under the jurisdiction of the United States. She was stunned when she was told (by friends) that her obligation to pay U.S. tax on her “worldwide” income never went away.
At this point, she appears to have the following options: (1) turn herself in to the IRS, and pay a nightmarish amount of back taxes, interest and penalties, (2) stay out of the U.S. for the rest of her life, and continue to ignore the U.S. and their tax laws, (3) continue to travel to and from the U.S. on her Canadian passport, and hope that while inside the U.S. she is never identified as a deliquent taxpayer, by some cross-check of government data-bases, or (4) relinquish her U.S. citizenship (a step which the U.S. government makes exceedingly difficult, and can even prevent in cases where tax avoidance is the primary reason for the action).
That’s not the sort of predicament you want to get yourself into.
The orgy of regulation in this country is not going to end — at least, not while the present ruling class holds power.
As for Chris Dodd and Barney Frank, all we can hope for, in the short term, is that they both will follow in the footsteps of Edward Kennedy, who made the world a better place just by leaving it. That wouldn’t repeal their infamous DODD-FRANK BILL, of course. But, it would prevent future legislative abominations from these two reprobates.
At your capital base, good luck finding a broker anywhere who’s going to be happy levering you up 100:1.
As for hedging, are you referring to “hedging” in the retail forex parlance - meaning directly opposing positions - or the more traditional use of the term - meaning using secondary markets/instruments?
Have a foreign friend, or distant family member overseas open a account with a broker and a bank (your name can not show up anywhere, inclusive signature rights) and just trade for him, you would be in the clear. Of course your “friend/family” may thank you for all the money you made for him/them and disappear.
Very interesting article and response, Clint. And also disheartening.
My goal is not to cheat taxes or do anything illegal…mainly, I just want to hedge trades in the forex market and also trade with 100:1 leverage. Those two things I’m currently doing by using Trading-Point as my broker. Been with them for about 12 months and they have been the best broker I’ve ever used…they are based in Cyprus and regulated under Cysec.
However, as of last week they no longer allow U.S. traders to apply for an account because of a lawsuit from U.S. regulators in September. So I’m thinking I might not have much time until they start shutting down U.S. accounts. Which sucks big time. They really are a stellar broker.
I’m not looking to dodge taxes, I always report my profits.
I can live with 50:1 leverage, but the main thing is not being able to have long and short positions open at the same time. It’s a big part of my strategy, which has been successful for me.
I agree with you, Clint, I am going to seek out my own professional advice. I live in the Boise, Idaho area so I hope I can find a tax attorney and CPA familiar with all these issues, I’d like to sit down with them face to face and see if this is viable in one form or the other, and make sure anything I do won’t come back and haunt me in the future.
bobmaniac - Yep, I’m feeling that pain exactly the way you described. I just want to be able to trade MY MONEY the way that I want to. If I want to take risk, that should be up to me. And if I fail, I shouldn’t be bailed out by anyone.
Any strategy which employs simultaneous long and short positions in the same pair can be replicated in a non-“hedge” fashion, so that shouldn’t be a major consideration for your brokerage decision.
rhody is right, you can open sub-accounts with your broker then log-in in both and trade 1 account long and the second one short. It’s just 2 clicks away.
While that’s a valid option, I wasn’t in fact talking about doing that. My point was that since “hedge” and closing a trade are exactly the same thing in terms of risk and P/L, there is no “hedge” strategy which cannot be replicated in non-“hedge” fashion.
I don’t see why we shouldn’t be allowed to do something that works. If you can do the same thing without hedging then they are equivalent and it shouldn’t matter which you do so therefore hedging should be allowed, but it never will be.
It won’t be because first of all, it’s not keeping with generally accept practices within the financial markets. Literally only in retail forex trading are positions not netted out.
Secondly, not allowing “hedge” accounting keeps the brokers honest - or at least more honest. Hedge accounting was letting them keep margin tied up for no good reason, allowing them to charge carry when there wasn’t actually any position, and letting them encourage unneeded extra transactions.
