Reviews foreign stock brokers

The main tasks are to choose a broker and open a brokerage account.

There are 5 main criteria by which a broker is chosen:

• Broker reliability in terms of financial condition and process fault tolerance
• Commission size and access to the necessary markets
• Competent and prompt user support service
• Convenient and understandable personal account for account management 
• Simple and functional software for conducting trading operations and transactions. More details are described in the article: 4 steps to start trading stocks and bonds

1. Money and assets are in foreign jurisdictions and protected by international law
2. The number of intermediaries between your money and investment instruments is minimal (you have direct access: Broker - Exchange - Financial instrument with registered property rights with registrars and depositories without unnecessary intermediaries)
3. High regulation of investment markets (financial legislation, and most importantly its real law enforcement, has been worked out for years)
4. Brokerage accounts are insured by supervisory regulators (if a broker is issued a license by a financial market regulator, then such a broker undergoes inspections, has high-quality supervision and liability insurance)
5. Possibilities for tax optimization, especially for brokers registered in jurisdictions with a preferential tax regime (Cyprus, Malta, British Virgin Islands, Cayman Islands, Estonia and others)

1. Low commissions are achieved through large trading volumes and frequent transactions, long-term investors may have their commissions increased, as they are less profitable for brokers
2. Non-residents of countries where the broker is registered are required to declare foreign accounts and transactions on them to the tax service of the country where the client is a resident
3. The regulator is an organization different from your country, so it will be more difficult for non-resident clients to complain and go to court at the place of registration of the broker
4. Not all foreign brokers have support in the client's language support
5. Large American and European brokers have a biased opinion about the toxicity of clients and the illegality of money from emergent countries

Income tax

In many client jurisdictions, the owner of a foreign brokerage account is required to notify the tax service of his country about opening an account, changing details, and movement of funds.

In addition, the investor annually fills out a tax return in which he shows his tax service the profit or loss from transactions with assets in foreign brokerage accounts.

A report on the movement of funds is not required under two conditions

• The broker is located in a country that exchanges financial information with the country of your residence (the full list is on the tax service website)
• Insignificant amount of income (each country has its own limit)

Failure to comply with legal requirements will result in fines and additional charges

1. Will not know if there is no automatic exchange.
2. Even if the country of registration of the broker has an automatic exchange in the Federal Tax Service of your country, it is not a fact that the exchange is carried out correctly.

For example, Cypriot brokers do not always verify tax identifiers, and accordingly, the exchange of data by your tax service may not be validated.

It should be noted that the tax service of your country will see your money transfers from your banks to the current account of a foreign broker. Of course, there are ways to anonymously transfer funds, for example, through cryptocurrencies (digital financial assets), but many countries are also starting to require reporting on the presence of cryptocurrencies among citizens

The basis for rejecting the withdrawal of funds from a brokerage account may be questions or doubts regarding the information provided by the client.

In this case, the broker may request additional information or documents, including information on the origin of the funds received in the brokerage account.

During the verification, the client's account may be blocked on legal grounds. But this does not mean that the account will be automatically closed or the funds in it will be seized.

The broker has the right only temporarily (during the verification of the client) to restrict the client from withdrawing funds from the account and performing trading operations.

If the verification does not reveal any violations, the account will be unblocked. If there are violations, the case will be sent to court for further consideration. There have been cases of temporary freezing of operations to withdraw clients' funds. But this only applied in the case of suspicions from law enforcement agencies and concerned large sums of hundreds of thousands of dollars and above.

• You deposit funds into a brokerage account in cryptocurrency
• exchange for currency (dollars or euros)
• choose any of the many available foreign exchanges and trade stocks, bonds, futures contracts and other international financial instruments
• if you sell exchange instruments and go into dollars or euros, you can convert them into cryptocurrency on the broker's internal cryptocurrency exchanger and withdraw to your anonymous cryptocurrency wallet.

Most fully regulated brokers (FCA, SEC, CySEC and similar) do not accept direct cryptocurrency deposits because of anti-money laundering and regulator restrictions. Some regulated firms offer crypto services via a separate licensed subsidiary or through a payment/convertor partner. If a broker accepts crypto, expect strict KYC/AML checks, limits, and reporting obligations.

• Check the broker's deposit methods and legal disclosures before transferring funds
• Crypto deposits are usually converted to fiat by the broker or their processor
• Large deposits typically require proof of funds and source of funds documentation
• Keep transaction records for tax and compliance reporting in your country

This may be interesting

• Investors and traders who want to trade on the largest international exchanges while receiving anonymity of the origin of funds
• Investors and traders who want to bypass restrictions of banks and payment systems on cross-border transfers

For example, clients of those countries where international payment systems are blocked or investors who have fallen under sanctions or simply clients concerned about their anonymity

Offshore brokers(licenses of Cyprus, the British Isles, Malta, Belize, etc., jurisdictions with preferential tax regimes)

For example, the Cypriot broker Just2Trade (previously affiliated with the Russian Finam) or the Israeli Etoro (with a Cyprus license).

Unfortunately, Etoro stopped opening brokerage accounts for tax residents of many countries six months before the introduction of tough financial sanctions against Russia. The same was done by the technological Maltese broker for traders Exante.

Forex brokers (but they do not provide access to international exchanges, but offer their clients trading in contracts for difference of exchange instruments (CFD) without withdrawing transactions on the exchange, which does not imply obtaining ownership of securities. For example: Alpari, Roboforex, Forex Club and others.

Broker licensing risk

Stock market regulators are still skeptical about the cryptocurrency market. Not every offshore broker undertakes the procedures for depositing/withdrawing cryptocurrency from their clients, and large brokers prefer not to openly offer such operations to their clients. For example, Exante, popular with professional traders, stopped accepting client funds in cryptocurrency and closed access to its crypto exchange.

Risk when checking a client by a broker

As a rule, depositing and withdrawing from brokerage accounts in cryptocurrency is offered by brokers with offshore tax jurisdictions (Cyprus, Malta, Belize, the British Isles and other offshore countries). But they also value their license as professional participants in the Stock Market. Therefore, persons suspected of money laundering or top officials from the sanctions lists may at least be asked to withdraw funds or not accept money from such clients. Supervisory and regulatory organizations are not interested in ordinary investors with amounts up to several tens of thousands of dollars. Investors with larger capital may be asked to provide documents confirming the origin of the money.

If the investor is not included in suspicious or other lists, then there should be no problems with withdrawing money from brokerage accounts.

For example, the Cypriot broker Just2Trade requires client verification, but not necessarily a tax ID. Increased control by brokers over investors' funds is associated with the requirements of national and international financial market regulators, as well as tightening international control and standards for combating terrorism, money laundering, KYC (know your client) procedures, audits, due diligence and many other control and supervisory mechanisms of financial markets. Naturally, these requirements of exchange and banking regulators have to be extended to the procedures for replenishing and withdrawing funds from brokerage accounts in cryptocurrencies.

Operational risk of the client itself

These are human errors of the clients themselves when using payment methods of the cryptocurrency infrastructure.

For example, losing passwords for access to a crypto wallet or an error when entering the details (address) of your crypto wallet. Of course, access to the cryptocurrency market for an ordinary citizen is becoming easier and the most popular tokens (Bitcoin, Etherium or stablecoins USDT, USDC) have convenient access interfaces, but no one is insured against banal manual errors.

So, if in the banking system a transaction can still be somehow rolled back and incorrectly sent money can be returned, then in cryptocurrencies, coins sent to an incorrectly entered address cannot be returned. Be careful when entering the details!