Three Profitable Offshore Opportunities - Banking, Forex, And a Foundation
The world is changing and it is changing fast. Who would have thought that small Asian economies would be leading the way out of the worst recession in seventy-five years? Who would have thought that a country like Peru would be buying dollars to alter the exchange rate and help prop up the dollar? It is a brand new world where perhaps the best place to set up a banking operation is in New Zealand although an NZOFC cannot be called a bank! Still, a tried and true solution to offshore asset management such as a Panama Private Interest Foundation remains as a profitable and secure offshore solution along with offshore banking, and opening a Forex company.
More and more people are moving their assets, their talents, and themselves out of their nations of origin and into a busy, industrious, and profitable offshore world. The very wealthy have banked in tax advantaged jurisdictions for years. They have taken still take advantage of offshore asset protection and privacy vehicles such as trusts, international corporations, and foundations to shield their wealth from prying eyes and reduce the tax consequence of inheritance. However, it is the surge of expatriates from all over the globe moving and doing business all over the globe that opens the doors to profitable offshore investment opportunities.
Three profitable offshore opportunities are starting a bank, forming an offshore Forex company, and using a Panama Private Interest Foundation as a holder of tangible assets, businesses, and bank accounts. There are many opportunities in today's fast moving world. We choose these three for their combination of opportunity and security.
Offshore Banking in the 21st Century: an NZOFC
There are many offshore banking jurisdictions. There are also a number of jurisdictions where an individual or corporation can obtain licensing and set up business offering banking services. In choosing a jurisdiction for offering offshore banking services the individual or corporation will want to search out a democratic, politically and economically stable, business friendly country. A nation where English, still the universal language, is spoken is a plus. The nation will need to have at least adequate infrastructure to support the business and ideally will have first rate telecommunications, transportation, and support services.
A nation that offers a first rate offshore banking opportunity and also fits the necessary criteria for a successful offshore operation is New Zealand. This former British Crown Colony is located in the Southwest Pacific to the East of Australia. Its population is mostly descended from British immigrants and is mostly English speaking. The country is well governed with little or no corruption and its educational standards are as good as or better than the USA, Canada, and Great Britain. This is a business friendly country known for its innovative spirit.
Of our three profitable offshore opportunities we put the New Zealand Offshore Financial Company (NZOFC) at the top of the list. This type of company is not governed by New Zealand banking law nor regulated by the Federal Reserve Bank of New Zealand. There are no capital reserve requirements in setting up an NZOFC. The law in New Zealand is quite specific in that an NZOFC cannot be called a bank or intimated to be a bank. However, such a company can take deposits from anywhere in the world outside of New Zealand. It can pay interests, make loans, market investments, manage trusts, and provide virtually all services that a bank might offer. Anyone from any country is free to apply for a license to operate an NZOFC.
A Profitable Foreign Exchange Opportunity
So, the Chinese are trading the Yuan versus the Malaysian Ringgit. The Euro is periodically in free fall as Greece and the other PIIGS reveal more sovereign debt. A flight to quality sends folks out buying Yen, US dollars, and Swiss francs. So, how do you trade foreign exchange in this hectic and uncertain world of international finance? There is certainly money to be made in Forex trading. There is, however, steady money to be made in running a Forex brokerage offshore.
There are a number of jurisdictions still where it is possible to obtain a Forex license. Because of the variable degrees of infrastructure development, business friendliness, and political stability in some offshore jurisdictions it is wise to consult someone with experience to help choose a jurisdiction, obtain licensure, and initiate operations. There are a number good places from which to do business, depending up individual preference. There are also a few disadvantageous jurisdictions to be avoided. Starting out with good advice in this arena is wise.
The point of setting of a Forex company is that the fees and commissions are steady income. While trading can be profitable it can also be a drain on capital. This is the old argument about selling picks and shovels when everyone else is prospecting for gold.
Handling Offshore Opportunity in the Most Advantageous Manner
The third offshore opportunity we mention is the Panama Private Interest Foundation. This is not directly a business opportunity but it can be a "holder" of businesses, bank accounts, and assets such as art work, yachts, airplanes, jewelry, and more. A Panama Private Interest Foundation has no owner. It does have beneficiaries. Such an entity is often used in place of a trust to pass on inheritance with minimal tax consequences. The foundation is set up in such a way and with instructions so that beneficiaries change when the first beneficiary dies. Especially for those with concerns about asset privacy and security this type of foundation will allow for individuals to benefit from assets, businesses, and bank accounts without having their personal names or other details in any public registry.
A common use of a Panama Private Interest Foundation is in an integrated offshore asset protection solution containing offshore businesses, bank accounts, and other assets. Typically the foundation is the lynch pin in this solution as the holder of assets for the use and benefit of designated persons, the beneficiaries.
These three profitable offshore opportunities are available to anyone interested in pursuing them. It only takes an email or phone call to an experienced individual or company to get the ball roll
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Statistical Trading - Getting the Edge in the FOREX Market
Statistical Trading consists of using statistical tools on historical price data in order to improve trading returns. The idea behind statistical trading is that if a trader can find even a slight statistical edge, then the expected return over a large number of trades will be positive. We'll talk about exactly how to calculate expected return below, but for now let's just concentrate on what it means to get a statistical "edge."
I'm talking about the same kind of edge that a casino owner or an insurance company has. This is a statistical edge based on the law of large numbers. The casino doesn't know if a particular spin of the roulette wheel will be a win or a loss, but they know that after 1000 spins they will very likely be richer. Their edge is simple to describe using the game of roulette as an example. The player has a 1/38 chance of winning on any given spin, but will only receive 36 times their money if they win. So for 3,800 spins, the player will win 100 of them on average, yielding $3,600. But the player will lose the other 3,700 spins at a dollar each for a loss of $3,700. So what's the average take for the house? It's $100 for every 3800 spins, or a little under 3 cents per spin. It adds up...and all other casino games of pure chance (these don't include poker or blackjack which can involve some skill) are variations on this theme. That's why casinos get rich and gamblers go broke.
Insurance companies get rich in pretty much the same way. The company has no idea if a particular person will die this year, but they do have a pretty accurate idea how many people out of 1,000,000 policyholders with a given profile will die this year. Let's say that statistically the death rate of a given class of people (males over 55, smokers, and in moderate health for instance) is 4% so that we expect 40,000 to die this year. If each policy pays $10,000 for a death, then the company expects to shell out $400 million dollars in benefits...wow! So how much should the company charge in premiums for those one million policies each year then? Well how about $500 each? That gives the company $500 million in revenues for an expected $400 million benefit payout, leaving $100 million for salaries, expenses, profits and whatever. That's their statistical edge.
Now let's look at some ways that we can use this idea of a "statistical edge" in trading.
A very common way that traders try to apply the ideas of statistics is by planning trades in such a way that the potential gain exceeds the potential loss. This is the classic "cut losses short and let profits run" argument. For instance if you set up a trade so that you lose only $100 if you're wrong but gain $300 if you're right, then you only have to be right 1/4 of the time to break even. That's because for every four trades (on average) you would lose $100 three times and gain $300 one time, which is a wash (not counting commissions). And any numbskull can be right more than a quarter of the time right?
Right. Sure. So why aren't we all rich? After trading currencies for a while in 2004, I figured out what the problem was. A tight stop and a wide target will tend to make you wrong a lot simply because it's easier for the stop to get hit. On the other extreme, suppose you decide that you like to have a lot of winning trades, so you place very wide stops and very close price targets. Fine, now you'll win a lot of the time but the amounts will be small. And one loss, although uncommon, will tend to wipe out many little wins. So no matter where you are on the "trading setup" spectrum, wide stops and tight targets, tight stops and wide targets, or any combination in between, statistically it ends up being a wash. There is no intrinsic "edge" in any given trading setup scheme, including "cutting losses short and letting profits run." Heresy, I know.
Getting a real statistical edge requires that you can identify situations in which the price tends to move in such a way that you can set up trades which have a positive expected return. Expected return is just the percentage of wins multiplied by the win amount, minus the percentage of losses multiplied by the loss amount. An example will make this clearer.
Suppose you know that every time the USD/JPY rate crosses above its 20 day moving average, the price tends to move up more often than it moves down. Investigating this in more detail using historical data, you determine that there is a 40% probability that the price rises by 25 pips before it ever drops by 10 pips. Now even though this only happens less than half the time, it still allows you to set up trades with a positive expected return. This is because if you set your target at 25 pips and your stop at 10 pips, you will win 25 pips 40% of the time and lose only 10 pips during the other 60% of the time. Note that I am greatly simplifying this trading example for clarity. Stops and targets need to be set at locations that make sense on the chart, but I discuss such details in other articles. For our purposes here, we're just concerned with calculating the expected return, which is:
(40% x 25 pips) - (60% x 10 pips) = 10 pips - 6 pips = 4 pips
So on the average, you can expect to get 4 pips per trade using this strategy, even though you lose most of the time! But remember that this whole example is predicated on the knowledge that a positive crossover of the 20 day moving average tends to skew the expected return in your favor. That's your edge in this example.
Scott Percival is the Director of Research for the FOREX Statistical Research Center [http://market-geeks.com] at Market-geeks.com [http://www.Market-geeks.com], a site which is devoted to using mathematics and the scientific method to study the behavior of prices in the FOREX market. Mr. Percival has a degree in Civil Engineering from Northeastern University, and has worked as a Registered Representative and trading instructor at Fidelity Investments. He is currently working toward the goal of becoming a full time FOREX trader.
