With the U.S. dollar as a base currency and advantageous tax laws, Puerto Rico’s forex trading market has exploded in recent years. Are you interested in discovering more about how you can learn to trade forex? Our guide to forex trading in Puerto Rico will help you get started safely.
Get Started with Forex in Puerto Rico
There are many international forex brokers accepting clients trading from Puerto Rico. Here’s how you can get started on your forex trading journey by opening a brokerage account online.
- Step 1: Find a stable internet connection. A consistent, reliable internet connection is the most important tool you can have at your disposal as a forex broker. Make sure your desktop computer or mobile device is connected to the internet and that your connection is private and secure before you proceed.
- Step 2: Choose a broker. Most forex traders choose to work with an internationally licensed broker offering services to clients in Puerto Rico. Compare a few brokers’ fees, available currencies and trading tools before you decide where you’d like to open an account.
- Step 3: Download your trading platform. Though some brokers do offer their own proprietary platform, many also require you to download a 3rd-party trading platform like MetaTrader 4 or 5. Check to see if your broker offers its own platform before you choose which to download.
- Step 4: Fund your account. After you open a brokerage account, you’ll need to add trading funds. Most brokers operating in Puerto Rico allow you to quickly fund your account with a direct bank transfer, but many also support the use of electronic wallets and debit card funding as well.
- Step 5: Place your first order. Once you’ve funded your account and your funds are cleared, you can officially place your first order through your brokerage platform.
Puerto Rico Forex Trading Strategies
There are 2 major types of forex trading strategies that traders use to determine which currencies to buy and sell: fundamental analysis and technical analysis. Because Puerto Rico uses the USD as its base currency, you can choose from both trading strategies and see profitable trades thanks to the high liquidity of the dollar.
Let’s take a look at a few of the differences between fundamental analysis and technical analysis, how each is used and what you’ll need for each trading strategy.
Traders who use fundamental analysis as their primary trading strategy focus on the underlying economic and political factors that can cause a currency’s value to fluctuate. Some factors that traders using fundamental analysis might consider before they place an order include:
- GDP reports
- Consumer confidence indexes
- Non-farm payroll data
- Trade balance sheets
- Manufacturing indexes
Fundamental analysis can be popular with traders taking a long-term approach to currency trading and those who aren’t interested in learning the mathematical calculations required for technical analysis. To perform well using fundamental analysis, you must have a consistent, up-to-date source for international political and economic news.
Traders who use technical analysis as their primary trading strategy rarely examine the political and economic statuses of the countries whose currencies they trade. Instead, they focus on charting patterns and volume changes that may indicate that a currency will change in value. Some factors that traders using technical analysis may focus on include:
- Candlesticks that indicate a price reversal
- Cascades of candlesticks that indicate a certain price movement
- Volume changes that predict how a currency will move
Investors who use technical analysis typically take short-term or mid-term positions when trading. To get started with technical analysis, you’ll need a solid understanding of candlestick reading and a powerful trading platform.
Forex Trading Example in Puerto Rico
Is it really possible to make money trading forex? Yes! No matter where you are, you can take advantage of movements in currencies to capitalize on changing values. Let’s take a look at an example of how you might make money trading forex.
You decide to open a brokerage account and fund it with $10,000 USD. You believe that the value of the Japanese yen will rise in comparison to the USD, so you decide to invest your entire lot of USD into the yen. Your broker offers margin trading and you choose to use 10:1 leverage — this means that you can purchase $100,000 worth of yen while only maintaining $10,000 in your account.
The yen is currently trading at $1 to 107.12 JPY. You convert your entire lot of USD (including your leverage) into JPY and are left with a little over 10.7 million JPY. Soon, you see that the USD is dropping in value. When $1 USD is equal to 107.01 JPY, you decide to sell. You exchange your entire lot back to USD and are left with about $100,196. After accounting for the leverage you used, you saw a profit of about $196 on this trade.
Making Money with Forex in Puerto Rico
The government of Puerto Rico has taken multiple steps to make the country more inviting for day traders and traders who rely on capital gains as their primary source of income. Puerto Rico’s Act 22 (also known as the “Act to Promote the Relocation of Investors to Puerto Rico”) completely exempts individuals from paying local taxes on income generated from passive investment strategies so long as they reside in Puerto Rico for at least half of the year.
Introduced to draw high net-worth individuals to Puerto Rico and boost the country’s faltering economy, many investors consider Puerto Rico to be a tax haven. However, this lack of oversight and intervention comes at a price. Puerto Rico’s forex market is significantly less regulated than the markets of countries like the United States, Germany, Japan and others. This means that currency scams are more common.
It’s possible to make a profit trading forex in Puerto Rico, but you need to take steps to protect yourself and your finances. Observing the following safety best-practices can help you keep yourself safe.
- Work with a licensed international broker. Most traders in Puerto Rico choose to work with an internationally licensed broker, which helps ensure that your deposit is back and protected.
- Limit your margin usage. There are no legal limitations on the amount of margin you can use in Puerto Rico. However, you should make it a practice to use as little margin as possible to prevent yourself from falling into debt.
- Practice on a demo account first. Many brokers allow you to practice your trading strategy using a demo account. Practice making trades and using your broker’s platform before you invest any of your money.
Best Online Forex Brokers in Puerto Rico
There’s a general sentiment among many traders that forex brokers in Puerto Rico are unsafe and risky to work with due to a lack of government oversight. This isn’t necessarily true. Though forex scams and fraud are more common in Puerto Rico, investors can freely access registered international brokers. These brokers must adhere to international laws set by the United States, European Union and other regulatory authorities, providing an enhanced level of safety to Puerto Rican traders.
Choosing the right forex broker for your needs is incredibly important. Take a look at our list of suggested brokers before you open an account.
Before you can trade forex, you need to understand the lingo. Forex traders have their own set of unique terminology they use to describe trades, orders and other parts of the market. Start by familiarizing yourself with a few of the most common terms listed below.
- Pip: A pip is the smallest movement of any given currency value. In most instances, a pip is equal to 0.0001 of a currency. For example, if the USD moves in value from $1.0000 to $1.0001, we’d say that the value increased by 1 pip.
- Lot size: Your lot size is the number of units of currency you’re buying or selling. For example, if you place an order to sell $10,000 USD, your lot size is equal to 10,000. Most forex traders consider 100,000 to be the standard lot size.
- Orders: An order is a set of instructions you place with your broker when you want to execute a currency trade. Your order tells your broker how many units of currency you want to buy or sell, the price you’re willing to accept and more. Using multiple types of orders can help you automatically limit your losses and maximize your profits.
- Calls: A call (or “margin call”) is a requirement from your broker to deposit more money into your account to maintain your position. Most of the time, you’ll be subject to a margin call only when the total value of your portfolio falls below a certain percentage and you’re using leverage. A single margin call can wipe out a significant amount of your profits, so be very careful when calculating how much leverage you can afford to use.
Maximizing Your Profits in Puerto Rico
Puerto Rico’s advantageous tax laws for U.S. citizens were designed to help improve income from high-value traders and digital nomads. However, it’s important to remember that forex scams and crime are still regular occurrences in Puerto Rico. Work only with a licensed broker and never deposit more money than you can afford to lose into your forex account.