What is OTC and what are its features

What is OTC and what are its features

What is OTC

Literally, OTC means Over the Counter. This is a market that allows you to make transactions for the purchase/sale of an asset outside of official exchanges.

OTC has both disadvantages and advantages, but it is an important component of the market, no matter what asset you consider, since OTC, being "behind the counter”, plays an important role in its life and more and more brokerage companies provide their clients with access to over-the-counter trading.

Take for example the stock market, for a company to enter the NYSE (New York Stock Exchange), a small startup must meet a number of requirements, the main of which is a thick wallet. Alas, not all start-up companies can afford such a pleasure. This is where OTC comes in handy, allowing a startup to earn money by selling shares.

The concept of OTC is only conditionally applicable to cryptocurrency, because there is no centralized exchange for trading cryptocurrency, but we will consider it as a “more underground” option.

Read more: What is OTC and what are its features

The situation with cryptocurrency is different, the main difference between cryptocurrency OTC exchanges is the ability to buy the necessary amount of cryptocurrency as quickly as possible, whereas official exchanges like Binance carry out a large purchase/sale of an asset, even for one transfer, but not instantly. In addition, transactions on OTC cryptocurrency exchanges are not reflected publicly, providing their users with even greater anonymity.

It may seem that the OTC market is practically not controlled, but no. Initially, there were no requirements for shares and cryptocurrencies, but now any company selling its tokens or securities is required to send reports to the US Securities and Exchange Commission (SEC), if we are talking about enterprises registered in the United States.

And the main difference between the OTC market and the official financial/stock/cryptocurrency exchanges is pricing. The value of the asset will be determined only by the supply and demand of the traders themselves. OTC stocks do not react so sharply to macroeconomic and other news, excluding the factor of their emotional impact on traders, forcing the latter to massively buy/sell the target asset.

Read more: What is the New York Stock Exchange (NYSE)

How to sign up for OTC as a trader

There are separate services that provide access to over-the-counter trading, this applies to both the financial, stock and cryptocurrency markets. The reliability and even expediency of such trading platforms varies from the traded asset and, of course, from the honesty of the platform's management.

In the Over the Counter cryptocurrency, even a social network with the announcement “I will sell a flash drive with 5 Bitcoins” can become a platform. This is possible due to the peculiarities of storing cryptocurrency, but there are also specialized, private exchangers, sometimes not exceeding the option with a flash drive in reliability. There are separate services that lead the rating of the most "decent" exchangers.

There are many OTC stock brokers, but the system itself is called OTC Markets Group. OTC Markets Group is an over-the-counter stock trading system. Reflects the quotes of brokers/dealers for securities of the OTC market.

OTC OTC stock markets are a smaller copy of the NYSE, NASDAQ markets with distinction as companies. Companies that do not have the opportunity to place themselves on large sites (due to income or dark spots in their history), but those who want to make a public placement are forced to go to the OTC.

OTC in the financial market is Forex. Yes, Forex is already an over-the-counter platform, because all transactions are carried out through banking networks, and not on the official currency exchange.

Read more: Binance: history, features, coins and verification

OTC features

The less responsibility — the greater the risk. On cryptocurrency OTC exchanges, you can exchange currency at a more favorable rate and at a higher speed, but you risk losing money due to fraud by the second participant of the transaction or the third one — the platform itself.

On OTC stock market exchanges, you can also become a victim of fraud, but everything is often much more complicated here. For example, you can run into a company whose sole purpose is to raise money from gullible investors, then declaring bankruptcy (there is such a chance on the NYSE, but it is much higher on OTC).

The over-the-counter stock market assumes the greatest opportunity for quick enrichment, because OTC essentially consists of extremely cheap shares. A chance to find a diamond in a pile of ... earth… Much higher than on the official market. The greater the mass of an object — the heavier it moves, this also applies to the stock market. But do not forget about the risks, because companies go bankrupt on OTC much more often than on the NYSE.

There are almost no high-frequency bots on the OTС market! This is reminiscent of the US stock market of the 70s-80s, when only real people and applications were on the market and in the glass, unlike today's almost entirely bots on the NYSE and NASDAQ.

OTC market shares easily rise and fall by hundreds and thousands of percent per day. For classic large exchanges, this is a rarity, for OTC, it is a daily routine caused by a variety of catalysts.

Read more: SEC: US Securities and Exchange Commission

OTC market - does this mean that it is a "gray" semi-legal market?

Beginners are often afraid of this site, mistakenly considering it unofficial, or even almost illegal.

But they do not represent the scale of the OTC market, the ease of access and implementation of operations for beginners and experienced investors. More than 10 thousand companies make 100 thousand transactions on the OTC Markets OTC market every day, reaching a turnover of $1 billion.

The US OTC market includes a much larger number of companies than on major US stock exchanges. The largest multinational companies choose an over-the-counter dealer network. For example, here you can buy shares of Danon, SAP, Adidas, Navistar, Nestle, Rolls-Royce, Tribune, Alcatel and many others.

At the moment, more than 20 thousand various investment instruments can be purchased on the OTC OTC market: depositary receipts, shares, bonds, ETFs, warrants, etc.

And, most importantly, the OTC market is a completely legal market that falls under the supervision of many regulators. And you can trade on the OTC market through large official brokers (for example, Interactive Brokers), where your account will be insured against any non-market risks!

Read more: How to choose an ETF

Advantages of OTC trading on OTC:

  • accessibility for poor investors with a small deposit, there is no minimum limit on the size of the deposit;
  • simplicity and reliability of information technologies that ensure the interaction of global trading platforms;
  • high turnover and a variety of securities due to the participation of not only large, but also small, new companies;
  • no restrictions on the number of shares in operations;
    legislative regulation of the activities of participants in the organized market, including requirements for transparency of financial statements of issuers — but not in all sections;
  • in an organized over-the-counter market, transparent bidding, the ability to make applications, the participation of professional intermediaries, and other conditions and norms are provided;
    most of the state and municipal bonds, including Eurobonds, are traded on the OTC market;
  • potential high profitability, calculated in hundreds and thousands of percent per transaction.


Another articles

About Fear & Greed Index
About Fear & Greed Index "What has always mattered to me is the key factor that moves the stock market. This is not an analysis, statistics or facts,... no, these are human emotions. As soon as people understand this, they will become much closer to success in the markets" (Jesse Livermore - "The Great Bear", American stock trader, founder of day trading, prototype of the main character of the book "Memoirs of a stock speculator").An investor is like an astronaut at the launch of a rocket - it is these emotional overloads that he experiences every time he opens an exchange terminal. And it's not so important that a beginner or a mastodon does it. It is difficult for any person to control emotions, especially when there is a storm and panic in the markets, it is difficult not to succumb to the impulse and not make, perhaps, that "fatal" mistake. The biography of Jesse Livermore is an example of this - steep ups and downs, super profitable deals, one of which brought Jesse $ 100 million in 1929, and as a result, an 8-page suicide note and a bullet in the temple in the wardrobe of a New York hotel on November 28, 1940.Yes, markets are volatile, the market is ruled by emotions and often diametrically opposed - from overwhelming euphoria and buying up any assets to panic and total sales.The dream of any investor is to know what emotions the market is currently gripped by, where the quotes will swing up or down, what to do - sell or buy. And although the first official stock exchange has existed since 1773, it was only at the end of the XX century that stock market experts managed to create an acceptable indicator that most accurately reflects the dominant "mood" in the market and is able to predict its movement, those up or down. It's about the index of Fear&Greed index.What does the Fear & Greed index show?According to many experts, the movement of markets is largely determined by emotions. Emotions, in turn, shape the mood of investors. The indicator of the mood on the stock market at the moment is the fear and greed index Fear&Greed index. Greed and fear determine where the market will move. This is one of the most popular market indices and it helps not only traders, but also long-term investors. CNN Money is considered to be the developer of the index. The news service publishes real-time index data daily and for free on its website.The index developers are confident that understanding the general mood of investors helps to correctly predict market movements up or down. So, when fear dominates, stocks fall in price and trade below their fair value. If greed dominates among investors, then shares are actively bought up and they are traded much more expensive than they are in reality. In the words of Warren Buffett, "Be careful when others are greedy. And be greedy when others are cautious." It is possible to recommend investors to look at the fear and greed index before starting actions in the market and act directly opposite to the mood of the crowd - when it's scary - buy, and in the heat of excitement of other participants, sell! The guru's recommendation is quite simple, but effective.So, let's look at what the famous Fear and greed index for investors.Read more: The importance of volumes in the marketThe index itself is expressed as a percentage from 0 to 100, where 0 is extreme fear and 100 is extreme greed. The index looks like a speedometer with an arrow. The closer the arrow is to 0, the higher the fear, the closer to 100, the greater the greed. There are intermediate zones between the extreme values of 0 and 100. For convenience, they are painted in different colors: With the help of the index, you can see the predominance of fear or greed in the market not only at the current moment, but also in the past - a week, a month and a year ago.What does the index show and why is it needed? Fear Index&Greed is an indicator of market sentiment, which can determine the vector of further market movement with increased accuracy.Extreme fear reigns in the market, which means investors are inclined to sell assets. And we see this in the stock quotes in the previous few months, now and it is more likely that the sales will continue in the near future.  This is a kind of "weather forecast" on the stock market and a signal to the investor to take an "umbrella" or put on a "headdress" so as not to get baked. To confirm the thesis, let's look at the charts of the S&P500 and Nasdaq indices. And here we will see a falling trend on both indicators.Methodology for calculating the Fear&Greed indexThe ratio of fear and greed in the market is calculated through 7 parameters that have equal weight in the index:Demand for protective assets. If market participants are more inclined to buy risky assets, such as stocks, then greed prevails among investors, and if they buy bonds, especially government bonds, then the market is dominated by fear.  The flow of assets from risky to protective is an unambiguous signal to the investor for panic in the market and its imminent decline, a "down trend".Market momentum. Here we analyze how much the value of the S&P500 index is higher than its average over the past 125 days. The higher the index is from its average values, the more greed there is in the market and vice versa.Demand for "junk bonds". Junk bonds are bonds with a high yield, but a low credit rating, which means a high degree of risk. If the demand for such assets grows, then the market is at the mercy of the greed of investors. Conversely, if the demand for "junk" securities decreases, then investors panic and will soon begin to exit risky assets and shift to protective ones.The strength of the stock price. Here we compare the ratio of the number of shares that have reached their annual highs to the number of shares that have reached annual lows. A 52-week interval is taken. If the number of shares at the highs prevails, it indicates the greed of investors. If there are more stocks at minimum values, then fear reigns in the market, which means you can observe a large sale of risky assets.Market volatility or the VIX volatility index is an index that reflects market expectations regarding future volatility in the US market over the next 30 days. The value of the VIX index is formed from the prices of monthly options of the S&P500 index.Trading put and call options. Here, the volume of trades for the purchase or sale of assets is estimated. If there are more options to sell, then fear prevails in the market, if there are more options to buy, then greed.Market width. It estimates the trading volume of stocks that are rising and those that are falling in price. If the trading volume for rising stocks is higher, then investors are greedy, and if there are more trades for falling stocks, then investors are in fear.VIX Volatility Index and Fear and Greed indicatorAs you can see, the VIX volatility index is one of the 7 parameters for measuring the “Fear and Greed” index in the Fear market&Greed index. At the same time, the VIX volatility index is an independent and popular index among professional investors.In the financial literature, you can find mention of the author of the idea of creating a volatility index - American finance professor Robert Whaley. The first attempts to create an index, originally called Sigma, were made by Israeli scientists Mannheim Brenner and Dan Galey. In 1989, they wrote the article "New financial instruments for hedging changes in volatility". Many people liked the idea of creating a kind of barometer of stock market fluctuations, and already in 1990, the Chicago Options Exchange (ITS) called on Robert Whaley to help create a market volatility index, based not only on mathematical calculations, but also on the price dynamics of really traded futures contracts. Initially, only 8 put and call options in the S&P100 index were analyzed. Later, employees of the Chicago Stock Exchange and Goldman Sachs bank experts Devesh Shah and Sandy Rattray improved the index to a modern level, which became best known to investors as the VIX volatility index for the S&P 500 index.The graph shows how the VIX volatility index and the S&P500 correlate with each other. At the moments of the greatest drop in the S&P500 index, the values of the VIX index are at their highs.Often, the VIX volatility index is also called the investor fear index, but this is only partially true. The VIX index reflects exactly the expected volatility that it will be on the market in the coming month, and volatility, as we know, is a statistical financial indicator that characterizes the volatility of asset prices. So, predictions of the amplitude of future fluctuations in the market are shown by the VIX indicator, and the level of fear and greed of investors or their mood is shown by the Fear index&Greed. It is optimal for an investor to look at the values of both indices before opening or closing deals.Read more: The fear index VIX. Who and how earns on the nervousness of investorsLet's consider how the index of expected market volatility is calculated.The index itself is expressed as a percentage on a scale from 0 to 100, where 0 is the minimum volatility and 100 is the maximum. These are extreme values, the so-called extreme points, and the market has not seen such values yet.0 - 20% - low level of volatility in the market. Investors are optimistic, the market is in a growing trend. On the index of "Fear and Greed" at such a moment, the arrow is likely to be in the green zone. It is important to understand that the lower the 20% value of the VIX, the higher the probability of a close reversal and a trend break. This is a signal for investors to sell securities and fix profits.21-30% is the average level of volatility. These index values show investors relative stability in the market and volatility within standard deviations. There are no obvious signals for action. On the index of "Fear and Greed" at such a moment, the arrow is likely to be in the neutral gray zone.31-40% - increased level of volatility. During this period, it is better for beginners to refrain from shopping. On the other hand, for a trader, this is an excellent indicator of the approaching volatility in the market and the opportunity to earn.  On the index of "Fear and Greed" at such a moment, the arrow is likely to be in the orange zone of fear.40% or more - panic in the market. Such indicators of the VIX index are most often accompanied by a rapid collapse of quotations. And this is a signal to investors to look for good entry points to the market. As soon as the fever subsides and the value of volatility begins to decrease, the stock price will go up again. Therefore, this is the best time to purchase securities.  On the index of "Fear and Greed" at such a moment, the arrow is likely to be in the red zone of extreme fear.Let's test the hypothesis and look at the VIX Index on historical data.The VIX volatility index instantly reacts to the growth of volatility in the markets. Its peak values are reached during periods of mass sales on the market. During the same periods, the index of fear and greed is in the zone of Extreme Fear, extreme fear.Volatility index VIX = 29.69.The index of "Fear and greed" = 14.The S&P500 index is in a downtrend, the volatility in the markets is relatively high.It can be assumed that the indices are close in meaning and show, albeit in different ways, the levels of fear and greed of investors operating in the market. The higher the VIX value and the lower the Fear value&Greed, the higher the fear and volatility. The lower the VIX value and the higher the Fear level&Greed, the higher the greed of investors and the less volatility. Today to see the values of the Fear index&Greed is possible only in a small time interval - 1 year, and VIX values in a wider range - since its appearance - since 1990.Read more: What is the Volatility Index (VIX)?Peak values of fear in the US marketIf you look at the VIX index from 1990 to the present day, you can see 7 peak points when the index went above the comfortable values of 30 points, when the market recorded maximum volatility and a high level of uncertainty and fear.August 1998, VIX = 44 - collapse of the financial system of the USSR, default of T-bills.September 11, 2001, VIX = 33 - terrorist attack in the USA, the collapse of the twin towers.2002, VIX = 40 - a series of financial scandals in the United States, falsification of financial statements and bankruptcy of Enron Corporation.October 2008, VIX = 60 - the mortgage crisis in the United States and the global financial crisis.September 2011, VIX = 43 - the US debt ceiling crisis, when the credit rating agency Standard & Poors downgraded the credit rating of the US government due to the high risk of default on debt obligations.March 2020, VIX = 53.5 - the beginning of the coronacrisis.May 2022, VIX = 31.86 - geopolitical tensions due to the special operation in Ukraine, the impending global energy and food crisis.Unfortunately the Fear&Greed index cannot be seen in retrospect 1990-2022, but for example, let's see how in March 2020 the Fear index&Greed dropped from the level of 90 immediately to 5. From maximum greed to extreme fear at the moment (the index is available for viewing as a graph and as a "speedometer").Another recent example of the "peak" of investor sentiment from 75 points of greed to 8 points of extreme fear - from November 2021 to May 2022.Markets are volatile, the economy that determines the situation on the stock market is cyclical. The fear and greed index correlates with the broad market index, and therefore there is a certain cyclicity in the fluctuating values of the fear and greed index. And depending on the economic and geopolitical situation, the wave of the cycle narrows literally to several months or even days.Read more: Volatility: how to ride the waves of the market correctly and safelyPeak values of greed in the US marketThere are not so many minimum levels of fear, which means there are not so many peaks of "greed" of investors. But nevertheless, let's look at the graph:1993, 1995, 2007, 2013-2014, 2018, 2021 — years of minimal volatility and minimal fear and maximum greed in the US market. This is clearly visible on the S&P500 index chart. If the market is in a downtrend - VIX is in an uptrend and vice versa - the market is growing, VIX is declining. Recall that the VIX is a leading indicator, indicating future market volatility, not past or current.The index of fear and greed in cryptocurrencyThe crypto market does not lag behind the classical stock markets in any way. Since February 1, 2018, the index of "Fear and Greed" of bitcoin Crypto Fear has become available to crypto investors&Greed index. The principle of calculating the index and the way the result is displayed is similar to the basic Fear index&Greed index.The index of fear and greed in cryptocurrency (Crypto Fear&Greed index)Daily statistics. Every day, in real time, the indicators of the bitcoin volatility index can be seen in open access on the website of the Bitstat.top service.Multi-format data output. The results are displayed both in the form of a speedometer and colored zones, where red and orange - fear, gray - neutrality, light and dark green - greed of crypto investors. You can also see the data in retrospect from February 2018 and simultaneously see bitcoin quotes.Boundary values of the index. The cryptocurrency index of fear and greed also has values from 0 to 100 in a similar interpretation: 0 – fear, 100 – greed.The principle of calculating the index is based on 6 basic parameters. They differ somewhat from the classical index, and each parameter has its own weight in the final index value.The principle of reading the index value is similar to the Fear and greed index of the stock market: the index at the minimum indicates panic in the market when sales prevail over purchases. And on the contrary, a value close to the maximum indicates that investors are becoming greedy and their mass purchases can raise the prices of cryptocurrencies too high.A retrospective analysis of the index values in comparison with the exchange rate value of Bitcoin shows that the graphs of the two indicators have a direct correlation: the peak values of the value of the digital currency reached during periods when investors were gripped by greed:Since the beginning of April, the mood of crypto investors through the index value has been interpreted as extreme fear, and we see a rollback in the value of Bitcoin to the price level of 2020.Read more: Volatility: types, how to track and how to useConclusionOf course, the opening of the Fear&Gread, VIX, Crypto Fear indexes&Greed index is a great achievement in the world of investments and a significant help to investors around the world. All indices, one way or another showing the mood in the markets, significantly help traders and long-term investors to navigate more accurately in the investment ocean of opportunities. But it is worth remembering that this is just a guideline, a kind of "weather forecast" on the stock market, and you should not rely entirely on it.Of course, the extreme values of the "Fear and Greed" index are a signal for investors that unique opportunities are opening up in the market, both to buy good assets super cheap and to close positions, fixing profits before a trend change.
Oct 02, 2022
Compound Interest in Investing - How it works
Compound Interest in Investing - How it works The purpose of investing is to generate income. Different trading strategies can be used to achieve this goal. A trading strategy is a complex algorithm of actions that has been practiced and honed for years. But significant results can be achieved without seriously complicating the approach to investment. The long-known compound interest will help in this.Many people call the principle of compound interest magic. In fact, this is not magic, but a really working, mathematically cool principle. In this article we will try to figure out how compound interest works and why it is so important for an investor.The principle of operation of compound interestCompound interest is the interest that is accrued on the initial amount of investments and on the interest accumulated over previous periods. That is, the interest becomes complicated due to reinvestment of income (received interest).Einstein's quote about compound interestIn simple words, the effect of compound interest is that the interest you earn on savings /investments begin to bring interest on their own, that is, you get "interest on interest". The simplest way to illustrate its essence of compound interest is with an example of a bank deposit.Example. Suppose an investor has 10,000 dollars, he places them on a bank deposit at a rate of 10% per annum for 1 year. For the first year, he will have an amount of 11,000 dollars on his account. Further, if these funds are reinvested, placed on deposit again, then for the second year the investor will receive (11,000 + (11,000 dollars * 10%)) = 12.100 dollars.There is a formula for calculating the total amount of accumulated capital:We use this formula to calculate from our example:A - final amountP - initial principal balancer - interest raten - number of times interest applied per time periodt - number of time periods elapsedFuture amount of capital = 10 000*(1+0,1)7 = 19 487 dollars.After 20 years, the amount of capital = 10 000*(1+0,1)20 = 62 275 dollars.As the percentage part grows, the growth of your capital will go faster - grow exponentially over time. Precisely, TIME plays a major role in this mechanism.In the first years of accumulation, it may seem that you earn only a modest amount of interest. But, if this process is maintained for a long period of time, every year the effect of the compound interest will grow exponentially until it exceeds the initial capital and will not be responsible for the formation of most of your income.The principle of operation of compound interest is one of the best explanations of why saving for retirement is worth starting at a young age. Even with a small amount of start-up capital, but provided that proper discipline is maintained, over time, most of the accumulated amount can be "interest on interest".Read more: P/E Ratio: what it is needed for and how it is calculatedHow to apply compound interest in investingIn the stock market, you can invest in various securities. The basic variant of investment instruments are stocks, bonds, ETFs. The principle of operation of each tool is different, but their essence is that they can bring income to their owners:income from the growth of the price of securities (stocks and ETFs),dividend payments (shares),regular coupon payments (bonds),regular depreciation payments (on bonds).The first component of investment income - earnings on the exchange value of the paper - is not guaranteed and can be significantly stretched over time. The compound interest scheme works best when reinvesting regular payments. In order for the compound interest scheme to work, systematic income must be reinvested, that is, to buy "new" investment instruments. Eg:the dividends received should be directed to the purchase of shares of promising companies,received coupons and amortization payments for the purchase of new issue bonds with a higher interest rate.That is, the cash flow should not be withdrawn from circulation, but should be put back into operation. In the case of funds (for example, ETFs), dividends and coupons are not paid, but are reinvested by the funds themselves, that is, the mechanism for reinvesting compound interest is already "sewn" into the instrument itself. But this is a dubious advantage, because the investor does not control which securities the periodic income is invested in. In addition, the commission of the management company partially reduces the possible profitability.It is important to distribute the resulting profit evenly, according to the portfolio structure and the share of each asset in it, applying the rule of diversification. If necessary, rebalance the structure of the investment portfolio. Constant reinvestment in only one paper significantly increases investment risks.The benefits of compound interest for the investorThere are a lot of tools for modeling the mechanism of compound interest – starting with the well-known Excel, ending with advanced compound interest calculators. But the principle of their work is the same: initial conditions are set in the form of the amount of capital, the percentage of return on investment, the amount and frequency of deposits, the investment period ... and then there is a standard calculation mechanism.Read more: How to evaluate growing companies? PEG RatioConclusionReturn on investment is the main goal of every investor. Compound interest, as a mechanism for increasing capital over time, is an important tool for a competent investor. Its meaning is that after a certain period of time, the percentages begin to work for themselves. There is no complexity and no magic in this process. The main thing is to launch it into the process of capital accumulation, reinvesting the profits received.The easiest way to launch a compound interest is through opening a bank deposit with subsequent reinvestment of the interest received. You can also open a ready–made deposit with an already sewn reinvestment mechanism - a bank deposit with interest capitalization. But at the same time, it is worth remembering that the yield on deposits is approximately equal, and often even less than the inflation rate. That is, interest is accumulated, reinvested, capitalized, but the real value of savings may remain at the same level. That is, there is nominally more money, but with an increase in inflation, they can buy the same amount of goods as 1, 2, 3 ... years ago. Much greater profitability and even with a lower level of risk can be obtained by investing in government securities - there are fixed periodic payments that can be reinvested. This is an option for conservative investors. For investors who are loyal to risk, shares can be added to the list of investment instruments. Stocks do not bring stable fixed income, but their potential yield is much higher than bonds.It is worth noting that investing in the stock market carries increased risks. In order to obtain the desired profit, the investor needs to maintain a balance between potential profitability and risks, and respond to changes in the macroeconomic conditions of the markets. At our free webinars, we introduce investors to the opportunities that the stock market opens up, using our unique method of reasonable investment, based primarily on many years of experience.
Sep 18, 2022
What is SWIFT: history of creation, participants and competitors
What is SWIFT: history of creation, participants and competitors SWIFT is an international interbank system that allows its participants from different countries to make payments between themselves quickly, safely and for a relatively small fee. In addition to the fact that it is the largest interbank system that provides the bulk of cross–border payments, the SWIFT system quite often acts as a political lever of pressure on its participants - disconnecting from SWIFT is a separate alarming item in the list of sanctions actions.Let's try to understand the issues of the role of SWIFT in the international system.What is SWIFTSWIFT is an abbreviated abbreviation of Society for Worldwide Interbank Financial Telecommunications – literally translated from English means society of worldwide interbank communication channels. The SWIFT international banking system helps banks to make payments. At the same time, it is not a payment system, that is, it does not perform the functions of calculating and clearing the participants of the payment system. SWIFT is the foundation of global financial communication - it provides a platform for messaging. That is, in simple words, it is a kind of messenger in which financiers around the world exchange payment orders, transaction confirmations and other financial documentation. Orders for the transfer of money and other valuables between financial and non-financial organizations are transmitted through this channel.SWIFT, through which an average of 14 million payment orders pass daily between financial institutions around the world, provides the bulk of cross-border payments. Every day, the volume of payments using SWIFT codes, which appear in 80-90% of all global settlements, exceeds $6 trillion.SWIFT technology is based on messages consisting of a title, text and a trailer. The system supports two types of messages: between users and between the user and SWIFT. Messages are aggregated in a regional processor and redirected to a specific operating center for subsequent processing, where the content is copied and encrypted for storage. The counterparty to whom the message is intended decrypts it and confirms the fulfillment of the conditions specified in it. Correspondent account statements are transmitted in the same way.SWIFT clients or participants are:BanksSubjects of payment and treasury market infrastructureDepositories.FundsExchangesBrokers, dealersClearing centersIndividuals, etcSWIFT community members are attracted by a secure transaction and soft bureaucratic boundaries. The SWIFT network operates without government obstacles.The history of SWIFT creationSWIFT was established in 1973 with the participation of 239 banks from 15 countries that joined together to solve the problem of cross-border payments. The banks have formed a joint utility - the Society for Worldwide Interbank Financial Telecommunications. SWIFT started working with its messaging services in 1977. The first transfer via the SWIFT channel took place in 1977. By the time of launch, 518 institutions from 22 countries of the world were connected to SWIFT messaging services.  At the moment, SWIFT is a global financial infrastructure that covers all continents, more than 200 countries and territories and serves more than 11,000 institutions worldwide.  The community earns money on software. Russia is currently among the top 5 largest users of the system.SWIFT departments are scattered across different countries. The head office of the payment system is located in the city of La Julpe near Brussels. All messages received and transmitted are processed in SWIFT data centers. They are located in several countries with fixed geographical service areas:The center in the USA – serves the transatlantic messaging area.The center in Netherlands – serves the European area.The center in Switzerland is a duplicate, which interacts with centers in both the USA and the Netherlands.A member of the SWIFT system, who is located in a jurisdiction other than Europe or the USA, independently decides in which zone he will be served.In each country in which the SWIFT system is deployed, the society creates, according to the SWIFT charter, a National Group of SWIFT members and a Group of SWIFT users that unites all users of the network.Read more: The world's leading Stock Exchanges and features of their functioningSanctions involving SWIFTOver the past 10 years, the word "sanctions" no longer produces such fear as it used to. Annual sanctions by their regularity of introduction can be compared with fashion – some sanctions are canceled, others "come" in their place. In response to the restrictive measures imposed, a retaliatory package of sanctions is being introduced. Sanctions are imposed on individual public persons, companies or even countries. Very often in the news feed you can hear that a possible disconnection from the SWIFT system acts as a sanction measure.What does this mean for the subject of the sanctions list?In fact, the consequences of disconnecting from the international payment system are not catastrophic, but at first glance they seem close to them. It is only worth noting that the consequences of disconnecting from SWIFT in fact relate specifically to international settlements. Disconnecting from SWIFT does not affect internal payments in any way. And now about some of the consequences of SWIFT for different participants of this system:Transferring funds to foreign accounts will become much more difficult and, most importantly, more expensive, since this will have to be done only by workarounds.Problems of transferring money abroad (for individuals and legal entities).The problems of settlements with foreign suppliers are for companies.Inhibition of international transactions. The consequences will affect importers and exporters, as the delivery times will be disrupted, there will be fewer participants in foreign economic transactions, the range of imported goods will be narrowed, even a deficit in individual items is possible. And this, in turn, will lead to an increase in prices.Devaluation of the national currency.Disconnection from SWIFT is a threat to the isolation of the country's banking system from international settlements. In modern history, 14 Iranian financial organizations were disconnected from the SWIFT system in 2012 after they came under EU sanctions for financial complicity in Tehran's alleged nuclear activities. This has led to serious difficulties in the foreign trade of the Islamic Republic. After the shutdown, Iran lost almost half of its oil export revenues and 30% of its foreign trade. In 2017, the provision of services to DPRK banks from the UN blacklist was discontinued.SWIFT alternativesSWIFT is a convenient, well–developed and the most massive interbank system through which its participants conduct both internal and cross-border payments. Technically, this is a private independent European organization, but in a technological sense, the vast majority of transactions still go through US banks, since servers are located there (and also in Switzerland and the Netherlands). This means that they automatically fall under American jurisdiction. Therefore, the company itself often acts as a political lever of pressure. To eliminate this option of international dependence, many states are working on their own interbank payment systems. The largest international systems are SWIFT backup options:CIPS (China International Payments System) is a Chinese international payment system - a system of cross-border interbank payments designed to facilitate financial transactions between China and other countries. The Chinese equivalent of SWIFT was launched in 2015.RIPPLE is a global system for cross-currency payments, created in 2012. The platform allows mutual transfers to be made anywhere in the world in just a few seconds. The platform's protocol currently supports tokens, cryptocurrencies, exchange-traded commodities, or even objects such as frequent flyer miles or mobile minutes.INSTEX (Instrument in Support of Trade Exchanges or Trading Settlement Support Tool) is a payment system created in 2019. The EU allows companies to trade with Iran, despite tough US sanctions. That is, this system was created as a mechanism to circumvent US sanctions in trade with Iran after its disconnection from the SWIFT system.Read more: About the SWIFT Global Interbank SystemConclusionSWIFT is an international interbank system that allows for fast and secure cross–border transactions. A few years ago, this system had an absolute monopoly. But currently there are a number of alternative systems that are not inferior to their "big brother" in terms of technology, safety and speed of operations.
Sep 17, 2022
What's going on with Binance - regulatory pressure and the future of the exchange
Binance Coin, cryptocurrency, Binance USD, cryptocurrency, What\'s going on with Binance - regulatory pressure and the future of the exchange Do you trade on the Binance cryptocurrency exchange? Perhaps today it is the TOP-1 platform in the world, but about a year ago the crypto exchange began to have serious problems with regulators, which it cannot solve yet.The authorities of the UK, Canada, Japan, Italy, Malta and other countries want to see a Binance license, which, as it turned out, does not exist. And banks and payment networks block sending fiat to the exchange.The platform itself imposed restrictions on trading bitcoin and other cryptocurrencies, also significantly lowered the withdrawal limits, and talks began about Changpeng Zhao's replacement as CEO.RegulatorsBinance is a TOP-1 cryptocurrency exchange. They have the most traffic, the highest trading volumes, their token is in the TOP 4 best cryptocurrencies with a capitalization of more than $50 billion and they own the most popular cryptocurrency portal CoinMarketCap.It's all really so easy to check, but for all these achievements, we forgot about one important point. And where is the Binance exchange located? We are not the first to ask this question, but so far no one has found an answer to it, they are not in China, Hong Kong, Malta, etc. It seems like the platform actively cooperates with the authorities of various countries, helps them catch scammers, opens fiat gateways for the convenience of citizens. But in which country is their main office?So the regulators asked themselves this question and began vying with each other to warn citizens that, it turns out, there is an exchange in the country and provides services, but at the same time it has never received a license. This story began to gain momentum at the end of last month, when the Japanese regulator issued Binance a warning for working in the country without a license, which they were required to obtain back in 2018. To which the representatives of the exchange threw up their hands, saying that we do not work in Japan at all, why do we need a license.Further, the Canadian province of Ontario announced the impossibility of continuing the work of Binance in the region due to the lack of an appropriate license. Here the platform did not answer anything, just stopped working and asked customers to withdraw funds.Then there were claims in the UK, they banned the work of a subsidiary of Binance Markets Limited and under this pretext pointed out the need for the site to completely cease operations in the United Kingdom. The exchange withstood the blow and decided not to leave the country, stating that the ban concerns only one division that does not provide services through their main website.But the banks sided with the authorities. So, Barclays banned its customers from sending money to the exchange:Then there was a ban from another major bank Santander, no payments on Binance. Then the Clear Junction payment system and another large NatWest bank joined the restrictions. It is also known that several cryptocurrency funds have decided not to work with Binance anymore, because regulators are increasingly complaining about the exchange. And in fairness, it should be noted that such payment giants as Visa and Mastercard have stated that they work with the exchange and they have no problems.But not only Japan, the UK and Canada are unhappy with Binance's actions. The authorities of Thailand, the Cayman Islands, Poland, Italy, Hong Kong and Malta warned about the risks of working on the stock exchange. In the latter country, the site was sued in general, because they promised to pay donations to the cancer foundation, but since the case with obtaining a license stalled, they did not pay anything, moreover, they intend to withdraw assets outside Malta.All of the above happened within one month.Read more: Binance: history, features, coins and verificationStock marketWe are not going to say that everything is a scam, tomorrow it will collapse and urgently save your money. No, as it seems to us, this is more a planned attack by regulators in order to take control of all crypto exchanges. If you force the leading platform to cooperate, then the rest will not even make a peep.Another large and relatively young FTX crypto exchange bought its shares from Binance under the pretext of business necessity. And the Gemini platform generally stated that in the future they will become the market leader. That is, colleagues in the shop are not in a hurry to support Binance, on the contrary, they will try to benefit from it.Now about the exchange itself, they started cheerfully, and made a statement about how they intend to solve the issue. There are three main points there. The first is an increase in compliance staff by 500%, probably so that illegal money does not get to the site. Next comes the introduction of hardware solutions that are recommended by the international organization for combating money laundering. And the third key point is action within the legislative framework of specific countries. Why then these countries declare the absence of a work permit is unclear, perhaps the exchange has now decided to address this issue.Due to so-called unforeseen circumstances, the acceptance of payments in euros through the SEPA payment network was stopped. It is noteworthy that this is already the decision of the exchange itself, for some unknown reason they decided to close this financial channel.The next solution is a complete rejection of trading in tokenized shares. Clients were given 90 days to sell assets. As the representatives of the exchange explained, no one forced them to do it, they just decided to develop their business in a different direction. Although if you dig into recent history, back in early May, the German financial regulator issued Binance a warning for tokenized shares. Interestingly, other exchanges, with the same partners, continue to trade tokenized shares and no one has any questions for them.Then we get to an extremely interesting statement from the head of Binance, Changpeng Zhao, that he is looking for a successor and is ready to give up the post of CEO to someone who can solve problems with regulators. It's a noble thing, but why immediately take and leave the post of general, you can give such a superman just a place of some deputy director. If you build a conspiracy theory, an idea comes to mind, maybe Changpeng Zhao is looking for a way to retire, supposedly he has nothing to do with in case of even bigger problems. He also talked about plans to conduct an IPO of the American division of Binance.Such legalization can remove many regulatory issues. But it still needs to be passed, and so far, apart from words, we have not heard about any actions in this direction.Read more: Mining on the phone: is it really possible to mine cryptocurrency like thisIs it time to go out?Do I need to get rid of Binance? See for yourself, first the leverage was lowered from 100 to 20.Margin trading is a risky business, but nevertheless, many appreciated the exchange precisely for this opportunity.The next step is to reduce the withdrawal limit without verification from 2 to 0.06 BTC per day.For new users, this rule begins to take effect right now, and for experienced traders it will be introduced gradually. Here it should be clarified that there is no mandatory verification on the exchange, you can create an account by simply specifying an email address. But then you will be limited in withdrawal limits and now they have actually been cut three times. But if you want to be able to withdraw up to 100 bitcoins every day, then send photos, shoot videos, confirm income and other delights of verification.And the third important news is that now all Binance users can pay taxes and sleep peacefully. An application has been launched on the site that will help a trader calculate the amount of tax deductions depending on his activity on the stock exchange, success in trading and legislation in the country of residence.If the exchange was able to launch such a tool, then it probably knows how to collect all the data about its customers and, if necessary, send them immediately to the tax service. In addition, in light of recent events, Binance is clearly ready to do anything to resolve problems with the authorities.Read more: Risks and benefits of investing in cryptocurrencyBinance scamIn total, we have no direct evidence that the exchange is being scammed. But the events around her are unfolding rapidly, and many have a double meaning, which arouses suspicion.
Sep 17, 2022
The reasons for the mistakes of novice traders
The reasons for the mistakes of novice traders Mistakes of novice traders. A sad conversation about trading.Looking back, I see a very sad picture of the success of traders. Of those with whom I started trading, today there is practically no one left! Just think about these numbers. For 10 years, of the people with whom I communicated very closely (and there were 30-40 people, not counting just familiar traders), only a few remained in the ranks! Everyone else sooner or later quit this business.Let's face it without rose-colored glasses - there are very few people making money on forex. Statistics say that 95% of traders leave the market.  I would raise this statistic to 98-99%. The percentage of the newly created and ruined "traditional" business, I think, is an order of magnitude less.And many people think that here we have easy money, just a magic button called "loot".But in fact - nothing like that! We have daily painstaking work here, like slaves on galleys…It seems that everything is simple and clear when you look at history. Here it was necessary to buy, here to sell, and here it is happiness! In the form of a golden rain mixed with cars, yachts and houses on the coast… In fact, everything turns out to be wrong. There is always the eternal question - here and now, which button to press?Why are deposits merging and traders leaving the market?In the first year of trading, according to my 10-year observations, people leave the market in two cases. The first category comes to forex in the hope of fabulously and most importantly to get rich quickly. At the same time, they have no idea how everything works and turns around here. The market immediately hits the new participant in the nose, takes all the money and throws it overboard. Robbed (as he believes) and offended by the whole wide world, the failed trader leaves the market forever.The second category of people are more lucky. But money "on the ball" has the ability to relax a person. The result is the same as in the first case – draining the main deposit and all that I earned. And shouting: "Casino! A scam!" the person also leaves forex.So why is there a loss of the deposit?Read more: Forex problems – what is the "Burnout Effect"4 mistakes of novice tradersMistakes of novice traders, as we have already said, those who came for fast money and are not going to go through a long way of becoming themselves as a trader. Why, for example, you need to study for a surgeon for 6 years, then 3 years of internship, and only after that you may be entrusted to perform operations yourself. And how long does it take to become a successful, consistently earning trader? I can say about myself that I started to close a stable month without losses only by the end of the third year.The next reason for losing money is the lack of a trading system and a trading plan.  And even if you are armed with a good trading strategy, always ask yourself the question – "How good is my trading system?" Everything changes in the market over time. Following the market, our approaches to it should also change.  We have already discussed these issues, so we will not stop. Moving on.Let's say you have shown patience and are ready to move slowly but confidently towards your goal. You already have a profitable and time-tested system. We can say that half the work on the way to success has been done. But there remains a very important issue that novice speculators practically do not pay attention to. And this question is money management and risk management (MM and RM). Proper money management and compliance with the rules of acceptable risk per transaction is 80, or even 90% of your success! I repeat once again, the market has a tendency to change its habits. And he changes them at the most inopportune moment (for example, when you have a profitable streak, and you are in a euphoria of happiness from your own success). In such periods, believe my experience, it is very easy to miss changes in the market. And the only thing that can save you from collapse at such moments is strict trading discipline in relation to MM and RM. And these two components of trading are the key to stable earnings. If they are used correctly, the profit from one successful transaction can cover the loss from three or even five unprofitable ones.But the most important enemy on the way to success is yourself and your emotions! Fear, Greed, Hope. The fear of getting another stop loss does not allow you to open a deal that can become very profitable. Greed prevents you from closing a position in time, as a result, instead of profit, you get a breakeven (at best). Hope makes you hold a losing position, even when you realize that you initially made a mistake in the calculations. To keep yourself in hand and not let your emotions bloom with a double color is difficult! We are all living people, not robots. Therefore, each of us can sometimes give slack. But, as they say, forewarned means armed. The main thing is to say stop to yourself and your emotions in time!Summing up, I want to say that the path of becoming a professional trader is thorny and tortuous, but there is always light at the end of the tunnel!  It is necessary to go through the pain of losses and disappointments, through the joy of victories and achievements, to say with pride – "I am a trader! And I am among those who did not leave the market, but achieved success!"Read more: What a novice forex trader needs to know
Aug 06, 2022
Swing trading - strategy of successful traders
Swing trading - strategy of successful traders One of the most successful trading strategies that traders use in their trading is swing trading.Today we will try to figure out what this concept is and how to apply it.What is swing trading?The essence of the swing trading strategy is as follows:Since the markets move cyclically, the speculator's task is to determine a market cycle lasting 3-5 days, open a deal at the beginning of the cycle and hold it for one to five days in order to maximize profit, trying to take most of the main movement of the cycle.A swing trader should be a generalist and a highly qualified specialist. He should perfectly understand the current market picture. At the same time, act clearly, quickly and flexibly, using the entire arsenal of your knowledge and tactics to work both in the trend and in the flat.There are very few such specialists on the market, but they are the ones who achieve outstanding success, and their trading account is constantly growing.In fact, swing trading boils down to trend trading. The main thing is to correctly identify the trend that you are going to trade, identify its beginning and join it.Trends - three different typesAs taught by old man Doe, the founder and inspirer of technical analysis, trends are of 3 types:Long-term trendIt can be seen on annual, monthly and weekly charts. But such trends are more suitable for strategic investors. Agree, we, small speculators, have to hold a position for months and years, waiting for its implementation, sitting out huge kickbacks, somehow out of hand. Of course, I admit that there are strategic investors among you. But this is not my style of trading.Medium-term trendIt can be seen on the daily and 4-hour charts. This is exactly what we need for swing trading. And this is exactly the trend that we want to take into work. The only point is that you should not try to look for a trend reversal before it happens. I have been beaten more than once for such attempts and it hurts a lot! Successful traders warn with one voice – "Never fight the trend! He can kill you." But we will talk about the rules of the trade below…Short-term trendIt can be seen inside the day on hourly, 5-minute and 15-minute charts. This is the domain of scalpers.  And it is interesting to us because it helps to determine the end of the medium-term trend and the beginning of a new one in the opposite direction.Read more: Dow Theory: Six basic principles of Technical analysisGeneral rules of swing trading and its advantagesWhat can be attributed to the advantages of swing trading?With the right input and output, we can get the most out of the medium-term price movement.We get the optimal number of transactions. One entrance-exit per day, allows you to avoid excessive psychological pressure.With an optimal number of transactions (unlike scalpers), we do not overpay the broker for the spread and commission.There is no need to monitor the market 24 hours a day, as a result, there is more free time.With the right exit in a sluggish, stagnant market, the chance to hang with a position on your hands is reduced to zero, you will never turn from a speculator into an investor.Now, a little bit about the general rules of swing trading. I will emphasize the general rules, since the trading technique itself is not the subject of this article. So, the rules:Before entering the market, make sure that you understand the direction of the medium-term trend well and are in its initial stage.With the right entry, your position should almost immediately move in a profitable direction for you.If the position makes a profit, but it has not reached its intended goals, move it to the next day.The opposite rule is that if a position brings a loss, do not carry it through the night. Close it at the first possible rollback and open a more profitable position (if the entry conditions have not changed dramatically) tomorrow.If the market offers you a bigger profit than you originally planned (as an example, the movement on the news), take it without hesitation.If the position is in a small plus, and you see clear signs of stopping, tighten the stop loss to reduce the possible loss or exit the transaction. Your goal is to minimize risks and transfer the transaction to a break-even state as soon as possible.Be able to wait for your profit. This point, at first glance, contradicts the previous one, but this is not entirely true. This is the skill of a trader (not for nothing is the topic of the article – the strategy of successful traders), in order to correctly determine the best moment to exit a deal.Speaking of rules, we must remember that a number of conditions are necessary for the successful application of this strategy. Namely, fast and clear execution of orders using "one-click" technology without slippage and requotes, low spreads, acceptable rates for transferring a position to the next day (swap technology), etc. All this depends on the quality of services provided by your broker.Read more: Demo account with a Forex broker: is it worth using?Trade successfully, earn money, have fun trading. You will succeed, you just have to want it!
Aug 06, 2022
How a trader's psychology can defeat his fierce enemies – fears and emotions
How a trader\'s psychology can defeat his fierce enemies – fears and emotions I'm not a coward, but I'm afraid. Of course, each of us has our own "butterflies in our heads", but there is something in common that unites us all. These are our fears! They significantly interfere with trading and poison the trader's life. And if one of you tells me that he is a "brave soldier Schweik" who is not afraid of anything, I will not believe it! Only idiots are not afraid of anything. And we have smart and adequate people gathered here.Therefore, today I will try to understand what prevents us from trading and talk about the psychology, fears and emotions of a trader.The key to success, as smart uncles and books written by them teach, is a profitable trading system, a good trading plan, discipline in the execution of transactions and compliance with the rules of money management. All this is so and you can't argue with it!But, there is one essential BUT – these are our emotions, and the psychological component of trading. We are not robots, but real people. Sometimes emotions get out of control and overshadow the mind that is trying to overcome them.What causes a storm of emotions in our heads? Most often, this is a primitive human feeling – fear! What is a trader afraid of?A simple person can be afraid of anything. Darkness, heights, loneliness... Yes, you never know what else… But the main fears of a trader can be formulated as follows:losing moneymaking a wrong dealmissing a profitable dealnot taking the profit on "paper".What consequences can our fears have for us? Early entry and exit, overexposure of a position – these are just a few unpleasant moments that may be a consequence of our fears in trading.Read more: What a novice forex trader needs to knowHow to overcome your fears?The psychological attitude of a trader is a great thing that can significantly improve (or worsen) your trading results. It depends on how we set ourselves up and what emotional signals will rush through our head… A lot depends!And first you need to deal with your fears and try to overcome them. I will take the liberty and offer you some solutions that help me psychologically tune in and cope with my trading emotions.How to overcome the fear of losing money?First of all. It is necessary to trade only on the money that you have already mentally lost. If the money you deposited is too valuable to you, the fear of losing it will never go away. It is better to start with the minimum possible amount, which means nothing to you (or at least, its loss is not critical for you). And gradually increase the deposit, taking into account your psychological resistance to the number of zeros on the account.Secondly. Even with a large deposit, trade with a minimum lot size. Until you feel that you are no longer afraid of losing money, put such stops (risks), the triggering of which will not cause painful sensations in the soul. Naturally, they should still be reasonable and competent, but we are now talking exclusively about their monetary equivalent. For example. If the comfortable amount of loss on a trade is $50 for you, then based on this, you need to calculate the number of points and the size of the position so that the loss does not exceed the amount of $50.Third. Never exceed the size of the allowable aggregate position and do not overload your deposit! Otherwise, you will get the following situation: a trader opens a bunch of positions, observing the allowable stop size on each one, and it seems to him that everything is fine. But when all this cumulative mass begins to move against him, he realizes that he is very close to losing the entire deposit, and then fear turns on. Then there is a series of stupidities and wrong decisions. That's all. The job is done – there is no deposit, and the fear of losing money settles in the trader's head for a long time.These tips rather relate not to the psychology of the trader, but to money management. But believe me, until you learn how to manage your capital, the fear of losing money will not go away.Read more: Forex problems – what is the "Burnout Effect"How to overcome the fear of making a wrong deal? Everything is simple. There are a couple of axioms:Only the one who does nothing is not mistaken.You can't be 100% right always and everywhere. Losing trades and getting a stop should be taken as necessary and unavoidable production costs. There is always a chance that we did not take something into account, did not notice something, or simply missed the danger warning signals.It is always necessary to find at least 3 reasons why you need to open a deal here and now. You can make mistakes in calculations, but psychologically it is much easier when a deal is opened not on a whim, but according to a clear calculation and plan.How to overcome the fear of missing a profitable deal or not taking profit?There can be only one solution – a plan, a plan, and a plan again. We plan to trade and trade according to the plan. Unfortunately, you can't think of anything else here. Plus, discipline in conducting the transaction. We have outlined the entry and exit levels and act on them according to our plan.Remember, the market is not going anywhere! He was yesterday, he will be tomorrow. And most likely, tomorrow there will be better opportunities for a safer deal. Therefore, take your time and do not be upset if you missed some movement. We have everything ahead of us.And finally, a few more general tips. Do not trade if you are upset, sick, have financial problems, or are not sure that you understand the market situation correctly.Read more: The role of luck and intuition in tradingI understand that I have given the most general recommendations regarding the psychology of a trader. But you have to fight and win with your fears.
Jul 26, 2022
The Libor rate. Is bargaining appropriate?
The Libor rate. Is bargaining appropriate? It was 2012, and nothing foreshadowed trouble. The global crisis of 2008 slowly began to subside. And then, like a bolt from the blue, the LIBOR rate scandal broke out.The British regulator FSA and the American CFTC have published data that in the period from 2005 to 2009, the British bank Barclays, along with Royal Bank of Scotland, Lloyds, HSBC, American Citigroup, Swiss UBS and German Deutsche Bank, actively tried to manipulate the LIBOR rate. Thereby hiding their own liquidity problems and earning good money on derivatives.But, as worldly wisdom says, everything secret sooner or later becomes clear. The fraud was revealed, and Barclays alone had to pay a fine of $454 million for its art.But this is already one of the final parts. And what was the essence of the question?What is LIBOR?The LIBOR rate (London Interbank Offered Rate) is a weighted average refinancing rate based on the interest rates at which banks entering the London interbank market lend to each other in different currencies and for different periods (from 1 day to 12 months).The LIBOR and EURIBOR rates are calculated at 11:00 GMT on the basis of applications for loan rates from 8-16 banks (selected by the regulators of the British Bankers Association and the Foreign Exchange & Money Markets Committee, according to the scale and reputation of the bank), for which they are ready to provide loans.  The five largest and five smallest bids are cut off, and the average value of the remaining bids is published on behalf of the British Bankers Association as the LIBOR and EURIBOR rate.Read more: What is the SOFR interest rate?What is the LIBOR rate for?Without going into the financial wilds, let's just say:The LIBOR rate is an indicator of the demand for liquidity in the banking sector, and the morning application reflects the demand for loans from a particular bank.Such financial derivatives (derivatives) as a simple interest rate swap and interest rate futures are linked to the LIBOR rate.Swaps allow you to play on the difference between fixed and floating rates calculated on the basis of LIBOR.Futures contracts with different maturities (3-month and 6-month) allow you to play for narrowing or widening the spread between these contracts.And to put it even simpler: the LIBOR benchmark rate shows the degree of confidence of banks in relation to each other.Large banks directly link loan rates for their corporate clients and mortgage loan rates to LIBOR.The essence of the scandalAs you understand, if something depends on something and something is tied to something, then there will always be kind fellows in expensive suits who will want to use it for their own purposes.This explains the desire of top managers of banks to influence the LIBOR rate to reduce losses, make profits and conceal the true state of affairs in these banks.As a result, many corporate clients did not count the profits on their assets, and the general public demanded to lynch these "fat cats". Agree, it's a shame to find out that mortgage interest does not depend on the situation in the economy, but on the machinations of a dozen dashing guys manipulating the rate.Read more: SONIA Interest Rate: calculation and applicationMoreover, it was not about a single case, but about the coordinated actions of 15-20 banks on both sides of the ocean for 4 years.We live in a world where capital rules. And it's no secret that large banks and investment funds employ people who are not distinguished by firm ethical principles and high morals.
Jul 23, 2022
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