Without this integrity – and constant striving for health - a market risks becoming a venue for market manipulation, insider trading and other undetected criminal behaviour. Catherine Moss, corporate Partner at Shakespeare Martineau, explains for Finance Monthly.

Preventing behaviours amounting to market abuse, and tackling a lack of awareness of risk, has been central to the regulators’ quest for fairness for a number of years. So, following on from the July 2016 introduction of the Market Abuse Regulation (MAR), how is the UK faring and with a further review by the European Securities and Markets Authority (ESMA), what does the future hold?

Markets are driven, and develop depth, through pricing; and prices are – and have always been – vulnerable to manipulation. MAR, and its previous manifestations, were designed to identify behaviours which manipulated markets, or which allowed people to buy securities or commodities on a privileged basis with information which was not generally available to other trading parties.

The UK has had a legal framework around insider dealing and market abuse for a number of years. However, the introduction of MAR in 2016 formed a further part of a Europe-wide attempt at greater harmonisation, in response to scandals which came to light in the financial crisis and the greater complexity of the financial markets and emergence of alternative trading platforms. In the move towards a more congruent, European-wide, regime encompassing not only securities trading but trading in fixed income and commodity markets and related benchmarks, did the EU fulfil its markets’ needs? Leaving aside the question as to whether the latter could ever be achievable given the myriad trading venues now available, have market participants found the legislation fit for purpose?

The upcoming review of MAR will be undertaken by ESMA, looking into how well the regulations and directives are being implemented, whether the regime should be broadened, whether cross-market order book surveillance should be made subject to an EU framework; and, suggesting purposeful legislative amendments. Consideration is to be given to extending the regime to the foreign exchange markets. In addition, aspects of MAR which are still - unhelpfully - subject to specialist debate as to their scope, for example buybacks, insider lists and managers’ transactions, are to be further considered by ESMA.

At its simplest, there is a need to balance the desire of a company to access public money and trade its securities on a public platform against the requirement to adhere to the rules which apply to that market and its participants. It is crucial to the health of a market to ensure that information which may unfairly disadvantage other parties is not only managed securely but released in accordance with that market’s rules. Julia Hoggett, Director of Market Oversight at the FCA, put it starkly: “The life blood of all well-functioning markets is the timely dissemination of information, without which effective price formation cannot take place. The malignant form of that same life blood is the misuse or inappropriate dissemination of that information.”

However, as companies and their advisers know, market abuse legislation - whether EU or local - has been traditionally quite complicated and tricky to comply with. As the recent survey results from the Quoted Companies Alliance (QCA) demonstrates, issuers and their advisers have exhibited a broad range of responses to legislation which is meant to direct efforts to maximum harmonisation. However, these requires additional processes and procedures to be put in place, understood and adhered to.

Lack of certainty as to the MAR requirements, for example, on the duration of closed periods, is striking. The FCA has quite rightly observed that “awareness is not present in all market participants.”  Given the FCA’s stated objective of making effective compliance with MAR a state of mind - at least amongst the community it regulates - it must be asked how this is to be achieved within the current, or future, legislative framework where achieving certainty as to the meaning of the legislation appears difficult.

Clearly, with the introduction of any new regulation, some companies and issuers adapt faster than others, particularly if they are larger and better resourced. It is obvious from the QCA’s survey results, however, that many smaller and mid-size issuers are still navigating MAR’s complex requirements hesitantly. But more worryingly, it can be seen from the pattern -and lack - of regulatory announcements that some issuers, particularly in less obvious and well-policed trading venues, seem not to have recognised the breadth of its application. Education clearly is key and greater regulatory and market promotion of the constraints which issuers are to work within is to be encouraged.

With the introduction of any new regulation, some companies and issuers adapt faster than others, particularly if they are larger and better resourced.

So, what should be done to ensure that the requirements of MAR become part of an issuers “state of mind”? Effective regulatory response can seem sometimes to be limited to the publication of extensive decision notices which are picked over by advisers, keen to ensure that practical examples of poor behaviour, or the failure of systems, can be relayed as precautionary horror stories to their clients.

Many issuers seek regular training sessions with their advisers or company secretaries and become more confident as the reporting and transactional cycle demands their attention. Others find it difficult to engage in the processes required. Some, however, are not well-served by the advisers operating in the market and sector within which they trade. The FCA appears keen to seek to educate all issuers but, inevitably, issuers are still tripping up as they fail to understand, or to take advice on, the requirements of the regulatory framework within which they operate.

Whilst the ESMA review of MAR is unlikely to change the regime substantively, some regulatory time should be devoted to tailoring it more expressly to an issuer’s needs and securing a greater measure of awareness. Whilst the regulatory burden is unlikely to be lessened, clarity of approach together with greater support from markets and trading platforms as to the implications of MAR to their issuers would be welcome.

After spending a year and a half in the bear market, the price of Bitcoin has recently increased and the bull run is in full force. Although there are certain factors that may have a negative impact on the value of Bitcoin, it is likely that in the long term it will transform into a safe asset due to its rarity. However, the uncertainties of its future can make the price fluctuate daily.

Following a report that Gate.io’s research team launched looking at the fluctuation of the currency, Marie Tatibouet, CMO at Gate.io, teams up with Finance Monthly to take a look at a number of factors that can influence the price of Bitcoin.

User Adoption

One factor that can influence the price of Bitcoin is user adoption of the asset. Popularity of the currency can drive prices up, whereas if the demand for the currency is low, it can decrease the value. Individuals, governments, institutional investors and multinational corporations are adopting Bitcoin, therefore it is evident that the price will be pushed to a new high.

Findings from the report underlined that from 2012 and 2018, the number of Bitcoin addresses with 100 to 1000 BTC gradually increased, accounting for a considerable portion of the Bitcoin in circulation. Additionally, during 2012 and 2015, the price of Bitcoin fluctuated, with it becoming more affordable whist the mining difficulty decreased, and then increasing again. Between 2016 and 2017, Bitcoin became more expensive and the difficulty of mining increased, therefore the growth of Bitcoin slowed down considerably.

Bitcoin Reward Halving

In addition, Bitcoin reward halving is a contributor to the fluctuating price of the cryptocurrency. Bitcoin has a fixed amount of 21 million, unlike fiat money which can be inflated by the centralised authority. It is intended that when 210,000 blocks are generated, the reward from Bitcoin mining will half. Since this was introduced, it has happened twice where the reward has halved - resulting in a fall from 50 BTC to 12.5 BTC. On average this happens every four years.

As a result of Bitcoin reward halving, there is a significant impact on the mining industry. Following the first and second halving, the hash rate decreased, but recovered quickly. Throughout 2018, when the price of Bitcoin was falling, a number of miners decided to leave the practice as well as a few mining pools closing down. This highlights the effect the changing price of Bitcoin has on the industry. However, with this being said, there seems to be a wider acceptance of Bitcoin today. The hash rate began to stabilise at the beginning of 2019, suggesting an optimistic market.

Cryptocurrency Regulations

Cryptocurrency regulations is another factor that can affect the price of Bitcoin. As the cryptocurrency industry has experienced rapid acceleration, regulatory bodies have started to pay more attention to the industry. Governements are now taking note of money laundering, terrorism financing and other criminal activities that can be linked with cryptocurrencies. An example of this is in Canada where amendments to the ‘Proceeds of Crime and Terrorist Financing Act’ now require businesses dealing with virtual currencies to register with the Federal Financial Intelligence Unit.

The development of Bitcoin in most countries is unrestricted, with the report highlighting that among 126 countries, 67% of them consider Bitcoin as legal, whilst 19% of them remain neutral. On the other hand, only 8% the 126 countries deem Bitcoin illegal. The response from regulatory bodies can cause the value of Bitcoin to go up or down.

The Future

Although the future of individual cryptocurrencies are uncertain, the industry is growing as a whole. Predicting the price of individual cryptocurrencies is nearly impossible, but Bitcoin’s recent Strength Indicator shows clearly that Bitcoin is here to stay, at least for the next few years. With additional certainty, we should expect a price increase and stabilization. Bitcoin has created vast opportunities and possibilities and its full potential is yet to be reached. Bitcoin has come so far in the past 10 years, so it will be interesting to see where it will be in the next 10 years and the true value it will offer.

According to the Independent, many companies are struggling to decide on importing and exporting in light of confusion over the direction Brexit will take businesses.

But what is the current state of the nation’s trading with the wider world? In this article British brand Gola, that is renowned for its classic trainers, take an in-depth look at the UK’s imports and exports, from the items we sell the most of to what we’re buying in, as well as which countries are our top import and export locations.

Terminology rundown

With so much talk in the tabloids and newsrooms about trade and Brexit, you might be wondering what some or all of the terminology springing up means.

Before we delve further into what the UK has to offer in terms of trade, let’s break down some of the terminology:

• Import and export — an easy one to start with, imports are items and goods we buy into the country. Exports are items and goods we sell to other countries.
• Trade deficit and trade surplus — these two terms come under the umbrella of the balance of trade. It is essentially the difference between monetary value of a country’s exports and imports. If a country is importing more goods than it is exporting, then the country has a trade deficit. A trade surplus occurs if a country is exporting more than it is importing. Generally, a trade deficit is considered concerning as it is seen as the country being unable to produce enough goods to supply its people, requiring them to import more.
• “Special relationship” — The oft-cited “special relationship” with the US boils down to our trade relationship. In 2016, the UK exported £100 billion worth of goods and services to the US, running a trade surplus with the US of £34 billion.
• Single market — The European Single Market is a single market that guarantees the free movement of goods, services, capital, and labour within the EU.
• Customs Union — A customs union is where a group of states or countries agree to charge the same import duties to each other.

It is important to note that, regarding the “special relationship” with the US, the UK does export more to the US than any other country. However, when considering the EU as a whole with the same trade laws etc, rather than 27 separate countries, the EU imports more from the UK than the US by far.

What are we exporting?

According to the Observatory of Economic Complexity (OEC), in 2016 the UK’s top export item was cars, which accounted for 12% of the overall $374 billion export value that year. One of example of this is the world renowned Mercedes-Benz, which offer a variety of cars, including the Mercedes Gle.

Other popular UK products were gas turbines (3.5%), packaged medicaments (5.2%), gold (4.0%), crude petroleum (3.4%), and hard liquor (2.1%).

We also export a fair amount of food and drink, with items such as whisky and salmon popular abroad.

The BBC also points out that exports and imports are not just physical goods. In this digital age, it’s easier than ever to offer services as exports too, and the UK does just that, via financial services, IT services, tourism, and more.

Where are we exporting to?

In 2016, our top export destinations were:

1. United States (14%)
2. Germany (9.5%)
3. The Netherlands (6.0%)
4. France (6.0%)
5. Switzerland (5.1%)

China, one of the countries the UK is eyeing up for a potential trade deal after Brexit, accounted for 5%. Again, it is worth considering that Europe as a whole accounted for 55% of our top export destinations.

What are we importing?

We are importing rather similar items as we’re exporting. Top imports into the UK in 2016 included gold (8.2%), packaged medicaments (3.1%), cars (7.8%) and vehicle parts (2.5%).

Where are we importing from?

For 2016, the top origins of the UK’s imported products were:

1. Germany (14%)
2. China (9.8%)
3. United States (7.5%)
4. The Netherlands (7.3%)
5. France (5.8%)

The UK’s trade deficit

Despite our popular products, the nation is sitting with a trade deficit to the EU — we import more from the EU than we sell to the EU. In 2017, we exported £274 billion worth to the EU, and imported £341 billion’s worth from the EU. In fact, the only countries in the EU that bought more from us than we bought from them were Ireland, Sweden, Denmark, and Malta. Our biggest trade deficit is to Germany, who sold us £26 billion more than we sold to them.

The UK also has a trade deficit with Asia, having sold £20 billion less in goods and services than we bought in.

As previously mentioned, we have a trade surplus with the United States, as well as with Africa.

A trade deficit is generally viewed in a poor light, as it is basically another form of debt: the UK imported $88.4 billion from Germany in 2016. Germany imported $35.5 billion from the UK, making a difference of $52.9 billion owed by the UK to Germany.

With uncertainty abound about the impact of Brexit on imports and exports, it remains to be seen how UK businesses will continue to trade abroad, and if focuses will shift.

Sources:

https://atlas.media.mit.edu/en/profile/country/gbr/

https://www.ons.gov.uk/businessindustryandtrade/internationaltrade/articles/whodoestheuktradewith/2017-02-21

https://www.bbc.co.uk/news/business-41413558

https://www.independent.co.uk/news/business/news/brexit-uk-imports-exports-uncertainty-british-import-export-business-a8589796.html

https://www.investopedia.com/articles/investing/051515/pros-cons-trade-deficit.asp

https://fullfact.org/europe/what-trade-deficit-and-do-we-have-one-eu/

https://www.dw.com/en/is-germanys-big-export-surplus-a-problem/a-18365722

These challenges have been widely overlooked to date and businesses have been left to cope with these cashflow difficulties themselves, with minimal support made available from banks or other financial services. Zoe Newman, Head of Partnerships at Capital on Tap, explains below.

Fintech enterprises have begun to recognise the need for a solution here and are helping to innovate trade credit through new partnerships and co-branded trade card products. This innovative and automated trade credit solution enables wholesalers to better support their customers by issuing them with co-branded trade cards which provide instant credit with which to fund business purchases.

For many independent retailers, short-term cash flow issues are a familiar experience which will have had a significant impact on their business and impeded their ability to buy goods. Typically for independent retailers or restaurants, this experience often involves a cycle of not being paid by clients and customers and, as such, not being able to afford to purchase goods from wholesalers. Often, when looking for an alternative solution, many will turn to short-term loans, the majority of which have high-interest rates which make them unsustainable economic solutions, with the perils outweighing any perceived benefits. Needless to say, this cycle is detrimental not only to these retailers but also to the independent wholesalers who are reliant on them for business.

For many independent retailers, short-term cash flow issues are a familiar experience which will have had a significant impact on their business and impeded their ability to buy goods.

However, the new partnerships between fintechs and wholesalers are providing a much-needed solution to this problem and offering SMEs access to trade credit for business purchases without the strings of many short-term alternatives. The co-branded cards also give customers a sense of security should they come into any unforeseen costs and doesn’t restrict them to only spending with the wholesale partner.

By partnering with a fintech finance specialist, wholesalers are able to help SMEs access funding which will allow them to grow their organisation and take advantage of business opportunities, while also encouraging more sales with them. This scheme is a far cry from many bank-issued credit cards or short-term loans, as not only does this give their customers more freedom and flexibility, but it also removes some of the costs and burdens associated with the high-interest short-term loans that many will have had to resort to previously.

Through these partnerships, wholesalers are also set to benefit. This is in part due to it increasing their customers’ spending potential with them. Additionally, thanks to the branded nature of the cards issued, customers are reminded of the wholesaler every time they take out their wallet or use the card, providing valuable exposure for the brands.

Ultimately, these partnerships are a welcome development for many SMEs who are finding that banks are not providing sustainable or suitable funding options for their businesses. For many of these businesses, the sums and terms on offer to them do not fit their needs and meeting the strict repayment fees can be difficult due to the peaks and troughs in their trading periods. In addition, it can take several weeks for these businesses to be approved bank-backed funding, while many fintech partnerships guarantee a decision and access to funds within hours or days. It is the hope that this will remove the reliance some businesses have on short-term loans, which have historically allowed instant credit but with high-risk terms and extreme interest rates. As such, many SMEs will see the advent of partnerships between fintechs and independent wholesalers as offering a much-needed solution to these problems.

For many of these businesses, the sums and terms on offer to them do not fit their needs and meeting the strict repayment fees can be difficult due to the peaks and troughs in their trading periods.

At Capital on Tap, we have developed a number of relationships with independent businesses and wholesalers, such as JJ Food Services, to help these businesses overcome many of these issues. The partnerships between fintechs and independent wholesalers are enabling these businesses to inspire increased customer-loyalty and customer satisfaction by recognising a need in their customers and providing a viable solution. The initiative also means that these businesses are no longer just wholesalers, but they are also service providers - adding a new string to their bow.

Zac Cohen, General Manager at Trulioo, discusses the key considerations for businesses before engaging in commerce in high-risk countries.

Doing business internationally is a complicated undertaking. Aside from the standard logistical challenges associated with doing business globally, organisations have to factor in considerations specific to different regions and countries. These considerations may include factors such as legislative, political, currency and transparency challenges.

Nevertheless, globalisation is storming ahead and businesses must be prepared to look beyond their domestic surroundings if they are to remain competitive in our global marketplace. International trade secretary Liam Fox has endorsed a move for UK-based businesses to adopt a more international focus, highlighting the importance of global competitiveness. Consequently, UK businesses are feeling the pressure to ramp up their efforts to target a more international consumer base. As if this wasn’t enough for international businesses and investors to grapple with, further complications and difficulties are liable to arise when doing business with “high risk” countries.

1. Fraud and Corruption

A recent study by the World Bank estimated that an extra 10 per cent is added to the cost of doing business internationally as a direct result of bribery and corruption.¹ Considering the immense amount of international trade, this figure is significant. The danger of doing business with countries considered to be “high risk” – defined by the Financial Action Task Force (FATF) as any country with weak measures to combat money laundering and terrorist financing – is the heightened potential of inviting transactions that are either fraudulent or otherwise corrupt.¹ The following considerations should be carefully observed before entering into any commercial dealings with a country considered to be high-risk.

2. Enhanced Due Diligence

As a result of the 4^th Anti Money Laundering (AMLD4) directive, developed by the European Union, businesses have to adopt a risk-based outlook. The AMLD4 specifies that EU-based businesses must collect relevant official documents directly from official sources like government registers and public documents, rather than from the organisation in question. If a potential trading partner is located in a high-risk country, or serves an industry that has a higher than normal risk of money laundering, then that partner must conduct Enhanced Due Diligence (EDD) on the business entity. This Enhanced Due Diligence process involves additional searches that must be carried out by any firm seeking to do business with this kind of organisation. These searches may include parameters such as the location of the organisation, the purpose of the transaction, the payment method and the expected origin of the payment.

3. Ultimate Beneficial Owners

AMLD4 also outlines the need to discover the ultimate beneficial owner of a business, whether they are customers, partners, suppliers or connected to you in another business relationship.

According to the Financial Action Task Force (FATF),

Beneficial owner refers to the natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement.

This is important as businesses need to understand who they are dealing with when physical verification is not a practical option. Difficulties could arise when verifying UBOs in high-risk countries as some national jurisdictions impose secrecy policies which block access to verification documentation. This problem is compounded when checking UBOs against international sanction and watch lists as there are more than 200 lists, which vary in scale and uniformity.

4. Virtual Identification

However, verification can still be successful. Many are now turning to software that helps businesses to perform the necessary diligence checks. We gave a lot of consideration to the specific complexities of working with high-risk countries when developing our Global Gateway platform. Programmes such as these are designed to allow companies to perform the Enhanced Due Diligence, Know Your Business and Know your Customer checks that are required when doing business internationally, particularly with high-risk countries. Compliance with the various pieces of legislation on this topic should be at the forefront when implementing the necessary verification checks.

Across the world, markets are becoming increasingly more open, paving the way to a truly global economy. If companies can get to grips with the key due diligence requirements, this is a move that will ultimately benefit the global consumer and customers alike.

In life we generally want to be right. This is why you may hear traders framing their trading success by saying they won nine out of the last 10 trades, or that they have a 90% success rate. However, this is something that you need to be weary of, having lots of winning trades does not necessarily mean that you will be a profitable trader in the long run.

Here, Simon Garner, Trading Floor Manager at Learn to Trade, lists five steps to understanding how important it is to be right when trading through your trade expectancy in order to help set yourself up for success.

1. Quality over quantity: understanding reward-to-risk ratios

As traders, the risk/reward ratio is something that we need to pay close attention to. It essentially refers to how much exposure you have in the market compared to what you stand to gain. As traders we will have particular criteria that must be met in order to take a position, which will be set out according to our trading plan. Whilst this means there will only be a limited number or opportunities each month, it means each trade is carefully thought through.

2. Mental expectations: finding your winning percentage

This is something that many new traders have an unrealistic expectation about. Many expect a 90-100 per cent win ratio and that they will identify trades that are a ‘sure thing’. In reality this is not the case. Many profitable traders will in fact have win ratios of 60-70%, which is why having the ability to find opportunities that provide the best risk / reward ratio is so important.

3. Knowing your real ratio

While being right more often than not certainly helps, to truly determine success you need to consider whether you’re making any net long-term profit. This can be shown through your average reward-to-risk ratio.

To illustrate this, imagine two traders: Sarah and Mike. Both have placed 100 trades and started with the same amount of money in their trading accounts. Mike has won 75 trades and lost 25, and Sarah 30 and 70 respectively. When Mike is right he makes a profit of £100 per trade on average, but when he’s wrong he makes an average loss of £300. This means that Mike’s reward-to-risk ratio is 1:3. Comparatively, when Sarah is right she makes £300 on average per trade and when she’s wrong she loses on average £100. This means Sarah’s reward-to-risk is 3:1.

4. Finding your trade expectancy

To really understand how strategies stack up against each other, we need to take into consideration the two things: firstly, how frequently we have winning trades, and secondly, how much is gained or lost with each trade.

The solution is called trading expectancy, and it is calculated by combining your risk / reward ratio and your winning percentage. Trade expectancy essentially tells us how much we stand to gain or lose for every pound risked. It is expressed in the following way:

Expectancy = (average gain x probability of gain) – (average loss x probability of loss). We can make this a bit clearer using Mike and Sarah’s results here:

Mike’s expectancy per trade = (£100 win x 0.75) – (£300 loss x 0.25) = £0

Sarah’s expectancy per trade = (£300 win x 0.3) – (£100 x 0.70 loss) = £20

What this tells us is that over the long run Mike is breaking even with each trade despite winning 75% of the time. For Mike’s strategy to become profitable he either needs to win more often and/or reduce his risk per trade. Sarah’s expectancy tells us that she is making an average £20 per trade in the long run, even though she is winning just 30% of her trades. Her reward-to-risk strategy means that she can be wrong much more frequently than Mike, but still make a profit overall.

5. Refine & repeat

Your trade expectancy can improve or worsen depending on trading conditions and whether you stick to your trading plan, nevertheless, expectancy is a good benchmark. You could also think of expectancy as how much you can theoretically expect to get paid for each trade you take over time. As such it is important to constantly track as you mature as a trader. Patience, consistency and education are the most important factors when it comes to trading and compounding interest.

As we all know, it’s impossible to always be right when trading forex. However, figuring out your expectancy helps shift focus away from being right per trade to instead how right you are overall.

Said markets present anticipated price developments daily, weekly, monthly and yearly, and when scouting for profits, bidding investors will act according to the market sentiment.

If the anticipated price development of a market’s stock is upwards, meaning the value of certain stock is rising or expected to rise, as a consequence of trends, single events, supply materials, current affairs or many other factors, the market sentiment is expressed as bullish. Vice versa, if the anticipated price development is on the downtrend, by any of the same reasons, the market sentiment is expressed as bearish.

It isn’t always as simple as this however. Market sentiment is also considered to be a contrarian indicator. For example, extremely bearish markets may subsequently display dramatic spikes – the turning point for this is often where the risky decision making appears.

Market sentiment, the overall expression of a certain market as bullish or bearish, is normally determined by a variety of technical and statistical methods that factor in the comparisons of advancing & declining stocks as well as new lows & new highs in the market. One of these is known as the Relative Strength Index (RSI); it relates the number of assets bought to assets sold, indicating whether capital is flowing in or out of the market in question. Normally, as a market follows sentiment either way, the flock follows, meaning the overall movement of the market’s stock follows the market sentiment directly. To quote a popular Wall Street phrase: “all boats float or sink with the tide.” The more investors buy, the more investors buy; it’s usually exponential development.

This of course could happen indefinitely, if it weren’t for the fact that as stock trading volumes rise, as does the price. Eventually the price hits a market high and the potential for profits is minimized. At this point the fall to a bearish market usually comes to fruition. On the other hand, as trading volumes fall, prices go down, to the point where eventually the price is so low it would be foolish not to buy, therefore turning the market on its head.

As obvious as it may seem, the words bullish and bearish reflect exactly what you would expect and are not simply paraphrases. An optimistic investor, happy to buy, buy, buy as the market sentiment is bullish, is considered a bull; aggressive, optimistic and almost reckless, striking upwards with its horns. Equally a bearish investor is considered a bear because he or she does not trade without utmost consideration, he or she is pessimistic towards trading expectations and believes prices will fall, or fall further than they already have. The bear therefore decides to sell, sell, sell, and pushes the prices down; as a bear that strikes its paws to the ground.

Make sure you check one of our top read features ‘The Top 10 Greatest Stock Market Trades Ever’.

The European funds industry still has major concerns over Brexit and the fear and uncertainty that comes with it, according to new research with European fund managers.

More than half of respondents (55%) say that Brexit continues to be one of the biggest issues facing the funds industry in 2018. However, the study, conducted by online board portal provider eShare with delegates at the recent FundForum International event in Berlin, also revealed the funds industry was generally optimistic about  prospects for the industry in 2018 and beyond - 82% believe that the funds market is generally buoyant despite political and economic affairs.

“The fund management industry has faced much pressure over the past few years, with new regulation intended to improve transparency adding many layers of complexity to governance and compliance programs,” said Camilla Braithwaite, Head of Communications, eShare. “But confidence amongst European fund managers remains high despite this, with Brexit the only main concern for many. However, with the major decisions over Brexit and its impact on financial services still to be made, fund managers are proceeding as normal until they know more and the industry is thriving because of it.”

The new regulations, such as GDPR and MiFID II, have undoubtedly affected the industry though, with fund managers increasingly aware of the risks that come with non-compliance. 84% of those surveyed felt that their organisation could improve the operations surrounding risk management and decision-making.

With fund managers facing tough decisions about compliance, investments and many other factors, the ability to be transparent about such matters was one of the most important things identified by survey respondents. 97% said that demonstrating transparency into decision-making is increasingly important for the industry.

As the pressure grows on fund managers to be compliant and well-governed, so the need for transparency increases too. 84% of respondents said that technology is the future for improving governance standards within the funds industry.

“Transparency is essential in modern fund management and demonstrating this is right at the top of the agenda for most fund managers, keen to reassure clients and regulators alike,” continued Camilla Braithwaite. “Technology can play a significant role in this, showing how decisions were reached and supporting governance and compliance requirements. The industry has woken up to the potential of technology to help in this way, and the research would suggest that the mood within fund management is positive.”

(Source: eShare)

Cristiano Ronaldo may be out of the World Cup, but he certainly is not out of the headlines. With each passing year the football and financial worlds have become ever more entwined and the recent excitement around Ronaldo wearing Juventus colours has resulted in colossal movement in the markets. Below Carlo Alberto De Casa, Chief Analyst at ActivTrades, discusses the prospects and impacts of Ronald’s moves on the markets.

Juventus is one of three Italian team teams to be publicly listed on the stock exchange but as the biggest club in Italy by some distance, both in stature and in finance, it’s not unsurprising a move for the five-time Ballon D’or winner has caused a seismic shock.

The Old Lady of Turin has won the last 7 Serie A title in a row but has been missing the Champions League from its collection since 1996. Having lost 5 finals in the biggest European competition for clubs between 1997 and 2017, this is seen as a move to undo this spell.

On Monday evening speculation began that Ronaldo could be on his way to Italy. Juventus were trading at about 66 cents per share then. In just 3 days of trading the value of the shares jumped to a peak of 0.81, a new 5-month-high. Given that the club has more than 1 bn shares, the total capitalization of Juventus jumped by around €150 million.

On Friday, Juventus shares jumped further to 0.90, adding another 90 million of market cap and reaching a 16-month high, on levels seen last time when Juventus reached the final of Champions League in 2017.

Only 34% of the club is listed on the stock exchange however, and another significant increase of the value of the club was reported by Exor, the holding of FCA (formerly known as car manufacturer FIAT), who control the remaining 63.7%. Exor now says it is seeing a theoretical increase of their assets by around €400 million.

It’s also thought that FIAT will play a crucial part in this deal, paying a part of Ronaldo’s salary and using him as a testimonial for their cars. The exponential jump in the volume of shares is also staggering with around 15 million of shares traded yesterday and over 38 million by Thursday.

Of course, it might all be a risky investment. With shares that could continue their rally but could also quickly turn in the opposite direction if the “affaire Ronaldo” is not going to become reality. The market movement however is certainly helping to shift the balance of the company even if we are not talking in real cash money.

But what does this all mean?

Juventus will be hoping to make a large amount of money from this operation and the markets also believe that this could be excellent from a financial point of view, despite its huge costs. Once you account for marketing, the receipts from shirt sales and ticket prices in the stadium (prices for tickets at the Juventus stadium just went up by around 25-30%) its clear to see how with a little help from the markets, a transfer of this magnitude can begin to pay for itself. Pundits often discuss how much clubs are paying for players – but often forget to discuss how much a club can claw back in return.

Juventus mught need upwards of €200m to complete a deal for Ronaldo over four years. They are willing to pay him €30 million a year but once taxes are factored in it could be higher at maybe €55million. A four-year contract including his transfer fee of €100 million could therefore take this to an astronomical amount. The questions is – how much will Juventus actually end up paying?

Figure 1: The Juventus share price since speculation began.

In life we generally want to be right. This is why you may hear traders framing their trading success by saying they won nine out of the last 10 trades, or that they have a 90% success rate.

However, having lots of winning trades does not necessarily mean that you will be a profitable trader in the long run. This concept is Ray Downer, Senior Trader Coach at Learn to Trade, explores below as he talks Finance Monthly through trade expectancies.

Let’s take two traders: Sarah and Mike are both traders that have placed 100 trades and started with the same amount of money in their trading account:

• Mike wins 75 trades and loses 25 trades
• Sarah wins 30 trades and loses 70 trades

Who is the better trader?

Although we can see Mike is right more often than Sarah is when trading, to determine who is the better overall trader we are missing some key pieces of information.

Firstly, we need to know the amount of profit made when one of our traders is right, as well as the amount lost when wrong. Another way of putting this is that we need to know our traders’ average reward-to-risk over their 100 trades.

So let us look at both of our traders again, but this time take into consideration their reward-to-risk:

• When Mike is right he makes a profit on average of £100 per trade; when wrong he makes an average £300 loss. This means that his reward-to-risk is 1:3.
• When Sarah is right she makes £300 on average per trade and when she’s wrong she loses on average £100. This means she has reward-to-risk of 3:1.

This gives us a bit more insight into the traders. We can see that mike, for example, is willing to risk three times more than he stands to gain in any one trade. Sarah in contrast is looking for a bigger pay-off but not willing to risk as much as Mike per trade.

Neither of those approaches is inherently good or bad as a trading strategy.

To really understand how each of our traders’ strategies stack up against each other, we need to take into consideration the two things we have mentioned here: firstly how frequently our traders have winning trades and secondly how much is gained or lost with each trade.

In trading terms, what we are figuring out is Mike and Sarah’s trade expectancy. Trade expectancy essentially tells us how much we stand to gain or lose as a trader for every pound risked.

Expectancy = (average gain x probability of gain) – (average loss x probability of loss)

We can make this a bit clearer using Mike and Sarah’s results:

• Mike’s expectancy per trade = (£100 win x 0.75) - (£300 loss x 0.25) = £0
• Sarah’s expectancy per trade = (£300 win x 0.3) - (£100 x 0.70 loss) = £20

What this tells us is that over the long run Mike is breaking even with each trade despite winning 75% of the time. As a trader the long term goal is of course to make a profit rather than break-even or lose money. For Mike’s strategy to become profitable he either needs to win more often and/or reduce his risk per trade.

Sarah’s expectancy tells us that she is making an average £20 per trade in the long run, even though she is winning just 30% of her trades. Her reward-to-risk strategy means that she can be wrong much more frequently than Mike, but still make a profit overall.

Both Mike and Sarah’s expectancy can improve or worsen depending on trading conditions and whether they stick to their trading plans. Nevertheless, expectancy is a good benchmark to evaluate a trading strategy. You could also think of expectancy as how much you can theoretically expect to get paid for each trade you take over time.

As we all know, it’s impossible to always be right when trading forex. However, figuring out your expectancy helps shift focus away from being right per trade to instead how right you are overall.

Last week, stock markets fell globally in the wake of US President Trump's latest tariffs threats to China. Donald Trump threatened to put tariffs on an extra $200bn (£141bn) of Chinese goods, further fueling the prospects and worries of a trade war.

This week Finance Monthly set out to hear Your Thoughts on the potential for an international trade war, gaging the opinions of experts and professionals around the world.

We asked them: What do you think about this? How will this change things internationally? What might be the short-term reactions and impacts? What about the long term? How will you be affected? How will small businesses be affected? Who will benefit from what's to come? Is this a good strategy? What are the political and social repercussions?

Miles Eakers, Chief Market Analyst, Centtrip:

Investors are right to be concerned as Wall Street futures dropped by almost 2% following Trump’s threats to impose more tariffs. Any retaliation by Beijing is likely to fuel the escalating trade war with Washington, which will in turn have a negative impact on equities and increase risk aversion.

Investors are not the only ones troubled by the current situation. The world’s largest superpowers’ shift towards protectionism has global ramifications. International companies may grow less competitive due to tariffs and the cost of raw materials purchased overseas could rise by 10–20%. It’s highly possible that any further action from the US or China could put an end to the current 10-year bull market run.

Kasim Zafar, Portfolio Manager, EQ Investors:

An all-out trade war is unlikely and we believe this will be avoided in favour of mutually agreeable changes on both sides.

The world last entered trade wars on this scale early during the Great Depression. The Smoot-Hawley Tariff was entered into US law in June 1930, about 8 months after the “great crash”. There are mixed opinions on whether the tariffs added to the economic depression or only slowed down the ensuing recovery. But it is generally agreed the tariffs themselves were not the main cause of the Great Depression

Today there are few, if any, of the conditions that presaged the Great Depression. But the world is a different place today compared to the 1930’s. The most significant difference is the interconnected nature of global supply chains that have been built by companies in the post-War era. Abrupt changes along the supply chain in terms of physical supply or associated cost will have immediate impacts on the total costs of production. Companies are not charities, so if the cost of production goes up, so too will product prices on the shelf.

The impacts will differ between companies and across nations dependent upon:

• the specific tariffs enforced;
• the speed with which reciprocal tariffs are imposed, if at all; versus
• the speed with which companies can redirect their supply chains and adjust their customer demand bases; and
• the proportion of tariffs absorbed by companies within their profit margins to remain competitive against local and international peers

The UK runs a goods deficit of over £130 billion per annum of which about 10% is with the US directly. So for the average UK consumer, the direct implication of US originated tariffs on items we buy is fairly limited in scope. The impact of tariffs on things we sell is limited also with only about 10% of UK exports heading for the US directly. The bigger risk we face is the secondary impacts from companies and countries that are impacted to a higher degree:

• The tariffs would see a fall in global trade and excess production capacity around the world.
• This would undoubtedly be deflationary for the rest of the world and inflationary for the US.
• So in the short term, it could actually mean lower prices for UK consumers as companies try to boost demand for the excess capacity and high inventories by lowering prices.
• However, with the US representing about 20% of developed market trade, any significant drop in sales to this region will create severe negative economic effects elsewhere.
• This means companies would likely downsize in the face of lowered current and expected future demand. The interconnected nature of global trade means the impact of downsizing will ripple across countries.
• Jobs will be at risk and the UK will not be immune.
• Specific items that are the subject of reciprocal tariffs by the UK or EU towards the US would see price increases. Currently this appears to be focused on jewellery, whiskey and rear view mirrors, although orange juice, denim and motorcycles and are also in the firing line!

Carlo Alberto De Casa, Chief Analyst, ActivTrades: 

The trade war escalation is unsurprisingly scaring the markets. The main reason for this is actually the belief that this is only the beginning of the escalation, as China has already clarified that it will reply to US tariffs with its own. Of course, this could have many impacts. In the short term, US companies which are importing will have to pay more, while advantages for US producers will be positive, even if that’s a much smaller proportion overall. But what is scaring markets is definitely the long-term scenario, that the trade war will grow to affect more economical sectors.

This won’t only affect the big companies, it could also have a serious impact on smaller ones and retail consumers. A typical example to explain this is something like the beer can, the cost of which will rise due to the aluminum tariffs. The implications can be far wider than what you might originally think.

It is difficult to say whether this is a good strategy; we can surely affirm that this is a risky strategy as you can’t completely predict or control the effects it will have, especially in the long term. The ball is now firmly in the court of those who trade with America.

There’s little certainty that this will help drive the US economy. If this is the effect wanted by Donald Trump, then you have to consider that the tariffs which will be decided by other countries are what will drive the results. It could at best create jobs in one sector, but the additional jobs generated will likely result in a loss in other sectors. Overall, it’s hard to see this policy accomplishing its goals.

Bodhi Ganguli, Chief Economist, Dun & Bradstreet:

Rising protectionist measures from the US government are creating significant uncertainty for global businesses and adding to cross-border risks. After some optimism that the US hardline stance on tariffs was softening a bit, new announcements from the administration have re-ignited fears that the ongoing skirmishes could blow up into a full-fledged trade war, particularly between the US and China. The latest announcement came from President Trump on 22^nd June when he threatened to impose new tariffs of 20% on auto imports from the EU unless the EU removed tariffs on US goods. It should be noted that, some of these EU tariffs on US exports went into effect earlier the same day; these were retaliatory tariffs in response to US tariffs already implemented on steel and aluminum (most trading partners were exempted, except the EU, Canada and Mexico). Equity prices of major European automakers dropped immediately following the announcement, highlighting the intricacies of global supply chains and their dependence on smooth trade flows between nations. In fact, all major global stock markets have seen episodes of selloffs in the past few weeks in reaction to worries that trade restrictions are rising.

The latest round of proposed US barriers to free trade have come with a pronounced inclination by the US to move away from traditional norms of multilateralism based on the WTO principles, including measures specifically directed at longtime allies like the EU and Canada. This has the potential to spill over into other areas of geopolitical risk, and pose added headwinds to the global economy. While the extent of the EU retaliation is modest so far, other countries are stepping up or planning ‘tit-for-tat’ tariffs against the US. India just hiked tariffs on a selection of US goods, while similar Canadian tariffs are scheduled to come into effect on 1^st July. Of course, the biggest risk of disruption comes from the US-China spat; earlier the same week, China threatened to hit back with a combination of quantitative and qualitative measures after President Trump ordered his team to identify USD200b in Chinese imports for additional tariffs of 10% with provision for another USD200b after that if China retaliates. The global economy is still expanding; although divergences in policy are signaling desynchronization in the near term, it can still withstand some fluctuations in equity indexes. But the bigger underlying risk is that if the trade rhetoric does not die down, or if it becomes a significant headwind, stock markets will face sustained downward trends as investor confidence is impaired, eventually leading to a spillover into the real economy.

We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!

It is becoming clear that trade digitisation has huge potential to unlock access to world trade for small-to-medium-sized enterprises (SMEs). The move away from laborious, manual, paper-based processes will lever simpler access to trade finance, now that it is being provided by more agile, technology-friendly alternative funding providers. Here Simon Streat, VP of Product Strategy at Bolero International, discusses the new wave of digital change and the drive it’s providing for SMEs worldwide.

Regulatory burden has meant that SMEs often don’t fulfil certain criteria for banks to justify lending to. The demands of anti-money laundering (AML), Know Your Customer (KYC) rules, sanctions and other banking stipulations have been deemed too time-consuming and too costly to be worth the trouble where smaller exporters and importers are concerned. This is a significant blow, since by some estimates, more than 80% of world trade is funded by one form of credit or another. Until now, if your business was deemed too small to be worth considering for finance, there was hardly anywhere else to go.

The result has been deleterious to the prosperity of SMEs and detrimental to international trade. In 2016, the ICC Banking Commission’s report found that 58% of trade finance applications by SMEs were refused. This, as the authors pointed out, hampered growth, since as many as two out of every three jobs around the world are created by smaller businesses.

This rather depressing view was supported by a survey of more than 1000 decision-makers at UK SMEs which was conducted in February this year by international payments company WorldFirst. It found that the number of SMEs conducting international trade dropped to 26% in Q4 2017, compared with 52% at the end of 2016. Economic conditions and confidence have much to do with this, but so does access to trade finance.

There is a growing realisation, however, that if digitisation makes sense for corporates seeking big gains in speed of execution, transaction-visibility and faster access to finance and payment, it definitely will for SMEs. The ICC Banking Commission report of 2017 estimated that the elimination of paper from trade transactions could reduce compliance costs by 30%.

Over the past few years, for example a number of trade digitisation platforms have emerged offering innovative business models for supplying trade finance and liquidity, while optimising working capital, and enhancing processes for faster handling and cost savings. Progress is under way, but it requires expertise.

Fintechs in trade hubs such as Singapore, where there is huge emphasis on innovation, are taking the lead, transforming the availability and access to finance for SMEs. By making the necessary checks so much faster and easier and opening up direct contact with a greater range of banks, digital platforms enable customers to gain approval for financing of transactions that would otherwise be almost impossible. Not only that, they enjoy shorter transaction times and enhanced connectivity with their supply chain partners.

If we scan the horizon a little further we can also expect to see SMEs benefit from the influence of the open banking regulations, which require institutions to exchange data with authorised and trusted third parties in order to create new services that benefit customers.

Although the focus of these new regulations is primarily the retail banking sector, the tide of change will extend to trade finance, creating a far more sympathetic environment for the fintech companies and alternative funders. Yet the fintechs cannot do it alone, they need to be part of a network of networks that operates on the basis of established trust and digital efficiency.

No technology can work unless it is capable of satisfying the raw business need of bringing together buyers, sellers, the banks into transaction communities. That requires the building of confidence and the establishment of relationships, along with – very importantly – a real understanding of trade transactions and the processes of all involved. It also requires on-boarding and you can only achieve that once everyone knows a solution will deliver the efficiency gains it promises, as well as being totally reliable, secure and based on an enforceable legal framework. All this requires a level of expertise and insight that cannot simply be downloaded in a couple of clicks.

Nonetheless, it seems pretty obvious that thanks to digitisation, the market for SME financing in international trade is set for real expansion.