Finance Monthly hears from Brice Corgnet, Professor at emlyon business school; Camille Cornand, Research Director at CNRS; and Nobuyuki Hanaki, Professor at Osaka University, on the results of their behavioural study and what they might mean for traders.
The COVID-19 pandemic has created unprecedented times. The lockdown measures that have been put in place have shut down schools, reduced socialisation to almost zero, and halted or hindered virtually all industries.
There has been a significant economic fallout from the pandemic, with job losses and bankruptcies occurring on a daily basis. Governments globally have been implementing various fiscal policies in an attempt to control the fallout, but they can’t do this indefinitely.
Even though events like the current pandemic are rare, they have a major impact as they are by definition surprising - meaning that they are highly likely to trigger a strong emotional response, which can have a significant impact on investments. For this reason, we decided to look into individuals’ behavioural and psychological response to extreme events and how these emotions can affect the way that they invest.
For this experiment, the participants were tasked with placing successive bids to acquire a financial asset that offered a positive reward, which also had the potential to have a large loss that could wipe out the participants accumulated earnings and bankrupt them.
Even though events like the current pandemic are rare, they have a major impact as they are by definition surprising - meaning that they are highly likely to trigger a strong emotional response, which can have a significant impact on investments.
During the experiment, the participants’ emotions were monitored by electrodermal activity (EDA). We placed electrodes on the participants’ index and middle fingers which measured their sweat. By doing this, we were able to learn how the individual was feeling at different stages of the experiment – when the decision screen was made and when the earnings were shown.
EDA is a valuable tool in physiological science as it is a biomarker of individual emotional responsiveness that can help detect, for example, anxiety.
The results show that different emotions can have various effects on investment decisions, but the most interesting result that we found was that, in times of uncertainty, anxiety could actually protect investors from extreme events. This is because investors who exhibit anxiety tend to take on fewer risks, which then means they are less likely to suffer extreme losses and bankruptcy than their less emotional counterparts.
Many people will find it surprising that being anxious could improve investment decisions as this is a complete contrast to what we are usually told. Normally, those that are more likely to take risks when investing are more likely to be successful. But we are in very unusual circumstances where experiencing anxiety when investing could be what saves your company.
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Furthermore, the research revealed that emotions, such as anger and fear, can also affect investment decisions. Those who showed fear were more likely to decrease their bids, similar to those that are anxious. However, those who get angry when investing are more likely to increase their bids because they have an inability to make peace with their losses, which then promotes risk-seeking behaviours, creating a cycle.
The research highlights that the effect of emotions on financial decisions is particularly complex, since a negative event like COVID-19 can have completely different effects depending on the individual. But in our current circumstances, having emotions like fear and anxiousness can actually be beneficial for companies – something worth considering in this unstable climate.
Yaela Shamberg, Co-Founder and Chief Product Officer at InvestCloud, offers Finance Monthly her insight on how wealth managers can engage investors with digital solutions.
As wealth managers face the pressure of the race to zero fees in an increasingly competitive marketplace, they are looking for ways to mitigate these threats while simultaneously preparing for the oncoming wealth transfer. Recent research from IQ-EQ has revealed that $15 trillion USD is to be passed to Millennials, Gen X and Y in the next decade – triggering a new era of high net worth individuals (HNWIs) who are digital natives that expect online wealth management portals with cutting edge tools.
Digital advice tools for HNWIs have been available for some time, but few have proved ideal for this client base. This is because wealth managers are asking the wrong questions. When it comes to finding suitable digital tools, they are looking for a one-size-fits-all digital solution, when in truth, they would never think to offer an impersonalised service to clients offline. What they need are solutions that enable the same level of personalisation and understanding to the individual that they would provide face-to-face – creating true digital empathy.
Those who have been successful in their digital transformation are achieving this by developing multiple ‘digital personas’ that provide their clients with individual experiences and functionalities which speak to their characteristics and goals. This improves the client-manager relationship, as the client feels they are receiving a more tailored service that allows them to interact with their wealth in the ways that they want to. The number of personas one offers may differ depending on how much a firm wants to invest in developing digital experiences, and the diversity of its clients. Nevertheless, the requirements of HNWIs can be roughly split into three personas, which must be catered to at a basic level.
Those who have been successful in their digital transformation are achieving this by developing multiple ‘digital personas’ that provide their clients with individual experiences and functionalities which speak to their characteristics and goals.
The hands-on investor requires a self-select persona. They know about the financial markets and want to be involved in the investing process. Some may even want to make all of their financial decisions independently. For this demographic, tools to browse, research and self-select their chosen investments are crucial – enabling them to build their own models and feel involved in their investment process.
But this does not rule out the wealth manager. They must curate investment options, enabling the investor to filter through them by topic, trend or through insight into what their communities are selecting. Communicating with this type of persona must respect their mindset and preferences, by being on their terms. Having a variety of channels available such as chat, video calling and voice memos, enables the investor to choose how and when to interact with their wealth manager.
The life planner needs to be catered to with a goals-based planning persona. To them, investments are a means to a very specific end – and they need a holistic service that takes into account their entire financial wellbeing. This means managers must pay close attention to their clients’ investment goals and understand exactly what they want to achieve and why. This breaks down to understanding their goal funding, their risk tolerance and a number of other factors.
This begins with empathetic discovery – meaning digital workflows that clarify investment goals including questionnaires and capturing total assets and liabilities, income and expenses, projecting cashflows and applying stochastic models. Once onboarded, the wealth manager needs to be constantly communicating with the client so that they can keep track of their progress as they approach life goals. They also need digital tools that help them visualise their progress such as charts and trackers.
Once onboarded, the wealth manager needs to be constantly communicating with the client so that they can keep track of their progress as they approach life goals.
There are absolutely still those who fall into the client segment that tend to prefer a “white glove” service from prestigious wealth managers and therefore require a traditional persona. These clients are typically ultra-high-net-worth individuals (UHNWIs) who require greater assistance from their wealth manager when choosing investments, and like these to be laid out in formal proposals.
These clients need a high level of customisation, which can be time-consuming. Digital advice builder tools come into play here as they enable automation, giving the wealth manager the ability to tailor portfolios to the client’s short and long-term goals and thematic interests quickly and efficiently. This frees up time that the wealth manager can now spend focusing on maximising profitability and tasks that add value. Then, these portfolios can be presented in the form of beautifully designed proposals which demonstrate greater empathy for the client’s preferences.
Providing a wealth management service through the medium of tailored personas is a digital engagement strategy that enables greater digital empathy. But once the wealth manager has made this personalised service available, how can they make it ‘stick’ and keep clients coming back to their digital portals?
One way managers can keep clients coming back is by deploying gamification principles throughout the client experience – through which we can encourage greater and more active participation by implementing progression dynamics and establishing communities to help investors progress and learn. This is particularly useful for the self-selecting investor as it keeps the wealth management firm front and centre without being unnecessarily high-touch.
It can also be used to encourage positive behaviour from life planners, who can track their progress and be ‘rewarded’ when they enter useful information or complete certain actions within a desired timeframe. Establishing a community also enables them to gain insights into how their peers are progressing with their own investing goals. Keeping clients engaged in this way translates to longer-term loyalty, which in turn means greater profitability for the wealth management firm.
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For wealth management firms already using digital advice tools for other client segments, these can easily be expanded upon for HNWI demographics. Through a combination of personalised personas and behavioural science techniques to encourage loyalty and build trust, managers can service clients more effectively whilst taking advantage of automation that frees up time to take on new clients.
Regardless of investor types and personas, the future of digital offerings – for all – is here and with that comes a need to deploy digital empathy, tools and advice which enrich client lives. The use of thoughtful digital advice, seamlessly integrated into client portals and intuitive mobile apps, brings opportunities to uplevel client offerings, and match the premier services and tools they've come to expect from their wealth managers.
One day after Saudi Aramco CEO Amin Nasser told reporters that “The worst is likely behind us,” global markets have seen an oil price surge.
Brent futures rose to $44.79 per barrel – an increase of 0.8% -- and crude saw a 1.2% rise to $41.75. This is still far below the average $60 per barrel that crude futures were trading at when the year began, but appreciably higher than the negative prices seen in April.
As a consequence of the price increase, oil stocks were boosted worldwide. BP began trading 3.5% higher, and Royal Dutch Shell also saw a 2.5% surge.
Saudi Aramco saw its own modest stock increase of 0.3%. The company reported a 73% loss of profit in the second quarter, but has committed to maintaining its $75 billion dividend pledge regardless.
The cost of oil plummeted early this year in the wake of both a price war and the outbreak of the COVID-19 pandemic, which drove demand through the floor.
Paul Hickin, associate director of EMEA Oil News at S&P Global Platts, commented on the perception that shaped this latest pricing shift. “The market is really trading on different bits of news that come out, good and bad, around that demand narrative,” he said.
“Really it’s demand that’s the big driver. Where is the market seeing demand going? There’s still huge questions in markets around that.” He added that S&P Global Platts expects that oil prices will struggle to remain above $40 per barrel in the months to come.
The price of gold reached a historic high on Wednesday, changing hands at $2,040 per ounce XAU= in early trading. The overnight surge means that the price of gold has now risen by more than 30% since the beginning of the year.
Gold has been boosted throughout 2020 by a combination of a weakening US dollar and mounting investor uncertainty in the health of the economy as the COVID-19 pandemic continues to push countries into recession.
Giles Coghlan, Chief Currency Analyst at HYCM, pointed to this investor uncertainty as a key reason for the surge in gold prices. “We know that investors rally to gold in times of uncertainty,” he explained. “The reason for this is simple – gold is a safe haven asset that is able to maintain, and indeed increase, its value during volatile periods.”
“Investors and wealth managers have been buying up gold due to their concerns over the global economy’s ability to effectively recover from the COVID-19 pandemic. The fact that private banks are encouraging their clients to buy gold as a means of hedging against inflation and currency fluctuations shows that the market is not confident that we have witnessed the end of the coronavirus outbreak.”
Coghlan also advised investors eyeing gold to be aware of the Volatility Index, which provides a 30-day projection of the volatility likely to be experienced by major gold markets. Drops in the VIX are normally followed by a rise in gold prices, and vice versa.
Alpa Bhakta, CEO of Butterfield Mortgages Limited, offers Finance Monthly her predictions for the future of the UK property market.
The introduction of the Stamp Duty Land Lax (SDLT) holiday on 8 July by Chancellor Rishi Sunak has been heartily welcomed by the UK’s property sector. Investors were thankful, especially given that treasury leaks ahead of the announcement suggested it would only apply to a certain type of buyer and would be officially unveiled as part of the autumn budget later in the year. What’s more, it came into force immediately after the chancellor’s speech and applies to the first £500,000 of all property sales in England and Northern Ireland.
Thus far, it seems to have been successful in stimulating further housing market activity. Property listing site Rightmove recorded an “unexpected mini-boom” in the week following the holiday’s introduction—with the average asking price of homes listed rising by 2.4% when compared to March figures pre-lockdown, and inquiries being 75% higher year-on-year.
This is not the first time a UK government has introduced an SDLT holiday to kickstart the economy. Following the 2007-2008 global financial crisis, the lower threshold of SDLT liability was raised from £125,000 to £175,000—a move designed to support the lower end of the housing market at a time where the dreaded “credit crunch” meant much market activity had ground to a halt.
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Back then, the holiday was later expanded to cover all property transactions after not having the immediate positive effect intended. In the end, it resulted in an 8% increase in transactions for the homes that were covered by the holiday.
This current holiday, conversely, already covers nine out of ten homebuyers. In theory, this means we should be expecting a sustained increase in property transactions during the holiday period. However, the COVID-19 pandemic is not that simple; nor is the property market.
Of all the sections of the property market, the prime central London (PCL) offers valuable insight. Its size and attractiveness to international investors means we can assess overseas sentiment towards the UK as an investment hub while also determining how many buyers at the higher end of the market are returning.
Estimates suggest that those purchasing high-end property in the nation’s capital can expect to save approximately £15,000 through this new tax relief holiday. This substantial discount, accompanied by other factors, means the PCL housing market could expect an influx of new buyers as property investors look to take advantage of discounted opportunities.
Estimates suggest that those purchasing high-end property in the nation’s capital can expect to save approximately £15,000 through this new tax relief holiday.
The importance of overseas investors in the PCL property market cannot be understated. In 2019 alone, such buyers accounted for 55% of all PCL housing purchases. While COVID-19 naturally brought the majority of transactions to a standstill, it has been clear that appetite for prime property has not diminished. Estate agency Beauchamp Estates sold over $374 million worth of property in the capital between December 2019 and June 2020.
Aside from the current SDLT holiday, an additional factor that will no doubt fuel future purchases is the SDLT adjustment announced by Chancellor Rishi Sunak back in March 2020. The chancellor stated that in April 2021, foreign buyers of UK property would have to pay an additional 2% SDLT surcharge. Many of the prime property purchases we are likely to see over the coming months by non-UK residents will no doubt be made in order to avoid this added cost.
Given what’s discussed above, I believe this SDLT holiday will facilitate a great resurgence in the PCL property market. Of course, I must mention that a second spike in COVID-19 cases or the reintroduction of lockdown measures in the capital would delay this recovery considerably. However, as it currently stands, I look forward to the PCL housing market leading the way for a strong UK property market resurgence sooner, rather than later.
Content Guru, a specialist in cloud-based contact centre as a service (CCaaS) solutions, is at the forefront of a revolution in customer contact operations, helping organisations implement new systems for communicating with customers during the pandemic. Drawing on his company’s experience, Global Chief Executive Sean Taylor explains how a supportive partnership with an engaged investor can help a company build a solid foundation for growth, enabling it to scale successfully in international markets and turn growth challenges into opportunities.
COVID-19 has forced organisations to radically change how they function, underlining the importance of robust and scalable systems that enable businesses to adapt quickly.
As a global specialist in cloud-based contact centre as a service (CCaaS) solutions, we are operating in the eye of the current storm, helping organisations rapidly reconfigure customer contact operations. Demand for CCaaS solutions has risen sharply as traditional contact centres have struggled to cope with a surge in contact via both voice and digital channels.
Do your own due diligence on a potential investment partner - ask about their failures as well as successes and ask them to explain how they will add value and help you scale. Speak to their portfolio companies to find out what help they provided in challenging situations.
We have had to respond faster than ever - especially for clients running essential services such as NHS 111, the medical advice helpline which has been besieged by Covid-19 related calls, and the Department of Work and Pensions (DWP) which has seen a surge in benefits enquiries and, at one point, had 10,000 callers in their queue.
The pandemic highlighted a widespread need for scalable, flexible and secure solutions to enable vital customer-facing functions not just to remain operational but to handle the exponential rise in calls, while also adhering to social distancing requirements for employees.
Our ability to scale up quickly to meet higher than anticipated demand stems in part from having a supportive investor - growth equity firm Scottish Equity Partners (SEP) - on board. SEP helped us lay solid foundations such as scalable systems to perform critical functions like financial reporting and management information, which are vitally important as a business grows internationally.
Having these in place helped us accelerate our response to customer needs in the face of the crisis. For example, we reduced the lead time to migrate clients from a centralised contact centre with myriad legacy IT systems to a cloud-hosted CCaaS solution to just four hours - without compromising service or security. That compares to an average lead time of between four and six weeks pre-pandemic.
Managing rapid growth
The global CCaaS market was growing strongly before COVID-19 struck: in 2019 Gartner forecast that CCaaS would be the preferred adoption strategy for 50% of contact centres by 2022. This now looks a very conservative estimate.
Managing a sharp rise in business may seem an enviable challenge, however, not every CCaaS business is equally well-placed to capitalise on growth opportunities.
Numerous pitfalls can trip up a company expanding globally, at what can seem like breakneck speed. Growth constraints may differ, from cash flow (a particularly acute issue currently) to people or skills issues, inadequate financial systems, lack of knowledge of local markets, or supply chain issues.
Cash is critical - especially as the economic crisis has resulted in extended payment terms and reduced liquidity. Some businesses are squeezing suppliers to alleviate cash flow problems - however, that can cause relationship problems for the future and should be managed carefully.
To scale successfully you need to be a well-capitalised company with a presence in key global markets, underpinned by robust processes and systems, and led by an experienced management team. A key determinant for successful and rapid scaling up is not just the financial support a company receives from its investor but also their ongoing strategic input.
Scaling partnership
Ambitious companies need to plan for growth and weigh financing options carefully before entering what is likely to be a long-term relationship with an investor or lender.
Although we have been cash-generative since we founded the company, we decided to seek external funding to enable us to scale faster (few businesses complain of being over-capitalised). And in seeking investment it is advisable to look not just for growth equity but a partner that would add value in a strategic way and would be supportive in difficult, as well as good times. It’s important to find an investor that operates locally but is connected globally.
It’s time to focus on moving from surviving to thriving.
Do your own due diligence on a potential investment partner - ask about their failures as well as successes and ask them to explain how they will add value and help you scale. Speak to their portfolio companies to find out what help they provided in challenging situations.
Adding value
SEP has helped us particularly around scaling operations and reporting systems to ensure we are monitoring growth accurately. We are growing fast and, throughout the process of upgrading to a cloud-based financial reporting system that has improved efficiency within finance processes and given us faster access to detailed management information, our investor has been on hand to advise us. This has been critical as we continue to scale every team within the business and invest more in international entities.
When you are scaling you need a strong leadership team and board. That is another area that a well-connected investor can assist: in recruitment and introductions to executives and non-executives who are a good fit for the growth journey, both now and in coming years. Business founders should acknowledge that a leadership team needs to evolve as the company grows, adding new skill sets or experience.
Challenges and opportunities
I like the Winston Churchill quote: “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty”. The pandemic has created a difficult situation for many businesses, but we have had to adapt and cope with it. It’s time to focus on moving from surviving to thriving.
Being well-capitalised is essential, but scaling requires more than money. Bringing the right strategic investment partner on board can help ensure challenges become opportunities and keep you on a sustainable growth path that will build long-term value.
Firms that advise institutional investors and other market participants on how to vote during shareholder meetings will be subjected to stricter regulation following the SEC’s vote on 22 July.
The newly amended rules will require proxy advisors to show their voting recommendations to public companies either before or at the same time as sending them to their clients. Additionally, they will be required to inform their clients of the public companies’ responses to their advice. In order to allow for this exchange of information, proxy advisors can ask public companies to file their proxy statements at least 40 days in advance of shareholder meetings.
Finally, the new rules will require proxy advisors to disclose any potential conflicts of interest alongside their voting recommendations.
Publicly traded companies have complained about the influence of proxy advisors over shareholder votes, with some asset managers using software to automatically match their ballots to advisors’ voting recommendations in shareholder meetings. In a comment letter to the SEC, Exxon Mobil’s vice president for investor relations described proxy advisors as “effectively our largest shareholders, despite having no direct stake in Exxon Mobil’s success.”
“The final rules require proxy voting advice businesses to hold themselves to a standard appropriate for the power they exercise,” said SEC Commissioner Hester Peirce in support of the rule.
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Proxy firms have criticised the ruling as a gift to large companies resulting from a decade-long campaign lobbying for stricter regulation of the advice that they issue.
“While the rules adopted today may appear less draconian than originally envisioned, they nevertheless serve as a blow to institutional investors seeking to judiciously monitor portfolio companies,” commented Gary Retelny, CEO of Institutional Shareholder Services.
SEC officials have announced that the new regulations will take effect for the 2022 proxy season and thereafter.
Early trading on Monday saw mass stock sell-offs around the world, with investors’ appetite for risk newly dampened by a resurgence in confirmed COVID-19 cases. Markets in Europe, Asia and the US each saw broad losses.
In Europe, London’s FTSE 100 opened down 2.1%, while Frankfurt’s DAX and Paris’s CAC 40 shed 2.8% and 2.4% respectively.
US futures painted an equally gloomy picture, which was largely confirmed as trading opened. The Dow Jones Industrial Average fell by 2.4%, S&P 500 futures by 1.9%, and Nasdaq by 1.4% on Monday morning.
Overnight losses were also seen throughout Asia, with Japan’s Nikkei losing 3.4% and the Hong Kong Hang Seng falling by 2.1%. China’s markets saw comparatively slight losses; the Shanghai Composite fell by 1% and the Shenzen Component by 0.5%.
Analysts suggested that the market pull-back may be linked to a spike in cases in Beijing, which saw localised quarantine measures introduced as a response.
In a statement on the markets on Sunday, Ed Yardeni, president and chief investment strategist at Yardeni Research, commented: “Now that reopening is happening, there’s fear of suboptimal results: less social distancing triggering a second wave of the virus, followed by another round of lockdowns.”
There are no healthy people on a polluted planet. In particular, deforestation, the proximity between urban zones and wilderness, and the scarcity of certain animal species, are determining factors in the development of diseases that can be transmitted from animals to humans. As such, at a time of a pandemic requiring the confinement of half of humanity, it is appropriate to analyse this crisis through the lens of the 17 sustainable development goals of the United-Nations, which guide international efforts for a better and sustainable future for all.
Faced with the challenge of protecting the planet, and the effects of climate change in particular, it is essential to develop projects to restore and protect natural ecosystems. The goal is to rethink activities in the logic of a circular economy, to limit their negative impact on nature and to create sustainable wealth. The emergence of sustainable finance is vital for the transformation of the economy towards a low-carbon and inclusive model. Finance must become a tool for health, economic and social development. But how? Finance Monthly hears from Catherine Karyotis, Professor of Finance at France's NEOMA Business School and Anne-Claire Roux, Managing Director of Finance for Tomorrow.
Financial actors must re-invent their activity to support the projects and sectors of the ecological transition, serve the real economy, and preserve biodiversity for a sustainable planet. They must apply best practices to both anticipate transition risks and protect the value of assets, face new risks linked to the physical impacts of climate change, and adapt to regulatory changes. Ultimately, they must enable the transition of the economy to a low-carbon and inclusive model.
The ethics of an investor, a banker, a fund manager, or an insurer go beyond compliance: they have to know how to place their mission of in the present and future contexts, taking into account all economic, financial and ecological dimensions. They can take the opportunity to create wealth, or rather value. To this end, they must identify new sustainable opportunities and put a long-term perspective at the heart of their financing and investment strategies.
Financial actors must re-invent their activity to support the projects and sectors of the ecological transition, serve the real economy, and preserve biodiversity for a sustainable planet.
Already, the entire sector is developing its offers, practices and trade products. Actors are mobilising, initiatives are multiplying, and new professions specialised in sustainable finance are emerging within organizations. However, this paradigm shift will not be possible without expertise and new skills.
A financial analyst must master the accounting and extra-accounting instruments and documents to carry out a joint financial and extra-financial analysis, connecting one to the other and enabling financial policy decisions to be taken in the long term.
A risk manager must know how to assess financial risks in all their dimensions, ranging from credit risk to climate risk to health risk, to then cover them by using derivative markets for this objective, not aiming for speculative short-term gains.
As an asset manager must know how to "price" a bond. Why not do so for bonds labeled "green" or "sustainable"? Likewise, beyond socially responsible investing, how can ESG criteria be introduced into passive management, and how can we revise models by developing a green beta? If we talk about alternative investments, we can also integrate “green” or “adaptation” labels, as well as "green value" into wealth management and into particular real estate investments.
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France is at the forefront of green and sustainable finance. French financial players - whether private or public issuers, arrangers, or even extra-financial rating agencies - are the greatest specialists in "green bonds". They are pioneers in carbon accounting and the financing of natural capital. Collectively, the French financial sector constitutes a driving force for the development of sustainable finance internationally, through initiatives such as ‘Finance for Tomorrow’ and the ‘Climate Finance Day’, the ‘One Planet Summit’, or the ‘Network of Central Banks and Supervisors for Greening the Financial System’ (NGFS).
To strengthen this expertise and pass it on to the next generation of financial professionals, it is necessary to reinforce skills in sustainable finance. From an educational perspective, it is up to teachers and professionals in activity, to transmit to students the tools, which will allow them to reinvent the financial system for a secure, sustainable future.
In the aftermath of the COVID-19 pandemic more than ever, sustainable finance must become a tool for recovery and our students must become the future decision makers of a finance serving the real economy, society and the planet.
Foreign exchange (forex) accounts for the world’s largest financial market. In fact, it was valued at $6.6 trillion (£5.3 trillion) last year, with London reigning as the largest forex market with a 43% share.
Here are some things that you need to know before making your very first trade:
Forex, or the world of finance in general, can be very intimidating for the average person. The first step to breaking that barrier is to learn the fundamental aspects as well as common forex trading terms. Here are a few key terms that should be in your vocabulary:
• Currency pairs - Forex is always traded in a pair of currencies, which represents the value of one against another. For example, GBP and USD is represented by GBP/USD or vice versa.
• Base – The first currency in a pair. For example, GBP in a GBP/USD pairing.
• Quote – The second currency in a pair. For example, USD in a GBP/USD pairing.
• Exchange rate - The amount of quote currency needed to buy 1 unit of the base currency. For example, GBP/USD = 1.2252.
• Bid - The price at which you’re willing to buy the currency pair.
• Ask - The price at which you’re willing to sell the currency pair.
• Pip - The smallest price changes given an exchange rate.
• Spread - The difference in pips between the Bid/Ask prices.
• Leverage - A trader’s borrowed capital from a broker’s credit. This allows traders to fund their trade without having to pay the full value upfront.
Knowing the right words is only the first step. You’ll need to have a working understanding of what moves currencies in the first place. This allows you to make an educated trade and minimise the risk of incurring any losses. These are some of the most important factors that increase trading risk:
• Interest rate - Rising interest rates generally correspond to a stronger exchange rate, while falling interest rates can result in a depreciation in currency value.
• Country - Take note of the country’s economic stability, especially for developing or third world nations.
• Counterparty - It refers to the broker or trading platform used which come with their own risks.
• Leverage - The more leverage you acquire could potentially lead to a bigger loss.
• Transaction - Communication or confirmation errors that can lead to a loss. For instance, significant time difference between markets leave plenty of room for market fluctuations, which can impact the trade made.
• Politics and Economy - Both have significant impacts on a country’s performance in the forex market. For example, the expected 25% downfall in the economy of the UK during Q2 will likely lead to a weaker performance of the GBP against other currencies.
• Liquidity - The high liquidity of the forex market means the demand and supply can vary wildly, which can affect market prices.
To start trading, you need to find a reliable broker and the right trading platform. A broker is an individual or a firm that facilitates your trade. You buy or sell through a broker, who also gives you the leverage needed. When choosing a broker, find out whether they are regulated by The Financial Conduct Authority. See if they also offer a trial period so you can sample their services before committing to a certain brokerage firm.
A trading platform, on the other hand, is the software that allows you to access and trade in the forex market. Most offer demo accounts, which enable you to experiment and practice trading under real market conditions. Understand that trading forex is not without risk. However, knowing basic information, such as industry terms, allow every kind of trader to make more favourable decisions.
As the stock markets fluctuate and countries head into recession, we're starting a series looking at the stocks with the most potential for good returns with analysis and expert from the Finance Monthly team. This week, we're looking at Countryside Properties and Royal Dutch Shell:
Covid-19 has severely hit the housing market in the UK and this morning FTSE 250 company Countryside Properties PLC (CSP) reported that it lost completions and land sales in March which has impacted profit by £29 M and increased debt by £83 M. As of writing the share price had dropped 10% at the opening. With the housing market key to any economic recovery I would expect to see developers to do much better in the coming months as the lockdown is eased.
With the world’s economies grinding to a halt oil prices have hit new lows in recent weeks. Royal Dutch Shell Plc (RDSA: LON) has seen its share price drop by over 52% from its 12 month high but there is no doubt that oil will be in great demand once the economic recovery finally gets underway. It seems to me that the world’s biggest players in the energy/petrochemical sector have enough in reserve to weather the storm and Shell, in my opinion, did the right thing but cutting its dividend – the first cut since WWII. No doubt it will be a bumpy ride ahead, but Shell stock looks like good value as things stand.
Please invest responsibly. Views expressed on the companies mentioned in this article are those of the writer and any investment undertaken should be independently investigated by the investor. Finance Monthly accepts no responsibility for any investment. For more information visit our stock disclaimer
The impact of the COVID-19 pandemic on businesses worldwide has been nothing but staggering, and not in a good way. No industry in the global economy is left untouched and a recession is imminent now. This means that money transfer companies are going to suffer through some major downtime. The question is whether they will be able to get through it and how they will have to change.
On the other hand, the pandemic has caused a major increase in the demand for fintech solutions. This means that money transfer companies with a wide range of additional services might get an opportunity to increase their customer base.
To understand the implications of the COVID-19 pandemic and its impact in the money transfer industry one needs to understand how that industry operates. Online money transfer platforms and brokers have been growing rapidly in number and popularity over the last few years. The reason for this is the increased rate of globalisation.
However, the growth of such businesses is also one of the reasons that make this rate of globalisation possible. These services made international money transfers affordable. This means that cross-border financial transactions became available for small businesses and investors.
Not so long ago, bank wire transfers and a few money transfer corporations (Western Union and MoneyGram) were the only options for transferring money abroad. The problem with them is that both charged high rates. They also use a high markup on foreign currency exchange rates.
Online money transfer platforms and brokers have been growing rapidly in number and popularity over the last few years.
Overall, a single transfer to or from abroad could cost up to, and sometimes even over, 10% of the amount. Small businesses with their tiny revenue couldn’t afford such transactions. Therefore, they were denied the opportunities offered by using cheaper services and materials delivered from abroad.
The situation is like this because those fees and markups are what banks use to make money. However, online money transfer companies are completely different. They do not transfer money physically across borders. Instead, the customer deposits the amount they need to the company’s account in their country. Then, the company transfers an equal amount to the recipient from its account in their country.
This approach allows businesses to minimise transfer costs. And money transfer companies that operate in such a manner make their profit from the volume of transfers they process. Therefore, it’s more beneficial for them to keep their fees as low as possible to attract more customers.
Unfortunately, due to the crisis caused by the pandemic, money transfer companies have fallen on some bad times. Even #1 companies like TransferWise struggle because of the reduced flow of transfers. These companies largely depend on small businesses, which are failing at an alarming rate.
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It’s not a surprise because even big international corporations are struggling today. For example, the reduction in international travel, has already caused the near-collapse of Virgin Atlantic. With huge companies like this failing to survive, the majority of small businesses have no chance whatsoever.
The other major group of customers for money transfer companies is small property investors. Cheap transfers made it possible even for people without huge fortunes to purchase properties abroad. This rapidly developed into a major industry as easy international transportation made the tourism industry boom. However, with travel restrictions and lockdowns in many countries, the hospitality sector has been hit greatly. The reduction in buyer capability will also affect the real estate market all over the world.
Small businesses have been hit the hardest by this situation. Their main problem is the lack of free funds to tide them over through the lockdown. There are some lending programs from governments that should help these types of enterprises. However, those are hardly sufficient. They are also not available worldwide.
Because of the enforced hiatus, small businesses have reduced the volume of their international transfers. The situation should change for the better when the world gears back after lockdowns are lifted. However, this would be a slow process.
In the interim, money transfer companies will suffer the same fate as small businesses. Those among them that do not have the funds to get through the downturn will perish.
The real estate market worldwide is pretty much frozen at the moment. It’s starting to reanimate in some places, but this process is even slower than the small business restoration.
The good news is that the housing market in many countries has been on the rise in recent years. On the other hand, the pandemic has severely decreased people’s ability to actually buy properties. This means that the current slowdown of the market will be followed by a bigger dip. The real estate industry will recover in time, but this won’t happen fast.
The good news is that the housing market in many countries has been on the rise in recent years.
Meanwhile, investors are sure to reduce their transfers. Again, money transfer companies will lose a major contributor to their cash flow, but offering assistance and hedging tools to the existing investors today can help tide them over.
The situation for money transfer companies and brokers is grim today. However, there is no doubt that it will improve. Moreover, this industry should recover faster than some others. That’s because this type of service has been in great demand even before the pandemic. But after this world-shaking event, it will be even more needed.
As mentioned before, even big corporations now struggle to stay afloat. Therefore, they will be looking for every way to cut costs and boost their efficiency. International deals and cheap money transfers are both essential for succeeding in this.
Admittedly, governments are doing what they can to support businesses and therefore reduce the negative impact of the pandemic. However, their success is limited, and it’s only a few countries that can make any big difference for small businesses.
Therefore, money transfer companies will have to wait for a while until their customer traffic is restored. The ones that can make it will definitely grow rapidly. Also, businesses that expand to online banking on top of offering international transfers have a better chance. Those are already in high demand as the world is going digital even faster than before.
All in all, for all that it seems bad now, the situation for the money transfer industry is very promising.
