This is why corporate treasury is great – The laymen introduction to corporate treasury

| 09-01-2018 | Pieter de Kiewit |

My father was a civil engineer and would have liked one of his kids to follow in his footsteps. Regretfully for him we all went in different directions, me landing an engineering degree of the wrong type. What I did like to learn from my first business management professor was about creating bridges between various functional areas. That is what I have been doing as a recruiter for almost 25 years, the last 8 solely in corporate treasury. Why treasury?

All organisations, even the small ones, can benefit from good treasury. Only the bigger ones hired permanent experts. The main three areas, perhaps oversimplified, they focus on are:

  1. Money logistics: opening and closing bank accounts, doing (bulk) payments, forecast money coming in and going out;
  2. Managing (treasury) risk: understand and manage the implications of interest or currency fluctuations. If your manufacturing costs are in Euro and you sell in Dollars and the price of the Dollar drops, what to do? What to do if you have excess cash on your current account;
  3. Funding: where do you get your money for new or current business? Bank loans, equity, mortgage, leasing?

This does not sound sexy, does it? But do understand that during the crisis treasurers found solutions for companies how to survive. They found funding to pay salaries, helped sales finding creative funding solutions to make complex transactions achievable, helped prevent companies going belly-up due to currency exposures, forced banks to offer better solutions at a more acceptable price.

Treasurers manage huge amounts of money and operate very close to the CFO. They are involved in mergers & acquisitions, reorganisations and international expansion. They act in small numbers but have huge impact if they would stop doing their work. And the job type evolves continuously. Creating new treasury bridges to traditional job types like accounting, tax, sales helps all doing a better job. The academic world is showing increasing interest. In the Netherlands the post graduate education at the Vrije Universiteit is becoming more prominent in the treasury community. Corporate treasury is very dynamic!

What I love doing is helping CFO’s, HR, internal recruitment and senior treasury managers with their staffing questions. What qualifications and personality type matches best with your current and future business situation. If you only hire one treasurer per year, what do you need to know to choose the best candidate? I hope now you can understand my passion for creating bridges in treasury and recruitment.

I look forward to your thoughts to the above and further contact,

Pieter de Kiewit
[email protected] / +31 6 1111 9783

Pieter de Kiewit

 

 

Pieter de Kiewit
Owner Treasurer Search

 

 

Bitcoin – hype or reality?

| 08-01-2018 | Lionel Pavey |

Having spent my  working life in international finance, I have patiently listened to all the news about the Bitcoin over the last few years. During 2017 whilst the Bitcoin was on a spectacular price rise, my interest was awakened in this new phenomenon – is this the future? I attended seminars, read articles, learnt the difference between the Bitcoin and the Blockchain, searched and investigated via the web, and tried to form an opinion. These are my findings:

Here is a technology that has recently been created – started in 2009 – that has caused a huge debate and led to passionate arguments on its merits or demerits. Those in the know understand its concept – the rest are baffled by its very existence. At essence it is a digital currency – there are no coins or notes in existence. It is decentralized – there are no governments controlling it. If you own it, your identity is anonymous to others – transactions take place via encryption keys. The supply is limited – protocol dictates that a maximum of 21 million Bitcoins can be produced. At the end of 2017 there were 16,774,500 coins in circulation – roughly 80% of the maximum allowed. So, the supply is clearly limited, but they have no real intrinsic value – they do not represent a claim on an asset.

My main area of interest has been on the price – the rise in 2017 of more than 1,400% is astounding. I decided to collate some information and have a chart showing Bitcoins price of the last 2 years.

Such a stellar performance should mean that the trade volume has increased dramatically.

Well……. here is another chart

The daily volume in September 2017 when the price was about $4,000 was the same as the start of February 2016 when the price was about $400. I had to create this chart as all the data I could find related to the $ value of turnover – which was phenomenal – and not the actual number of Bitcoins traded. Normally, when an asset sees a huge increase in price, this goes together with a corresponding increase in turnover. Clearly this has not happened with Bitcoin – why?

There appears to be a “strategy” of buying Bitcoin to hoard them. There does not appear to be a sizeable free float of Bitcoin. If there is more demand than supply, then obviously the price will increase dramatically. Bitcoin is touted as an alternative currency, yet the advocates do not seem to want to spread it around with everybody else. It is a currency that is not used to settle transactions – this makes it difficult to consider Bitcoin becoming a recognized mechanism for payments. One of the criteria of money is that it is a “medium of exchange” – yet again Bitcoin, which appears to be hoarded, does not meet the criteria.

How can a cryptocurrency replace a conventional fiat currency if it is not freely tradeable? Furthermore, if you hold Bitcoin and want to take your profit, then this will be realized in a fiat currency. As Bitcoin is generally quoted and traded in $, this means receiving your profit in an antiquated currency that your cryptocurrency wishes to replace – ironic?

The underlying technology – Blockchain – is here to stay. As to whether Bitcoin is here to stay – if people hoard Bitcoin, it will exist. What the value of Bitcoin should be – whatever someone is prepared to pay for it. Will it replace fiat currency – maybe one day, but not in its present Bitcoin form.

Lionel Pavey

 

Lionel Pavey

Cash Management and Treasury Specialist

 

Forward Rate Agreement (FRA)

| 05-01-2018| Arnoud Doornbos |

Money Market outlook

At the press conference on 14 December 2017, the ECB announced that expectations for economic growth and inflation have been adjusted upwards. But despite optimistic growth, the ECB is not yet fully convinced of a continued upward trend in domestic price pressures. And thus Draghi: “An ample degree of monetary stimulus … is necessary for underlying inflation pressures to continue to build up.”

For this reason, the ECB will maintain the buying program at least until September 2018. And only then will an increase in policy rates come into the picture. Since the beginning of 2017, investors have seen the chance that the ECB will implement an increase in policy interest rates. This has not yet had an effect on the three-month Euribor rate. This has been stable at around -0.3% for the whole of 2017, and we expect that this will be the case in the vast majority of 2018 as well.

But markets will go up again for sure during time and borrowers need to prepare themselves for that moment. A good interest rate risk management can help to extent the pleasure of using favorable low interest rates for your company. Hedging your short term interest rate exposure with FRA’s could be a good idea. Good timing is essential.

 

 

Definition

A Forward Rate Agreement’s (FRA’s) effective description is a cash for difference derivative contract, between two parties, benchmarked against an interest rate index. That index is commonly an interbank offered rate (-IBOR) of specific tenor in different currencies, for example LIBOR in USD, GBP, EURIBOR in EUR or STIBOR in SEK. A FRA between two counterparties requires a fixed rate, notional amount, chosen interest rate index tenor and date to be completely specified.

FRAs are not loans, and do not constitute agreements to loan any amount of money on an unsecured basis to another party at any pre-agreed rate. Their nature as a IRD product creates only the effect of leverage and the ability to speculate, or hedge, interest rate risk exposure.

 

 

 

How it works

Many banks and large corporations will use FRAs to hedge future interest or exchange rate exposure. The buyer hedges against the risk of rising interest rates, while the seller hedges against the risk of falling interest rates. Other parties that use Forward Rate Agreements are speculators purely looking to make bets on future directional changes in interest rates.

In other words, a forward rate agreement (FRA) is a tailor-made, over-the-counter financial futures contract on short-term deposits. A FRA transaction is a contract between two parties to exchange payments on a deposit, called the Notional amount, to be determined on the basis of a short-term interest rate, referred to as the Reference rate, over a predetermined time period at a future date.

At maturity, no funds exchange hands; rather, the difference between the contracted interest rate and the market rate is exchanged. The buyer of the contract is paid if the published reference rate is above the fixed, contracted rate, and the buyer pays to the seller if the published reference rate is below the fixed, contracted rate. A company that seeks to hedge against a possible increase in interest rates would purchase FRAs, whereas a company that seeks an interest hedge against a possible decline of the rates would sell FRAs.

 

Valuation and Pricing

 The cash for difference value on a FRA, exchanged between the two parties, calculated from the perspective of having sold a FRA (which imitates receiving the fixed rate) is calculated as:

where N is the notional of the contract, R is the fixed rate, r is the published -IBOR fixing rate and d is the decimalized day count fraction over which the value start and end dates of the -IBOR rate extend.

For USD and EUR this follows an ACT/360 convention and GBP follows an ACT/365 convention. The cash amount is paid on the value start date applicable to the interest rate index (depending in which currency the FRA is traded, this is either immediately after or within two business days of the published -IBOR fixing rate).

For mark-to-market (MTM) purposes the net present value (PV) of an FRA can be determined by discounting the expected cash difference, for a forecast value r:

where vn is the discount factor of the payment date upon which the cash for difference is physically settled, which, in modern pricing theory, will be dependent upon which discount curve to apply based on the credit support annex (CSA) of the derivative contract.

Quotation and Market-Making

 FRA Descriptive Notation and Interpretation

 

How to interpret a quote for FRA?

[EUR 3×6  -0.321 / -0.301%p.a ] – means deposit interest starting 3 months from now for 3 month is -0.321% and borrowing interest rate starting 3 months from now for 3 month is -0.301%. Entering a “payer FRA” means paying the fixed rate (-0.321% p.a.) and receiving a floating 3-month rate, while entering a “receiver FRA” means paying the same floating rate and receiving a fixed rate (-0.321% p.a.).

Due to the current negative Money Market rates means receiving actually paying and the other way around.

 

 

 

 

 

 

Arnoud Doornbos 

Interim Treasury & Finance

 

 

Cashforce: Treasury year-end meetup

| 04-01-2018 | Nicolas Christiaen | Cashforce | Sponsored content |

Onderstaand een kort verslag van ons Treasury year-end meetup-event van eind 2017. 

Tim (Jonk – Thomson Reuters) en Martijn (Duijnstee – Cashforce) trapten af met een (uiterst!) korte terugblik op 2017 want alle ogen waren eigenlijk al gericht op het progamma waarin de 3. Top-challenges 2018 voor corporate treasurers de revue zouden passeren.

Nicolas (Christiaen – Cashforce) gaf inzicht in wat er bij komt kijken om, in 6 stappen, een daadwerkelijk nauwkeurig en geautomatiseerd 1. Cash forecasting-proces in te richten. No more Excel!

Bart-Jan (Roelofsz – HERE Technologies) kwam letterlijk net uit ‘de vlieger’ uit Chicago stappen en kon gelijk door naar het podium waar hij een bijzonder aansprekende presentatie gaf over 2. Financing in het algemeen en de transitie van bedrijfsactiviteiten en opbouw van het Treasury en Finance Team in een snel groeiende organisatie. Top!

Alex (Goraieb – Thomson Reuters) nam het stokje over en gaf ons meer dan een kijkje in de wondere wereld van 3. Risk Management. Een wereldreis in de achtbaan van volatiele markten en valuta, via de onderliggende techniek van trading in grote posities naar een lesje ‘hoe selecteer ik de beste bank’. Well done!

En toen was het snel! naar de borrel want in het kader van ‘Act Global, drink Local’ stond het Ijndejaarsbier van Brouwerij ‘t Ij koud en op fust te wachten, en wat had iedereen toch een dorst gekregen…

Tijdens de borrel werden er meerdere robbertjes uitgevochten tijdens de Kick-off 2018 games op de Cashforce-voetbaltafel.

Voor hen die er waren, dank voor jullie komst en voor hen die er niet waren: volgend jaar een nieuwe kans want wat ons betreft zeker voor herhaling vatbaar!

 

Nicolas Christiaen

Managing Partner at Cashforce

 

Commercial Paper – alternative short term funding

| 03-01-2018 | treasuryXL |

 

There are many different products that a company can use to meet its funding requirements. These products mainly fall into (but are not exclusive to) 2 major categories – equity or debt. Within both categories that are many different bespoke products that can be used. Debt can be either for long term or short term – both in respect to the tenor and the interest rates. Furthermore, interest rates can be fixed or floating. In this series we shall be looking at popular products that are used to help fund a business.

Definition
Commercial Paper is a money market product issued by large companies to receive funding for short term needs. The tenor (maturity) is normally for a short period up to 270 days. The paper is a promissory note that is unsecured – there is no collateral/security offered against the paper. As such Commercial Paper is normally only ever issued by large well-known companies who have credit ratings.

How it works
When a company needs short term funds it can issue paper (promissory note) against receiving the funds. Issuance can take place either via a recognized dealer who can sell the paper into the money markets, or paper is directly issued to an investor who wishes to buy and hold the paper until maturity. Paper is normally issued at a discount to its face amount and redeemed at par.

The programme
Commercial Paper is subject to a company issuing a programme. This provides details as to the maximum amount that can be borrowed; the lifetime of the programme; registered dealers etc.

Why borrow?
Commercial Paper allows a company to be flexible in its short term funding. Yields are, traditionally, lower than bank borrowings and are not subject to additional bank covenants. A company can benefit quickly from changes in interest rates. It is both a quick and inexpensive way to raise short term working capital.

Why lend?
It allows lenders to get a better yield than available if they placed their funds on deposit with a bank. The paper is negotiable – this means that the paper can be sold on in a secondary market. If a lender suddenly had a funding issue, they could sell the paper to a third party, rather than approaching their bank for funding. As the issuers have credit ratings, it is possible to apply your own criteria with regards to who you will accept as a counterparty.

Lionel Pavey

 

Lionel Pavey

Cash Management and Treasury Specialist

 

 

Eurozone – what to watch for in 2018

| 02-01-2018 | treasuryXL |

As we start a new year, it would be beneficial to look at matters that will possibly affect the Eurozone in 2018. It is 10 years ago that the financial crisis that started in America hit Europe and led to a global recession. This had a negative effect on GDP and it took 8 years before the Eurozone’s economy exceeded its high before the crisis. The EU is forecasting growth of 2.1% for 2018 and 1.9% for 2019. So, what are the events to look out for in 2018?

Whilst the economy appears to be growing, this recovery is still fragile and reliant on a monetary policy of low interest rates and a huge bond buying programme – QE – undertaken by the ECB. QE will be scaled back in 2018, leading to a possible halt in September 2018. It will be important to see how the markets react after the programme is stopped.

The political picture is still confusing and indecisive: in Germany a government has still not been formed more than 3 months after the elections; the referendum in Catalonia for independence and the recent regional elections have put pressure on both Spain and the EU; Italian general election in March 2018 will also add to the tension – the Eurosceptic parties appear to be growing in popularity; Greece is hoping to return to the international bond market and raise funds in the first half of 2018, but they still need to successfully exit the existing bailout programmes.

On the negative side, there is a clear difference of opinion between East and West Europe on many policies – particularly immigration – that threatens to upset the balance within the EU. Also, ambitious plans put forward by France for a Eurozone budget, will become stalled as Germany cannot commit since they have no government and Merkel is not in a true position of power to support France.

Brexit will remain a hot topic and we can expect another year of political statements. Article 50 has been enacted and there is no way back. Even though the Conservative party rely on a coalition to govern, they still have another 4 years on their current term and can negotiate from the British point of view.

Inflation shows no sign of growing – the increase in the value of the Euro against the USD and GBP should act as a brake on inflation via import prices. Pressure on wage increases is also very low – particularly within the southern part of the Eurozone, where unemployment is still very high. Interest rates also show no signs of increasing – 3 month’s futures still show a negative yield curve throughout 2018.

Quick thought – Bitcoin futures have started, but will the market really take off? The value has increased greatly in 2017, but the Bitcoin itself has done nothing productive to justify its increase in price.

In general, the outlook appears to be very steady if not spectacular. So, beware – there is always a calm before the storm!

 

If you want more information please feel free to contact us via email [email protected]

Update Fintech Belgium Summit 2017

| 29-12-2017 | François de Witte |

On 14/12/2017, Fintech Belgium organized the 2nd Fintech Belgium Summit, a one-day conference to discover the deep innovation, technological and societal impact FinTechs have on our world.  There were over 500 participants, and this was a good opportunity to meet all the stakeholders in the Belgian Fintech ecosystem.

Main messages gathered from the workshops

The first stream has been focusing on the regulatory side. PSD2 and GDPR will have in 2018 a high impact on the market. There has been a request to better harmonize the legislation in this areas. Even in the PSD2 domain, the latest version of the RTS on SCA and Secure Communication still contains some blind spots. Another recommendation is that the authorities would set up a competence center to assist the FinTechs in the myriad of the regulatory framework.

The 2nd stream has been focusing on the innovation impact: How has the financial industry reacted to innovation? Make, Buy, Join or Break…. One of the main issues encountered by the banks is that the profiles of their people are not adapted to the innovation, and hence large HR and educational efforts will be required. Banks will have to adopt flat and member centric organizations to become more agile and data driven.

The testimony of Resolut clearly demonstrated the power of new entrants in the arena, enabling companies to drastically reduce the cost to access banks. However, some banks start also interesting initiatives in this area, with forefront runners such as BBVA, Nordea, Deutsche Bank, Hello Bank, ING (ylot) and Fidor.

In the afternoon, there was an interesting workshop on open banking with BNP Paribas Fortis, Baker McKenzie and Ibanity focusing on the new ecosystem, where some banks will position themselves as API Producers, focusing on their unique value propositions, whilst some others will position themselves as API consumers, offering aggregated services and acting as “matchmakers”. Marc Lainez, CEO of Ibanity, mentioned that FinTechs are not a threat to banks. The real competition for the banks are the GAFA. Hence  Banks and Fintechs need need to work hand in hand together to develop new solutions.

The conference finished with a stream dedicated to the technological impact. Blockchain and cryptocurrencies were high on the agenda. There was a clear consensus that Blockchain technology will be leading, also for Regulators. A lot of use cases were mentioned, e.g. in the area of trade finance and the document handling. Regulation will be key to further increase the adoption of this new technology. On the ICO (Initial Coin Offering) the opinions were more mixed, as there are quite some challenges to overcome, such as the setup of supervisory controlling institutions and the volatility of the cryptocurrencies.

Conclusion

This conference was a good forum to get an insight in the Belgian FinTech market. I saw a lot of interesting initiatives, and am a strongly believer of the increased cooperation between banks and FinTechs, the so-called Fin-Integration. 2018 will be challenging for all of them.

François de Witte – Founder & Senior Consultant at FDW Consult and Senior Expert – Product, Business development and sales manager at Isabel Group

 

[button url=”https://www.treasuryxl.com/community/experts/francois-de-witte/” text=”View expert profile” size=”small” type=”primary” icon=”” external=”1″]

[separator type=”” size=”” icon=””]

2018 new regulations – collaboration between corporate treasury and internal departments

| 27-12-2017 | treasuryXL |

Collaboration

2018 is looking to be one of the busiest years for new regulations. Among the new regulations will be MIFID II – which will have an affect on many different aspects of trading; PSD2 – which will allow agreed third parties to access your bank accounts; GDPR – which defines our rights to have our personal data deleted and how personal data is stored; BEPS – which aims to reduce the movement of profits to more tax efficient locations and will affect internal reporting; IFRS9 – which brings new rules for hedge accounting. All these new regulations will require collaboration between many departments – not just treasury.

Information and Knowledge

To be able to work together, and improve existing efforts at collaboration, there must be a free flow of information and knowledge to all stakeholders. This will entail storing all relevant data in a centralized point with access for all stakeholders, whilst meeting the security requirements as to who can view, edit and contribute the information. By sharing the information, a mutual respect of the needs for each department can be better appreciated and existing inter-departmental walls can be torn down.

Define tasks and workflow

In any project environment managing the workflow and monitoring all the requests can be labour intensive and time consuming. Requests need to be managed with a clear structure and be transparent to all participants. Tasks need to be assigned and workflow needs to be consistent allowing everyone to see the status of all work activities. This should increase efficiency with the group and allow for a good quality control, ensuring that all work complies to the regulations.

Risk awareness

Whilst one department might own the project, assessing potential risks should be actively promoted within all departments. Allowing participants to identify risks and announce these should be encouraged. Sometimes, a solution can from another department – perhaps they had encountered a similar problem in another project. If a risk is detected, sharing it with others can lead to a quicker solution.

Feedback

By reporting constantly on the progress within the project to everyone, it allows others to follow its progress whilst also enforcing on them a need to also supply constant updates. When all information is held at one point and only distributed in a collated form once every so often, collaboration can quickly slow down as it becomes unclear to everyone what the value of their contribution is to the group. By publishing data regularly and assigning permission levels and access rights to everyone, they are also able to retrieve information when they need it – leading to a greater feeling of being a part of the project.

Recognition

Realise and acknowledge the contribution of all participants – both as departments and individuals. Try to learn from mistakes and understand that your needs as a treasury department are not always clearly understood or known within the rest of the organisation. Explain the benefits that can be achieved – less time spent on time consuming issues, clarity of data, better reporting and compliance standards, monetary savings etc.

Implementing new regulations via technology can lead to greatly increased collaboration between internal departments. This can include more intensive daily contact, better ability to identify risks, taking decisions that increase efficiencies for the company, and fostering a more open and healthy relationship with colleagues outside your own department. Successful projects can empower people to seek solutions that deliver positive change.

True collaboration will enable you to achieve results, accelerate delivery, create value and add strength. So, whilst 2018 is a challenge with all the new regulations, the potential results via collaboration can be seen.

If you are interested in learning more, please contact us via email at [email protected]

2018 – the black swan could be China

| 21-12-2017 | Rob Beemster |

 

Chinese gross domestic product (GDP) is forecasted to end 2017 at around $12 trillion, while the total debt to GDP is about 400%. The economic growth has been impressive as well is its nominal (but also relative) rise of the total debt.

The Chinese economy has grown from the start of its GATT membership in 1995 from around $750 bio to $12trl now. However, total credit grew much more, from around 100% of GDP in 2000 to more than 400% of GDP now.

 

Credit growth is still surging. This is one reason why the Chinese want their economy to expand at a speed of more than 10%. They need to hold this pattern for some years to come. When the Chinese government is able to put a brake on the growth of credit, GDP is allowed to decrease speed. We see comments from those in power about their wish to slow credit growth. But doing this is like changing the course of a tanker in a canal. In other words.

If Chinese GDP growth would decrease, and credit growth continues to surge, then a big disaster is to happen. The huge mountains of debt have to be financed, when this gets tougher, one can imagine that it will result in a Chinese economic slowdown.

If the credit bubble bursts, it will result in a devaluation of the yuan. This will have effect on the whole world economy. During the Asian crisis in 1997, China was a tiny economy, now it is huge. So not only mature economies like the ones of America and Europe will feel the pain but the surrounding countries and Africa will suffer heavily.

The outcome for the dollar overall, is fairly vague to me. Some economists see a Chinese devaluation as highly deflationary for the global economy and therefor a dollar bullish event. I have got doubts to the last part of that view. China has got an enormous stock of dollar bonds. It would not surprise me if they start selling these during an economic crisis.

If you are a corporation trading with China, 2018 might become an exciting year.  As said, my story is about a black swan so most probably this doom story will not happen. And I hope it will not. But:  hedging your currency flow is highly recommended. Even when you pay your producer in dollars or your Chinese client pays you in dollars, your risk is the CHINESE YUAN.  It is NOT a dollar risk. The same must be said if you transmit your goods with Euro.

Creating a decent yuan hedge will be very important. Again, it is not a dollar or euro risk. When the yuan devaluates, the costs have to be paid somewhere. Don’t let it be you!

Barcelona valuta experts can attend you in creating a decent risk process, so your cash flow will be protected.

 

Rob Beemster

Owner of Barcelona valuta experts BV

 

Bitcoin mania: what is it not?

| 20-12-2017 | Carlo de Meijer |

During our stay in South Africa I was reading an article in Die Burger (newspaper for Afrikaners) where a spokesman of Cape town-based PWC gave his ideas on the recent rise of Bitcoin and the future of Blokketting (Afrikaans for Blockchain). This inspired me to write this blog. Since I started writing about blockchain I categorically refused to use the term Bitcoin. But this time it is different. As Bitcoin nears the end of a record-breaking year, it seems an appropriate time to dive into this – by many traditional players said – over-hyped thing. Others describe this fascination for Bitcoins as a “speculative mania”. The broader public has discovered this phenomenon. I will not say it is (already) the end of the rise in Bitcoins or other crypto currencies. But let me be clear: Bitcoin is a lot not!

Bitcoin rate explodes

Since April this year the Bitcoin (but also crypto currencies like Ether and Bitcoin Cash) is showing a continuous rising trend and in the past few months it even exploded to unexpected levels. In one month time the rate of the Bitcoin almost doubled. In the meantime the Bitcoin rate increased further to reach almost 20.000 dollar, before falling back to 16.000 dollar. But now it is back at  19.000 dollar. At the beginning of this year the Bitcoin rate was not even 1000 dollar. The total market capitalisation of Bitcoin is now exceeding that of a company like Boeing and that of New Zeeland’s GDP.

Bitcoins traded on futures market

The recent firm rate rise of the Bitcoin has much to do with the launch of Bitcoin future contracts. Before that Bitcoins could only be sold or bought via internet platforms. Last week the trade of future contracts in Bitcoin started on the Chicago Options Exchange ( CBOE). These futures enable speculators (without having Bitcoins) to buy or sell Bitcoins by betting  via the leverage instrument on future increases of the Bitcoin or an eventual decrease thereby hedging against fluctuations. In total 500 contracts were traded on the first trading session. The rate of Bitcoins increased nearly 2.000 dollar to 18.700 dollar. On the American market place Coinbase the Bitcoin even reached 20.000 dollar, after having raised 40% in the two previous days. This indicates that investors do not (yet) expect a crash short term.

In the meantime also the Chicago CME, the world’s largest exchange,  started trading Bitcoin futures and the Nasdaq is also in the race to enable the trade in these future contracts. Many professional investors however did not yet enter this market because the difference between bid and offer rates is still much too large. This indicates there is too less liquidity in this market. There is also insufficient clarity of the required margins, trade limits, stress tests and clearing.

What is Bitcoin not?

Read the full article of our expert Carlo de Meijer on Finextra

 

Carlo de Meijer

Economist and researcher