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Friday, 16 January 2015 00:00

Currency Brokers Fighting Insolvency Are Learning the Value of Our Blockchain Technologies - the Hard Way Featured

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I have been in discussion with one of the world's largest banks, a US domiciled bank, with over 200 million customers and clients worldwide. After my second meeting with the American FX group, I was referred to one of their biggest clients as it was understood that there were significant synergies to be had between their global operations and our UltraCoin ecosystem which allows counterparty and credit risk free value trades. This particular aspect of our product was, as fate would have it, not only extremely pertinent to the topic at hand but arrived just a few days too late. I was scheduled to meet with one of the original founders of this FX brokerage firm yesterday, but earlier that morning the Swiss National Bank decided to remove thier much publicized and promised floor from their Swiss francs from the euro. Carnage ensued, as I promised that it would.

Of course, this guy was much too busy to meet with me. His firm is now all over the news (there are several firms that could fit the bill, but I will not mention the firm to keep it anonymous nonetheless) as nearly all of the specialist currency brokerages face insolvency issues - the very thing that UltraCoin was designed to prevent! Yesterday Bloomberg reported Casualties From Swiss Shock Spread From New York to New Zealand and today we find members of this group have lost up 90% of thier share price, as per Business Insider: Foreign Exchange Brokers Are Going Bankrupt In The Swiss Franc's Surge

UK FX broker

The recent move on the Swiss franc caused by the Swiss National Bank’s unexpected policy reversal of capping the Swiss franc against the euro has resulted in exceptional volatility and extreme lack of liquidity. This has resulted in the majority of clients sustaining losses which has exceeded their account equity. Where a client cannot cover this loss, it is passed on to us. This has forced Alpari (UK) Limited to confirm today, 16/01/15, that it has entered into insolvency. 

That follows New Zealand's Excel Markets, which made the same statement earlier, according to the Financial Times.

Brokers can go out of business on big moves like this because they give their clients access to leverage. For example, an account holder might have $1,000 with the broker, but hold positions worth $10,000 in currency markets. That doesn't matter so long as the holder's losses are covered by the initial amount. But on Wednesday, for at least two brokers, that wasn't the case for a lot of those clients.

Our solution for these brokerages is to give the leveraged return of $10k but to have contract unwind when his principal and collateral are exhausted. There are NEVER negative equity situations.

New York-based FXCM, one of the world's biggest foreign exchange brokers, says that it may be in breach of rules on capital requirements and that it is owed $225 million by clients who are now in negative equity. FXCM shares are down by an astonishing 90% ahead of the US open. 

IG Group, a publicly listed UK-based broker said yesterday that its losses would not exceed £30 million ($45.7 million)...

swiss franc 2http://static3.businessinsider.com/assets/images/back_gradient_20x40.png?1421356676) repeat-x;">Investing.com, Business Insider

As of 11:30 a.m. GMT (6:30 a.m. ET) the franc is currently looking more settled, down 3.9% at 1.016 against the euro.

Veritaseum's UltraCoin was designed specifically to avoid solvency issues by:

  1. Forcing all participants to prefund their accounts with full principal and optionally additional collateral (margin);
  2. Forcing all participants lever up (via actual loans) outside of the system, leaving the system sacrosanct;
  3. Enabling implied leverage by gearing the returns upon mutual consent of the parties, or using levered securities as price fees (ex. Proshares Ultra);
  4. and most importantly, replacing all counterparies in the trade with the blockchain, which essentially removes all counterparty and credit risk.  

This is what a sample contract looks like before being submitted to trade:

Allianz short and long Franc

I'm thoroughly convinced that this is the trading model for, and of, the future and this week's carnage should go a long way in convincing banks, brokerages and regulators to agree with me. Insolvency can be one hell of a motivator.

Even those who aren't facing insolvency issues still have to deal with the structural decline in big bank profitabilty. I have answers for that as well, right fellas?

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Read 6254 times Last modified on Friday, 16 January 2015 11:33

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