Need Another Mediator Between the Market and the Trader?
Author: Vasily Alexeev, Serenity CTO
One of the most notable projects in the Internet trading sector with a daily turnover of USD 5 trillion – Serenity ICO – kicked off its main ICO round.
Speaking about this notable event with a revolutionary idea, big team, an event which is supported by many brokerage companies and financial industry experts, we should first understand how the retail forex market works.
A market with a daily turnover of trillions of dollars
The forex market is an over-the-counter exchange market. This market has no specific center where the offer and demand are formed. In fact, its existence is due to the need for international exporters and importers to pay for their supplies, goods, and services in a particular currency. Such activities are carried out by major international banks. With the change of time zones, some banks start working while others are closed. Therefore, the process of currency exchange does not stop on business days. Operations are interrupted only on weekends and holidays. To date, Forex is the world’s largest financial market, far exceeding in volume the stock, bond, oil, gold and any other asset markets.
The fact is that the main purpose of Forex is to ensure the operation of international trade. There is no absolutely self-sufficient national economy in the world; each country, represented by both private and public companies, imports and exports various goods and services. For example, France buys oil from Nigeria for dollars, Nigeria acquires technology from Germany for euros, Germany buys coffee from Brazil for dollars, and Brazil, in turn, buys machines from Japan for yens: millions of economic agents around the world need foreign currency to pay for supplies from abroad. The global flows of goods and services generates demand for foreign currency and, as a result, its offer. As a rule, companies acquire foreign currency from banks, and the latter, in turn, buy and sell on Forex independently or through larger banks, accumulating the demands of their customers. Thus, foreign currency is generally acquired for any own, non-speculative purposes. In addition to large private banks, Forex involves Central Banks of States that buy large amounts of foreign currencies to replenish their own reserves, or to sell it (making currency interventions) to maintain the exchange rate of their national currency. Only a small amount of market is formed by currency speculators: these are traders who buy and sell with the aim of making money on the changes in market prices.
Why an ordinary trader cannot directly trade in a market
Most of the trading operations in the foreign exchange market are carried out by large banks, multinational corporations, and investment funds. They are called market makers who provide liquidity of this market by their huge capitals. The amount of single operations between them are hundreds of millions of US dollars, whereas the volume of market makers’ operations with their customers range from several thousand to millions of US dollars. However, with the development of the Internet and the emergence of leverages, anyone can trade in the Forex market, without the need to have such huge funds.
Brokerage companies are the main providers of trading services both for retail and corporate clients. Large brokerage companies, specializing in servicing smaller brokers, are called liquidity providers. The goal of their activities is to insure major risks and to bring transactions directly to banks, i.e. the market as such. They have appeared because it is virtually impossible for a small broker to open a trading account with a large bank. The businesses of retail brokers are relatively small, whereas the minimum size of transactions and requirements for deposits at the interbank level are too high. Therefore, liquidity providers offer such brokers acceptable transaction sizes, reduce the minimum deposit threshold, and aggregate the trading of small brokers.
Private traders are the most vulnerable link in the financial market
Brokerage companies can trade as simple agents which instantly bring their clients’ transactions to liquidity providers. Also, there are companies that do not bring transactions to the latter and assume the risk of change in market prices. In fact, the both business models have the right to exist and are officially authorized. However, if a broker becomes a counterparty to a transaction without bringing it to the market, he gets profit when the client loses. In this case, there is a conflict of interests between the trader and the broker.
The broker who is interested in his client’s loss, tries, willingly or unwillingly, to guide the trader’s actions so that his transactions are unsuccessful, and the client’s deposit, partially or fully, becomes the property of the broker. Brokers use various tricks, manipulate currency quotations, make contracts in such a way that they could refuse to pay the revenue on any formal grounds. Such manipulations are prohibited by law and by industry standards in developed countries.
However, there are problems that cannot be solved by any, even the most perfect state regulation. Brokers submit reports, undertake to play fair: they are obliged to do this by law. Nevertheless, the regulation of brokerage activities cannot completely protect the traders. First of all, because the broker’s activity still remains non-transparent. Regulators can react only post-factum or when the non-compliance problems become too obvious, or when a stubborn trader passes a dozen of instances, and his dispute is considered by a financial ombudsman, or else a broker declares his bankruptcy. All this requires incredible steadfastness, perseverance and the trader’s will to prove his case, without any guarantee for the trader to get back his money.
And now let’s imagine that about 80% of all retail brokerages around the world are not regulated in any way. These are brokerage companies registered in offshore territories. According to different estimates, up to 5–5.6 thousand brokers operate in offshore jurisdictions. Surely, they include a large number of fair companies.
Such brokers are in demand, because they offer very competitive terms and conditions. These are young companies that are more mobile, innovative and, therefore, much more flexible in their pricing policy. Their services are very popular among tens of millions of traders. But, due to the fact that such brokers are registered in unregulated jurisdictions, these traders are practically not protected. If a trader has at least some chances to get justice in regulated jurisdictions, with an offshore company, he can only rely on the good will and honesty of its owners.
What can Serenity offer in response?
Serenity is building a platform that will unite all willing brokers under its aegis. At the same time, this platform uses the blockchain technology. Through Smart Contacts, the broker will not be able to manipulate the quotations, to withhold the revenue from a trader, to use any other illegal tricks. Serenity is creating a unique KYC center to protect the system from unfair players. In addition, when considering disputes, Serenity will act as a mediator, and the decisions made on such disputes will be binding for all its stakeholders.
Honest brokerage companies will benefit from operating on the Serenity platform, as it will contribute to the growth of their client base. Serenity will be able to provide liquidity to its participants at a competitive price which, in combination with other advantages, will help reduce the brokers’ costs of doing business. The platform will also offer reliable liquidity for crypto-currencies and will allow brokers’ clients to replenish their trading accounts in crypto-currencies. That is, crypto investors will be able to hedge risks associated with the Bitcoin volatility, making transactions with conventional financial instruments.
Summing up, it is safe to say that Serenity will offer the financial market an unprecedented protection against fraud, whereas the ICO of the Serenity project is a significant event in the financial market.
Serenity is the first escrow platform for financial markets that protects investors’ funds from fraud and trading interferences by using smart contracts.
· The ICO is held in one stage, from 25 January to 7 March.
· The company plans to raise up to $19 million to develop the platform.
· The nominal price of a token is 0.0001 ETH. The price during the crowdsale will range from 0.00006 ETH to 0.00009 ETH.
· Stock ticker SRNT.
· SRNT token has been listed by the largest Russian exchange, Yobit. Talks with several more exchanges are currently underway.
The project has been supported by major brokers from the Forex and binary option industries, including IQoption, Liteforex, NordFX, as well as Alexey Kutsenko (Founder of Tools for Brokers), Yagub Rahimov (adviser of the ICO project nagaico.com and founder of AtoZForex), and many others.
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