The International Monetary Fund is one of the most important market movers out there. Its actions have caused turmoil on the markets in recent years, and since its inception. Few traders understand the importance of the institution, however, and fewer still are able to predict its effects on the world markets.
This guide takes a look at the IMF from the basics of what it is and how it works to more complicated descriptions of how it pushes world markets and why traders should be keeping an eye on it.

What is the IMF?
The IMF was set up by the Bretton Woods agreement as part of the system of weights and governance that kept semi-fixed exchange rates in place across the world. It’s goal was then, and is still, international monetary cooperation.

The institution has several principles that are pillars in its vision of a globalized free trade system. It wants to minimize trade imbalances and create currencies that float freely with maximum stability, an approach designed to maximize trade between all countries. It is one of the three most important multinational economic institutions, alongside the World Bank and the World Trade Organization.

How does it work?
The IMF is an organization of 188 countries, each giving its share of funds to the organization. Operating like a company, the funds also determine the amount of votes each country has. That means that the United States, which has the most votes, has close to three times the voting power of the second biggest contributor Japan.

Policy is decided by the Board of Governors, a body made up of two representatives from each country, a governor and an alternate. These are usually the highest profile financial controllers from the respective countries. For example, the United Kingdom’s representative is the Chancellor George Osborne. His alternate is the Governor of the Bank of England Mark Carney.

The Board of Governors delegates day to day operations to the Executive Board of 24 members. 8 of these members: the USA, Japan, Germany, France, the UK, China, Russia and Saudi Arabia get their own representative. The other 16 spots represent constituencies of between 4 and 22 countries each.

The IMF board elects a Managing director, currently Christine Lagarde.

Why does it affect my investment?
There’s three basic ways that the IMF works on the financial markets, the first is through information and analysis releases, the second through its existence as a lender of last resort, and the third in its actual dealings with countries. We’ll deal with each of these issues separately here, though they’re often intertwined.

Information and analysis

The International Monetary Fund is constantly releasing information about the basic state of the world economy, from simple data collection to forward looking analyses of global and regional trends. This is some of the most highly regarded economic data and analysis on the planet, and it has been known to move markets.

Example of important, market-moving reports include the organization’s World Economic Outlook, anything it releases on a country in an IMF program, and its case studies on economic performance and reforms.

Lender of last resort

The IMF acts as a lender of last resort for the lenders of last resort. This is a passive effect of the organization. Its impact is priced into the market, and it’s generally clear that countries have options other than outright default when they run into financial trouble.

This may not effect the market directly, but it has a logically compressing impact on bond yields around the world. Recent action in Europe has strengthened this part of the IMF’s reputation. This effect is implicit, meaning it will only move markets if it is questioned, or confidence in its ability to achieve this end falls.

IMF loans

When a country hits rock bottom and it can no longer afford the interest rates the markets levy, it heads to the IMF for a dig-out. Conditions are usually attached to these loans, and are sometimes controversial. As can be seen from several events in recent years, markets stand up and react when the IMF steps in.

This has been most apparent in Europe in recent years. IMF intervention in countries like Greece and Ireland forced changes in government policy, and completely revolutionized the way European bonds were treated by the world market.

This is the most dramatic way in which the IMF has an effect on markets, but it is not as uncommon as might be believed. Loans from the IMF have increased in recent decades, and dozens of countries are currently in some kind of IMF program.

Market Place

MKTPlace is a leading digital and social media platform for traders and investors. MKTPlace offers premiere resources for trading and investing education, digital resources for personal finance, news about IoT, AI, Blockchain, Business, market analysis and education resources and guides.

The Financial Conduct Authority of the UK has released a clarification on the nature of copy-trading services like eToro and the kind of permissions that platforms will need in order to carry out the practice in the country.

Copy trading is a relatively new type of investment that allows investors to release their trades publicly and have other traders follow them in their decisions. Online social trading platforms are driving the possibilities, and they’re becoming a big enough problem that financial regulators are .

The basic definition at the heart of the statement from the FCA is the following: If the brokerage asks permission before every copied trade it’s not managing the portfolio. If it executes the trades automatically it is involved in portfolio management and will need a license that allows it to do so legally.

In its own words it is portfolio management in a case where“managing portfolios in accordance with mandates given by clients on a discretionary client-by-client basis where such portfolios include one or more financial instruments.”

Regulators move in
The increased popularity of copy-trading is making it impossible for investors to avoid regulating the area, though there seems to be little protest from inside the industry to the current level of regulation. It’s clear that the area is becoming important enough to pay attention to, though it’s not being regarded as a major concern.

A relatively light touch procedure is certainly being followed, but increased regulation may still bring massively increased costs. This week’s announcement could cause an increase in wages and legal fees for some copy trading platforms, and the effects of regulatory action in the UK will inform the debate on similar moves on the line in the United States.

As with so many Internet-borne financial innovations, most traders are waiting to see what the establishment thinks before getting in on the action. With stories of fraud and bad returns strangling much of the media coverage of breakout Fintech, it’s not surprising.
Big returns are there for some people, and there will always be stories of the major victors in the papers. Copy trading should only be added to a portfolio if the risks are understood, and you have a good idea of the process from start to front.

Copy trading gains prominence

With an increase in lower cost trading platforms, copy trading is becoming a real force in retail investment. Though people have always tried to follow the likes of Warren Buffett into big moves, today’s atmosphere is decidedly different from that old-school style.

Nowadays using platforms like eToro you can follow somebody without a news presence and attempt to get exposure to their good decision making. The point of the regulator’s clarification is that this sometimes constitutes portfolio management by the investment services offering it.

Regulators have essentially decided that if the client needs to approve each trade there is no need for the platform to follow portfolio management regulations. If, however, the trades are executed automatically in line with the investor’s follows, that is seen as portfolio management and extra rules have to be followed in order to make it legal.

Shock risks loom big

Famed experts on copy trading sites, like Chris Fahrner a 25-year-old German currency trader, aren’t immune to the problems of the wider market, meaning that shocks, like that in Switzerland last week can cause huge slumps.

Fahrner is one of the stars of eToro who, at his peak, had more than 5,000 people copying his every trade. His total gain across the last year is close to 300%, but in the last three months he’s lost 10% of his portfolio value and copiers keep deserting him. In the last month he’s dropped 15% of his value.

Copy-trading is investing in a single person and, though you may be able to pick the wheat from the chaff, one irrational decision can ruin an investor and wipe out your portfolio at the same time. Shock macro situations, like the Swiss Central Bank’s decision last week can be similarly destructive.

Some are still betting that copy trading will remain a niche method of investing, but the sites involved continue to grow. eToro says that growth in 2014 was four times levels in the previous year, a striking statistic.

Regulators also seem interested in letting the industry breath for the time being, so copy trading, and other forms of network driven social investment, will likely form the backbone of a major trend in changing investment in 2015.

Market Place

MKTPlace is a leading digital and social media platform for traders and investors. MKTPlace offers premiere resources for trading and investing education, digital resources for personal finance, news about IoT, AI, Blockchain, Business, market analysis and education resources and guides.

Due to the rise in popularity of the Bitcoin, it has attracted the attention and interest of various law enforcement, tax and legal authorities. Each agency and authoritative body is in search for answers to solving the biggest mystery of all, and that is how Bitcoin fits inside current economic and financial frameworks.

Bitcoin has now become a controversial subject for regulators and tax authorities, both of which have excessively targeted the utilization of cryptocurrency and how it should be used. However, it is also true the proper authorities need a bit more time and are still way early in this game, which is exactly why most of the authorities are struggling to get a grasp of this popular digital currency. This is also why they cannot make any permanent laws for it.

On the other hand, amidst this controversy, there is a questions often posed by many people, and that is, is Bitcoin a legal investment? The answer quite simply is yes, it is, but that also depends on how you use it. Given below is a guide explaining who regulates Bitcoin:

So, Who Regulates Bitcoin?

It is important to understand that the laws and regulatory actions against Bitcoin in order to supervise it will differ from nation to nation. In the US, you can expect intervention from financial regulators that have taken active interest in Bitcoin along with several other cryptocurrencies. These regulators also work with regional regulators at sub-country levels. Here are some of the regulatory bodies which supervise Bitcoin activities:

FinCEN

FinCEN stands for the Financial Crimes Enforcement Network which is a regulatory agency in the US Treasury Department. It is the FinCEN that took the initiative to investigate Bitcoin trading in the US. The FinCEN also published various tips and guides pertaining to the utilization of cryptocurrencies.

In the guidelines published by the agency on March 18, 2013, they explained the situations and conditions under which digital currency investors and traders could be classified as money service organizations and businesses which are usually known as Money Transmitting Businesses (MTBs). It is mandatory for MTBs to put Anti-Money Laundering (AML) as well as Know Your Client (KYC) policies into immediate effect. It requires businesses to first engage in measures that can identify the customers these businesses are dealing with.

The CFTC

CFTC stands for Commodity Futures Trading Commission and is US based. Its primary objectives are to keep a keen eye on all financial derivatives. However, the CFTC is yet to announce any regulations, but it has made it abundantly clear it can announce a regulation if and when it wants to.

SEC

The US Securities and Exchange Commission (SEC) like the FinCEN and the CTFC, is yet to announce any regulations on digital currencies. However, the SEC’s Office of Investor Education and Advocacy posted an investor warning to alert people about investments which are conducted through fraudulent schemes designed to rob people of their money or in this case, Bitcoins. More specifically it warned people about Ponzi plans and plots after the SEC arrested Trendon T. Shavers, also known as Pirateat40, who was the owner of a Bitcoin savings company that generated over 700,000 Bitcoins by falsely claiming that it would pay investor 7% interest on a weekly basis.

Legislative Branch

The SEC has enforced the legislative branch of the US government to take into account Bitcoin’s overall legal standing. Shavers, in his defence argued that because Bitcoin is not the same as money, he can’t be tried and convicted. The judge, Amos Mazzant, begged to differ and issued a memorandum proving Bitcoin can indeed be used like money.

In August last year, the US Senate published letters to various law enforcement agencies and bodies getting inquisitive about the real dangers and risks of trading and using digital currency. One letter was also sent to the Department of Homeland Security. In the letter, the Senate complained about the lack of any paper evidence or trails that the other regulators and enforcement agencies could use to track cryptocurrencies.

It ultimately requested the Department of Homeland Security to approve policies which could guide them and tell them how they should treat digital currencies and also inquired about any information pertaining to ongoing strategic policies in the region.

In November, 2013, the Department of Homeland Security, along with various other regulative bodies, replied in kind to the Senate’s inquisitions. The Department of Homeland Security was most concerned about the various criminal threats rising due to the illegitimate use of Bitcoins, while both the Department of Justice and the Federal Reserve approved the legal aspects of the currency.

The SEC argued the interests allowed by virtual currency vendors as well as for those who provide returns on the grounds of being a virtual currency falls under the SEC’s remit.

Exchanges

FinCEN recognized exchanges as MTB and for virtual currency platforms and exchanges it explained any person who is a cryptocurrency exchanger or money transmitter will be deemed as an ‘exchanger’ if that person accepts decentralized digital currencies from one individual and gives to another individual as a part of a process which involves the use of cryptocurrency, funds and any other item of value which can be substituted for any currency.

What Can This Mean For You?

All in all, there is nothing to be overly concerned about because, as mentioned above, the legality of any cryptocurrency, may it be Bitcoin or Dogecoin, depends on how you make it and use the currency.

Market Place

MKTPlace is a leading digital and social media platform for traders and investors. MKTPlace offers premiere resources for trading and investing education, digital resources for personal finance, news about IoT, AI, Blockchain, Business, market analysis and education resources and guides.