Virtual currency law in the United States

The regulatory and market environment[edit]

The Internal Revenue Service (I.R.S) describes Virtual Currencies (VC)s as “a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value [and] does not have legal tender status in any jurisdiction.” [1] Although, electronic payment systems have been part of American life since at least 1871 when Western Union “introduced money transfer” through the telegraph[2] and in 1914 “introduced the first consumer charge-card," virtual currencies differ from these digital payment structures because unlike traditional digital transfers of value, virtual currencies do not represent a claim on value; rather the virtual currency are the value.

The National Automated Clearing House Association (NACHA), through the Automated Clearing House (ACH) “moves almost $39 trillion and 22 billion electronic financial transactions each year.[3] These electronic transfers of money through the ACH Network represent a claim to physical legal tender. Alternatively, “unlike electronic money, a VC, particularly in its decentralised variant, does not represent a claim on the issuer.”[4] Electronic payment networks, such as the ACH, have decreased the costs and time required to transfer value and increased reliability and transparency. However, traditional electronic payment networks, even with transnational networks and satellite communications, differ from a virtual currency. For example, the Bitcoin exchange Coinbase charges only 1% on all Bitcoin exchanges to legal tender.[5] Compare this to “2%-4% for traditional online payment systems, like PayPal and credit card companies,[6] or a global average of 7.49% for remittance sent through major remittance corridors.[7] The lower costs of transferring value is a great incentive to both users and merchants. Faster transaction speed is also an advantage of using VC.[4] VC may also help to reduce identity theft because of the cryptographic nature of some of the currencies.[8]

Some experts predict various types of VCs will continue to increase, and the demand for the financial system to adopt methods of accepting these currencies will continue to grow. In 2011, Simon Edwards, the Director of Corporate Affairs at Microsoft, sent a letter to the Reserve Bank of Australia asking, “whether the domestic payments infrastructure could be modified or adjusted in some way to facilitate and manage the exchange of value beyond traditional currencies.”[9] The online sale of goods and services in the United States accounted for an annual total of $283,009,000,000 transactions from the start of 3rd quarter 2013 to the end of 2nd quarter 2014 (adjusted for seasonal variation).[10] VCs are increasing as a percentage of these transactions. The Bitcoin exchange company Coinbase offers a payment service that allows merchants to receive Bitcoin and then automatically exchange the Bitcoin into fiat currency.[11] The speed of this exchange helps merchants to avoid the volatility of Bitcoin. In September 2014, Ebay announced that its payment processor Braintree will be accepting Bitcoin.[12] As of November 2014, the market capitalization of Bitcoin is just below five billion U.S. dollars, but has reached historic highs close to fourteen billion dollars.[13] The growth of Internet use and the virtual world is also increasing. World Internet use increased from 15.8% in 2005 to 38.1% in 2013.[14]

This Internet growth is characterized by a consumer demand for a decentralized Internet experience that is not limited or dependent on traditional institutions and governments. This movement aims to create an Internet based on the idea of Virtual, Distributed Parallel (VDP) States, “acting as a kind of organizational counterpoint to that State’s governing bodies.”[15] Crypto-currency and other virtual currencies are the VDP movements’ currency alternative to traditional currency and traditional financial institutions.

Monetary policy[edit]

The current amount of VC use in the global market is unlikely to significantly affect the Federal Reserve’s ability to conduct monetary policy; however, if the size of the VC market were to grow larger it may affect monetary policy.[16] Even with the impact VC could have on monetary policy, the Reserve does not have the authority to supervise or regulate VC.[17] According to May 9, 2014 meeting of the Federal Advisory Council and Board of Governors of the Federal Reserve, the VC “Bitcoin does not present a threat to economic activity by disrupting traditional channels of commerce; rather, it could serve as a boon. Its global transmissibility opens new markets to merchants and service providers” and “capital flows from the developed to the developing world should increase.”[18] In the Treasury Department’s 2009 Report to Congress on International Economic and Exchange Rate Policies, the Treasury claimed that the dollar will continue to be a major reserve currency “as long as the United States maintains sound macroeconomic policies and deep, liquid, and open financial markets.”[19]

According to the former Chief Technology Officer for the Central Intelligence Agency, Gus Hunt, the “Government's going to learn from Bitcoin, and all the official government currencies are going to become crypto currencies themselves.”[20] Under 12 U.S. Code § 411, the Federal Reserve has the authority to issue Federal Reserve notes,[21] and under 12 U.S.C.A. § 418, the Treasury Department “in order to furnish suitable notes for circulation . . . shall cause plates and dies to be engraved” and print numbered quantities.[22] The Secretary of the Treasury has the authority to “mint and issue coins.”[23] However, it is uncertain if this authority includes the authority to “mint” electronic coins for a government-backed crypto-currency protocol. According to David Adolfatto, Senior Vice President, Director of Research, Federal Reserve Bank of St. Louis, “the most important aspect of this technology revolution is, in my view, the threat of entry into the money and payment system and what I think it will do is to force traditional institutions, including central banks, to either adapt or die.”[24]

Tax regulations[edit]

The IRS treats VC as property and requires for gains or losses upon an exchange of VC to be calculated.[1] This means that every VC user must track the gains or losses of every one of their VC transactions to stay in compliance with IRS regulations.[25] Tax Foundation, a tax policy research organization, claims that the IRS got it wrong by categorizing VC as property because the required record keeping creates compliance obstacles, and by categorizing VC as property, the IRS is ignoring how VC is used and treating it as something that people hold for an investment.[26] The pseudonymity of VC accounts allow users to hide funds and evade taxes.[27] Similar to receiving cash, merchants may not report the earnings to the IRS if the merchant believes the IRS will not be able to account for the transaction. The IRS may be able to audit a VC exchange the merchant uses, but if the merchant is using a personal VC account or using multiple exchanges the IRS may not be able to track these transactions.

Illegal activities with virtual currency[edit]

FinCEN regulations[edit]

In 2013, the Financial Crimes Enforcement Network (FinCEN) released a Guidance paper that stated exchanges and administrators of VC are subject to the Bank Secrecy Act (BSA) and must register as a Money Services Business (MSB).[28] The purpose of this legislation was to prevent financial exchanges from being used to launder money or finance crime, including terrorism.[29] The European Central Bank has also recommended registering exchanges to “reduce the incentive for terrorists, criminals and money launderers to make use of these virtual currency schemes for illegal purposes.”[30] In spite of the BSA applying to VC exchanges and administrators, VC is still used to finance crime and launder money because not every transaction in VC networks are required to comply with the BSA and not every online exchange complies with the BSA. In September 2014, Robert M. Faiella, a/k/a “BTCKing,” pleaded guilty to operating an unlicensed exchange that exchanged over a million in cash for Bitcoin, used for criminal enterprise and known as “Silk Road.”[31]In spite of the BSA regulations, Faiella and the users of his exchange, were able to hide their identity through both pseudonymous Bitcoin addresses and an anonymous network that hid their I.P. addresses.[32]

Money laundering[edit]

The culture of laundering money in the Bitcoin network is so prevalent there is even a website called bitlaunder.com. The company bitlaunder.com claims they are “experts at laundering Bitcoin” and they “use the most sophisticated methods available to completely anonymize your Bitcoins and obscure their history from forensic tracing.”[33] The Government Accountability Office reported that the pseudonymity in VCs makes it difficult for the government to detect money laundering and other financial crimes, and it may be necessary to rely on international cooperation to address these crimes.[34] Similarly, the European Banking Authority, claimed that regulations should strive for “global, coordination, otherwise it will be difficult to achieve a successful regulatory regime.”[4] In spite of the best regulations from the United States and the European Union, the inherent nature of the Bitcoin protocol allows for pseudonymous transfers of Bitcoins to or from anywhere in the world, so illegal transactions will not be completely eliminated through regulations. Anonymity in Bitcoins and Altcoins (forks from the Bitcoin protocol) can be increased by adding software augmentations to the VC. Zerocoin, for example, uses an algorithmic process called “zero-knowledge proof” to hide the value of the coins.[35] Dark Wallet anonymously combines transfers of VC to obscure the origin of the transfer, and the developers intend to integrate the software into a Tor network in the future. One of the developers of Dark Wallet described it as “just money laundering software.” He said, “I want a private means for black market transactions,” “whether they’re for non-prescribed medical inhalers, MDMA for drug enthusiasts, or weapons.”[36] A crypto-currency known as Darkcoin offers even more anonymity than Bitcoin. Similar to Dark Wallet, Darkcoin combines transactions to increase the difficulty of analyzing where the currency was sent. “Some users may be trading Bitcoins for Darkcoins and back again, using the Darkcoin network as a giant bitcoin-laundering service.”[37] Other forms of VC have also been used for making illegal transactions. The VC service and exchange Liberty Reserve allegedly laundered over 6 billions dollars from crimes such as “credit card fraud, identity theft, investment fraud, computer hacking, child pornography, and narcotics trafficking.”[38] E-gold, a company with a VC tied to the value of gold, pleaded guilty to money laundering and running an unlicensed money transmitting business, and consequently had to forfeit $45,816,817.84 to the government.[39]

Transactions on Tor[edit]

On November 2014, the FBI, “as part of an coordinated international law enforcement action,” seized dozens of “dark markets,” including Silk Road II operating on the anonymous Tor network. These markets accepted payment in Bitcoins or similar crypto-currencies, and operated both domestically and internationally.[40] Although the FBI was successful in cracking through the anonymous Tor network and discovering the origin of the illegal Bitcoin markets Silkroad I and II and similar illegal markets, the methods the FBI used may not be legal or available, in every case, under the Constitution’s prohibition against unreasonable searches and seizures. October 2014, the court decided the fate of the defendant regarding his role in the first Silkroad, but the court refused to decide whether his 4th amendment rights were violated because he never pleaded that he had a right to privacy in the server that was searched.[41] The Court claimed that the defendant did not plead a violation of his 4th amendment rights because either “he in fact has no personal privacy interest in the Icelandic server, or because he has made a tactical decision not to reveal that he does.”[41] Consequently, the Court claimed the defendant "therefore has no basis to challenge as violations of his Fourth Amendment rights: (1) the investigation that preceded and led to the Icelandic server, (2) the imaging and search of the Icelandic server, and (3) Warrant Nos. 1, 2, 3, 4, 5, and 7.”[41] This is significant because the Court did not decide if the techniques the FBI used to locate the defendant IP address violated the 4th Amendment. Operating behind the anonymous Tor network might give a subjective expectation of privacy, but this may not be reasonable expectation of privacy that would survive the Katz test[42] because the Tor software explicitly states “Tor can't solve all anonymity problems.”[43] Under Warshak, the defendant had a “reasonable expectation of privacy” in the content of his email; however, unlike an email, an IP address is generally visible to everyone on the Internet,[44] The FBI claimed they found the Silkroad’s IP address by “typing in miscellaneous entries into the username, password, and CAPTCHA fields contained in the interface” to find an IP address associated with an application misconfigured to the Tor network.[45]

Securities fraud[edit]

The Securities and Exchange Commission (Commission) treats securities crimes committed with Bitcoin and VCs as money, and it is likely that anti-gambling regulations will be enforced with the same reasoning. On July 2013, Trendon T. Shavers was charged by the Commission for “defrauding investors in a Ponzi scheme involving Bitcoin” that amounted to over 700,000 Bitcoin or “$4.5 million based on the average price of Bitcoin in 2011 and 2012 when the investments were offered and sold.”[46] Shavers implemented the scheme through Bitcoin Savings and Trust (BTCST), “an unincorporated online investment scheme” that was not registered with the Commission.[47] “The collective loss to BTCST investors who suffered net losses (there were also net winners) was 265,678 bitcoins, or more than $149 million at current exchange rates” from September 2014.[47] Shavers attempted to argue the investments were not securities because Bitcoin is not money. However, in a precedent determining decision, the magistrate judge determined that Bitcoin is money, and thus the investments were securities.[47] The magistrate judge stated, “[i]t is clear that Bitcoin can be used as money. It can be used to purchase goods or services, and as Shavers stated, used to pay for individual living expenses. The only limitation of Bitcoin is that it is limited to those places that accept it as currency. However, it can also be exchanged for conventional currencies, such as the U.S. dollar, Euro, Yen, and Yuan. Therefore, Bitcoin is a currency or form of money, and investors wishing to invest in BTCST provided an investment of money.”[47] This decision paved the way for other regulators to treat Bitcoin and VCs as money, so it is likely this decision will be cited if regulators decide to prosecute VC transactions under the UIGEA, Illegal Gambling Business Act, Wire Act, or any other regulation involving financial transactions.

Consumer warnings[edit]

On August 2014, the Consumer Financial Protection Bureau released a consumer advisory to warn consumers of the risk of VCs. The advisory warned consumers of hackers, scammers, loss of VCs by losing the private key, fewer regulations, and an inability to make chargebacks.[16] States have also released consumer advisories and warned users that VCs are not insured by the FDIC, highly volatile, often associated with criminal enterprises, new, and unproven technology.[48] David S. Cohen, the Under Secretary for Terrorism and Financial Intelligence at the Treasury Department, stated that VCs pose “clear risks to consumers and investors” because the “anonymity and transaction irrevocability [of VCs] expose[s] them to fraud and theft, [a]nd unlike FDIC insured banks and credit unions that guarantee the safety of deposits, there are no such safeguards provided to virtual wallets.”[49] The result of this weak regulatory environment makes VCs acceptable to price volatility, market manipulation, money laundering, fraud, and illegal transactions.[50] On August 11, 2014, the Consumer Financial Protection Bureau (CFPB) released a consumer advisory warning on VC and began accepting complaints on VC products and services.[16] Additionally, many U.S. states have released consumer warnings regarding virtual currencies.

Online gambling[edit]

The Federal legality of online gambling with Bitcoins in the United States has not yet been decided; however, the legality of online gambling with legal tender currency has been decided. In April 2011, the FBI indicted the “founders of the three largest Internet poker companies doing business in the United States—PokerStars, Full Tilt Poker, and Absolute Poker . . . with bank fraud, money laundering, and illegal gambling offenses.”[51] In 2006, the United States enacted the Unlawful Internet Gambling Enforcement Act (UIGEA), yet the poker companies continued to operate until the 2011 indictment. Similar to the 2011 indictment, the Justice Department may be collecting evidence and building a case against the Bitcoin gambling sites before they launch an indictment. The UIGEA does not expressly prohibit Internet gambling, but it does make it illegal for an online gambling business to knowingly accept fund transfers.[52] The Bitcoin gambling sites are currently circumventing this legislation by keeping their funds in bitcoin cryptocurrency wallets. However, in order for these sites to exchange their Bitcoins for a fiat currency they must use a financial exchange, so even by receiving their earnings with Bitcoin, the online gambling sites may come into jurisdiction of the UIGEA if the gambling business accepts payment through “(i) automated clearing house (ACH) systems, (ii) card systems, (iii) check collection systems, (iv) money transmitting businesses, and (v) wire transfer systems.”[53] The Illegal Gambling Business Act may also prohibit Bitcoin gambling sites because the act broadly prohibits all gambling businesses that are in (i) “violation of the law of a State or political subdivision in which it is conducted;(ii) involves five or more persons who conduct, finance, manage, supervise, direct, or own all or part of such business; and(iii) has been or remains in substantially continuous operation for a period in excess of thirty days or has a gross revenue of $2,000 in any single day.”[54] Under IRS regulations Bitcoin and other VCs are treated as property, so losses and gains must be calculated to determine the value of the virtual currency. If an online gambling business earned the value of at least $2,000 dollars in Bitcoin “in any single day”, they may fall under this act. The Federal Wire Act (Wire Act) prohibits “bets or wagers on any sporting event or contest.”[55] Some Bitcoin gambling sites have a mixture of betting on sports and traditional casino games,[56] and it is conceivable the bets on sporting events could fall within the language of the Wire Act. The Wire Act expressly mentions “money or credit as a result of bets or wagers,” and VCs may fall under the intent of the Wire Act because they operate as credits that can be redeemed or exchanged at VC exchanges, and they operate like money because they facilitate transactions.[57]

Some online wagers do not fit under the typical definition of gambling or a game of chance. The Commodity Futures Trading Commission refers to these as "Event Contracts." On December 2011, the CFTC ordered an online business to cease listing Political Events Contracts (i.e. betting on who will be elected) for trade, as it is contrary to the public interest.[58] The CFTC’s jurisdiction is being tested by online businesses that accept virtual currency for event contracts. A website, accepting Bitcoin and other VCs, called predictious.com lists trades such as trying to call who will be elected, whether a celebrity will have a boy or girl child, or who will be the winner of a science competition.

Nevada law[edit]

In Nevada v. Micon, a defendant was charged under Nevada law for operating an unlicensed casino that accepted Bitcoin.[59]

Electronic Fund Transfer Act[edit]

VCs lack many of the regulations and consumer protections that legal tender currencies have. Under U.S. law, a cardholder of a credit card is protected from liability in excess of $50 if the card was used for an unauthorized transaction.[60]

(EFTA) was written to protect consumers in transfers through automated teller machines, point-of-sale terminal, ACH systems, remote transfers, and remittance transfers.113 However, the EFTA does not apply to VCs, and due to the nature of many VCs, it may not be possible for VCs to be in complete compliance with the Act. For example, the regulations require for a consumer to be allowed thirty minutes to cancel an electronic transfer.[61] Many VCs, such as Bitcoin, do not allow chargebacks, so cancelling the Bitcoin transfer is not possible. Additionally, a credit card that transacts in VC is not protected by the fifty-dollar maximum liability for the holder of the credit card.[62]

Federal Deposit Insurance Corporation[edit]

The FDIC does not insure VCs; however, a GBCC opens the possibility for GBCCs held in a FDIC approved bank, to be insured by the FDIC. A GBCC may also permit traditional financial institutions to use fractional reserve banking to lend the GBCC with interest.

Federal Election Commission[edit]

In a May 2014 Advisory Opinion, the Federal Election Commission (FEC) decided that Bitcoin donations are permitted under FEC laws.[63] This decision will permit microdonations, and it may encourage more people to donate to campaigns. The decision may also encourage more people to attempt to hide their political donations behind the pseudonymity of Bitcoin.

The power to prohibit virtual currencies[edit]

Congress may have the power to prohibit VCs under its power “[t]o regulate Commerce with foreign Nations, and among the several States”[64] and under its exclusive constitutional power “to coin Money” and “regulate the Value thereof.”[64] In a November 2014 decision, the Court upheld the power of regulators to prosecute a defendant who “designed, created and minted coins called ‘Liberty Dollars,’ coins ‘in resemblance or in similitude’ [or made to look like] of U.S. coins."[65] Although the defendant did not pass the Liberty Dollars currency as a counterfeit, the currency were in close enough “resemblance of coins of the United States or of foreign countries” and consequentially fell under the authority of 18 U.S.C.A. § 486.123 The Court has not decided if § 486 includes the power to prohibit VCs, but if a Court decides that the purpose and intent of VC resembles United States or foreign currency it may fall under § 486. The Stamp Payment Act of 1862 prohibits anyone from “mak[ing], issu[ing], circulat[ing], or pay[ing] out any note, check, memorandum, token, or other obligation for a less sum than $1, intended to circulate as money or to be received or used in lieu of lawful money of the United States.”[66] The Court has not decided if Congress has the power to prohibit VCs under this Act or any other existing regulation or statute.

Other articles:

What Type Of Forex Trader Are You?

What are some things that separate a good trader from a great one? Guts, instincts, intelligence and, most importantly, timing. Just as there are many types of traders, there is an equal number of different time frames that assist traders in developing their ideas and executing their strategies. At the same time, timing also helps market warriors take several things that are outside of a trader's control into account. Some of these items include position leveraging, nuances of different currency pairs, and the effects of scheduled and unscheduled news releases in the market. As a result, timing is always a major consideration when participating in the foreign exchange world, and is a crucial factor that is almost always ignored by novice traders.

Tutorial: Beginner's Guide To MetaTrader 4

Want to bring your trading skills to the next level? Read on to learn more about time frames and how to use them to your advantage. 


Common Trader Time frames

In the grander scheme of things, there are plenty of names and designations that traders go by. But when taking time into consideration, traders and strategies tend to fall into three broader and more common categories: day traderswing trader and position trader

1. The Day Trader
Let's begin with what seems to be the most appealing of the three designations, the day trader. A day trader will, for a lack of a better definition, trade for the day. These are market participants that will usually avoid holding anything after the session close and will trade in a high-volume fashion.

On a typical day, this short-term trader will generally aim for a quick turnover rate on one or more trades, anywhere from 10- to 100-times the normal transaction size. This is in order to capture more profit from a rather small swing. As a result, traders who work in proprietary shops in this fashion will tend to use shorter time-frame charts, using one-, five-, or 15-minute periods. In addition, day traders tend to rely more on technical trading patterns and volatile pairs to make their profits. Although a long-term fundamental bias can be helpful, these professionals are looking for opportunities in the short term. (For background reading, see Would You Profit As A Day Trader? and Day Trading Strategies For Beginners.)

Figure 1
Source: FX Trek Intellicharts

One such currency pair is the British pound/Japanese yen as shown in Figure 1, above. This pair is considered to be extremely volatile, and is great for short-term traders, as average hourly ranges can be as high as 100 pips. This fact overshadows the 10- to 20-pip ranges in slower moving currency pairs like the euro/U.S. dollar or euro/British pound. (For more on pairs trading, see Common Questions About Currency Trading.)

2. Swing Trader
Taking advantage of a longer time frame, the swing trader will sometimes hold positions for a couple of hours - maybe even days or longer - in order to call a turn in the market. Unlike a day trader, the swing trader is looking to profit from an entry into the market, hoping the change in direction will help his or her position. In this respect, timing is more important in a swing trader's strategy compared to a day trader. However, both traders share the same preference for technical over fundamental analysis. A savvy swing trade will likely take place in a more liquid currency pair like the British pound/U.S. dollar. In the example below (Figure 2), notice how a swing trader would be able to capitalize on the double bottom that followed a precipitous drop in the GBP/USD currency pair. The entry would be placed on a test of support, helping the swing trader to capitalize on a shift in directional trend, netting a two-day profit of 1,400 pips. (To learn more, read The Daily Routine Of A Swing Trader and Introduction To Types Of Trading: Swing Traders.)

Figure 2
Source: FX Trek Intellicharts

3. The Position Trader
Usually the longest time frame of the three, the position trader differs mainly in his or her perspective of the market. Instead of monitoring short-term market movements like the day and swing style, these traders tend to look at a longer term plan. Position strategies span days, weeks, months or even years. As a result, traders will look at technical formations but will more than likely adhere strictly to longer term fundamental models and opportunities. These FX portfolio managers will analyze and consider economic models, governmental decisions and interest rates to make trading decisions. The wide array of considerations will place the position trade in any of the major currencies that are considered liquid. This includes many of the G7 currencies as well as the emerging market favorites.

Additional Considerations 
With three different categories of traders, there are also several different factors within these categories that contribute to success. Just knowing the time frame isn't enough. Every trader needs to understand some basic considerations that affect traders on an individual level.

Leverage
Widely considered a double-edged sword, leverage is a day trader's best friend. With the relatively small fluctuations that the currency market offers, a trader without leverage is like a fisherman without a fishing pole. In other words, without the proper tools, a professional is left unable to capitalize on a given opportunity. As a result, a day trader will always consider how much leverage or risk he or she is willing to take on before transacting in any trade. Similarly, a swing trader may also think about his or her risk parameters. Although their positions are sometimes meant for longer term fluctuations, in some situations, the swing trader will have to feel some pain before making any gain on a position. In the example below (Figure 3), notice how there are several points in the downtrend where a swing trader could have capitalized on the Australian dollar/U.S. dollar currency pair. Adding the slow stochastic oscillator, a swing strategy would have attempted to enter into the market at points surrounding each golden cross. However, over the span of two to three days, the trader would have had to withstand some losses before the actual market turn could be called correctly. Magnify these losses with leverage and the final profit/loss would be disastrous without proper risk assessment. (For more insight, see Forex Leverage: A Double-Edged Sword.) 

 

Figure 3
Source: FX Trek Intellicharts

Different Currency Pairs
In addition to leverage, currency pair volatility should also be considered. It's one thing to know how much you may potentially lose per trade, but it's just as important to know how fast your trade can lose. As a result, different time frames will call for different currency pairs. Knowing that the British pound/Japanese yen currency cross sometimes fluctuates 100 pips in an hour may be a great challenge for day traders, but it may not make sense for the swing trader who is trying to take advantage of a change in market direction. For this reason alone, swing traders will want to follow more widely recognized G7 major pairs as they tend to be more liquid than emerging market and cross currencies. For example, the euro/U.S. dollar is preferred over the Australian dollar/Japanese yen for this reason. 

News Releases
Finally, traders in all three categories must always be aware of both unscheduled and scheduled news releases and how they affect the market. Whether these releases are economic announcements, central bank press conferences or the occasional surprise rate decision, traders in all three categories will have individual adjustments to make. (For more information, see Trading On News Releases.)

Short-term traders will tend to be the most affected, as losses can be exacerbated while swing trader directional bias will be corrupted. To this effect, some in the market will prefer the comfort of being a position trader. With a longer term perspective, and hopefully a more comprehensive portfolio, the position trader is somewhat filtered by these occurrences as they have already anticipated the temporary price disruption. As long as price continues to conform to the longer term view, position traders are rather shielded as they look ahead to their benchmark targets. A great example of this can be seen on the first Friday of every month in the U.S. non-farm payrolls report. Although short-term players have to deal with choppy and rather volatile trading following each release, the longer-term position player remains relatively sheltered as long as the longer term bias remains unchanged. (For more insight, see What impact does a higher non-farm payroll have on the forex market?)

Figure 4
Source: FX Trek Intellicharts

Which Time Frame Is Right?
Which time frame is right really depends on the trader. Do you thrive in volatile currency pairs? Or do you have other commitments and prefer the sheltered, long-term profitability of a position trade? Fortunately, you don't have to be pigeon-holed into one category. Let's take a look at how different time frames can be combined to produce a profitable market position.

Like a Position Trader
As a position trader, the first thing to analyze is the economy - in this case, in the U.K. Let's assume that given global conditions, the U.K.'s economy will continue to show weakness in line with other countries. Manufacturing is on the downtrend with industrial production as consumer sentiment and spending continue to tick lower. Worsening the situation has been the fact that policymakers continue to use benchmark interest rates to boost liquidity and consumption, which causes the currency to sell off because lower interest rates mean cheaper money. Technically, the longer term picture also looks distressing against the U.S. dollar. Figure 5 shows two death crosses in our oscillators, combined with significant resistance that has already been tested and failed to offer a bearish signal.

 

Figure 5
Source: FX Trek Intellicharts

Like a Day Trader
After we establish the long-term trend, which in this case would be a continued deleveraging, or sell off, of the British pound, we isolate intraday opportunities that give us the ability to sell into this trend through simple technical analysis (support and resistance). A good strategy for this would be to look for great short opportunities at the London open after the price action has ranged from the Asian session. (For more, see Measuring And Managing Investment Risk.)

Although too easy to believe, this process is widely overlooked for more complex strategies. Traders tend to analyze the longer term picture without assessing their risk when entering into the market, thus taking on more losses than they should. Bringing the action to the short-term charts helps us to see not only what is happening, but also to minimize longer and unnecessary drawdowns.

The Bottom Line
Time frames are extremely important to any trader. Whether you're a day, swing, or even position trader, time frames are always a critical consideration in an individual's strategy and its implementation. Given its considerations and precautions, the knowledge of time in trading and execution can help every novice trader head toward greatness.

Analysis: New ESMA Regulations Likely to Reshape the Industry as We Know It

The new regulatory environment which European watchdogs have unfolded will change this business for the better

Unfortunately, as it many times happens, the mistakes of the few have impacted the many (or perhaps the other way around in this case, not so sure on this one). Unregulated brokers that have plagued the Forex and CFD trading industry, along with binary options brokers have prompted a drastic response on behalf of the supranational EU-wide industry watchdog.

The changes in short

Again… I am assuming you are not from Mars, but just in case Elon did manage to insert you inside the spaceman suit on that roadster, here are the changes to regulations in brief. Maximum leverage for trading FX has been cut to 1:30, indices and gold are at 1:20, other commodities are at 1:10 and shares are at 1:5.

Brokers are required to provide a negative balance protection and display clearly on their marketing message what is the percentage of their clients that lose money. Yes, exactly, that must read like something similar to: “come along and deposit some money with our brokerage, we hope you are not one of the 90 percent of poor folks that lose money.” (You might as well add a smiley face at the end, just for color.)

Impact for market makers

We are going to have a look at the impact on the industry from two different perspectives. The first one is that of brokers that are acting as principals and are internalizing their flow. The so-called ‘market makers’ are likely to get more materially affected by the changes mandated by the ESMA.

The reason for that is that such brokers are typically more reliant on direct marketing, trading incentives, and most crucially, their clients losing money. Higher leverage always means a shorter life-span for a retail trader’s account. Low levels of leverage are the preferred way to trade for institutional investors, where big drawdowns in the account balance are quite unwelcome.

Brokers have been offering high leverage to clients in order to lure them into the narrative that it is easy to make a lot of money with a relatively small deposit. The reality in the financial markets however, is that, as described by the ESMA, between 80 and 95 percent of retail clients are losing their deposits.

So when a market-making broker attracts a client with say 1:400 leverage, the likelihood that the holder of this account will be bust within three months is very high. A switch between fear and greed emotions in the brain chemistry is one of the most perilous enemies of a trader.

Trading the market is catering to these emotions and short bursts of dopamine when a trader is winning are driving their desire to trade more. Curiously, some social media users are experiencing precisely the same pattern that lures them into continuing to stick to that phone screen on the train.

The levels of leverage which the ESMA is mandating are automatically slamming the breaks on excitement levels. Suddenly a trader has to deposit $5000 to open a position sizeable enough to change one’s life. When previously $500 were enough, this makes a huge difference. Brokers will need to change their acquisition and retention strategy altogether to stay on top of their game when attracting clients.

 

Impact for STP brokers

After we established some of the potential risks for market makers, let’s focus on STP brokers. Straight-Through Processing (STP) is a different mode of operation for the retail brokerage industry. Such firms are not relying in any way on the losses of their clients, as the money in those accounts is flowing into the market.

The revenue of the brokerage is relying on commissions. The more trades a trader makes within their lifespan, the more commissions the brokerage is getting. As a result, we can deduce that such brokerages are keen on their clients not losing money, because they will stop generating commissions to the brokerage the moment they lose their balance.

Such brokers are typically more inclined to provide their clients with added value tools that can drive a mediocre trader closer to success. The ESMA’s new regulations are going to have an impact on such companies in two major ways.

The first one is trading volumes. Granted, broker trading volumes will register a decline, and probably, at least initially it will be big. Leverage restrictions, however, have had a mixed impact on other markets. In Japan, for example, the official maximum leverage of 1:25 has not impacted the industry in the long run as local brokers are posting the highest trading volumes in the world.

Capital requirements is another issue. All brokers are now mandated to provide negative balance protection and the FCA was one of the first regulators that suddenly realized that having firms with a capital requirement of a couple of hundred grand was no longer adequate. All STP firms are very likely to need to apply for a 730.000 euro ($900.000) license and prepare to meet the capital requirements that come with that.

Loss percentage disclosure (Ouch!)

Last but not least, I want to pay some explicit attention to a subject that has not been discussed enough. That is the disclaimer that every broker has to accompany their advertisement messages with a  line reading ’90 percent of our clients lose money!,’ or something of the likes.

The ESMA’s announcement has just created a great new incentive for brokerages and that is to attract the best possible traders. This will inevitably result in a paradigm shift for good practice in the industry. Suddenly attracting traders is not enough, brokers that want to remain in this industry for the long haul will have to attract the right kind of clients and strive to make their clients better traders all the time.

Not many brokers have been working in this direction, and even fewer have been successful in doing so. Education will no longer be an extension of retention. I am referring to a number of products that are branded as education but the only thing they do is confuse a trader even more and completely disconnect them from the reality of the market: it is very hard to make money trading.

I hope that many brokers manage to succeed in the quest to teach traders how to trade. It has been a long and hard way for the few that remain in this business. In the meantime, those phony educators that are acting akin to affiliates are now becoming something closer to a bad practice for every broker who is committed to having a good ratio of profitable traders.

As the final rules are published by the ESMA and as local regulators start chipping in with circulars, we will know more details. But for now, it is well worth thinking about how you are going to approach this brand new market starting from a couple of months from now.

Coinbase Acquires Earn.com In $100 Million Deal

Perhaps the best-known company in all of cryptocurrency has announced their first major acquisition. Coinbase has bought Earn.com, a startup that allows users to be compensated in digital currency for completing small tasks and responding to emails.

Coinbase Deal as Much About New Staff as it is the Acquisition of Earn.com

Recode reports that Coinbase has bought Earn.com for just over $100 million. Along with the acquisition, there are some additional perks for digital currency exchange too. The buyout will enable Coinbase to bring Balaji Srinivasan on board as their first Chief Technology Officer.

According to a blog post by Coinbase CEO Brian Armstrong, Srinivasan is “one of the most respected technologists in the crypto field”.

A brief look at his resume gives clear indication as to why Coinbase would want him to fill the role of CTO. Srinivasan holds qualifications up to PhD level in Electrical Engineering, as well as an MS in Chemical Engineering. These were awarded by Stanford University where he also teaches a variety of subjects. These include data mining, statistics, genomics, and blockchain courses.

Armstrong outlined the purpose of Srinivasan’s appointment in the post:

“Balaji will serve an important role as the technological evangelist for the company. Balaji will evangelise for both crypto and for Coinbase, educating the world and recruiting crypto-first talent to the company.”

The blog post seemed much more focused on the appointment of the new CTO than it did about the acquisition itself. That said, Armstrong did state that Coinbase would be expanding the Earn.com model within the crypto exchange. He went on to acknowledge the platform as a prime example of an early use of blockchain technology that had been able to “achieve meaningful traction.”

Conversely, a post on Earn.com’s news section expressed excitement for what the acquisition would mean for the platform itself. Under Coinbase, the company expects to be able to get “bigger and better”. This will better position them to complete their lofty end goal:

“If we’re successful in our long-term goals, we will be able to turn the billions of smartphones worldwide into a new source of work.”

Earn.com, formerly 21.co,  started out in 2013 as a Bitcoin mining hardware manufacturer. They’ve since rebranded in late 2017. The company now offers a service in which users are paid for responding to emails and completing small tasks such as surveys.

By using cryptocurrency to compensate their users, Earn.com can appeal to a truly global user base. They can pay people a small sum of money for their time, even if the user doesn’t have access to traditional banking infrastructure.

Week of 3/25/2018 Market Moving News

FOMC speeches will set the tone for the week. We are expecting USD to crash 1% or more tomorrow (Monday) 

 

This could be the breaking point for the S&P and even possibly the Dow

 

 

 

with FOMC speeches all week & GDP being published we may see some moment in the dollar 

 

 

As for Forex we see some great opportunities

EURJPY long (intraday type setup)
https://www.tradingview.com/chart/EURJPY/MUscO5YT-EURJPY-Long/

USDCAD short (intraweek setup)
https://www.tradingview.com/chart/USDCAD/SKv8FzvB-USDCAD-SHORT-overall/

USDJPY potential long (intraday setup)
https://www.tradingview.com/chart/USDJPY/gdO6NJC0-USDJPY-highly-active-potential-long/

AUDUSD double play. Shorting then longing (look at chart)
https://www.tradingview.com/chart/AUDUSD/T5AKBlCQ-AUDUSD-Major-Trend-Long-W-chart-Shorting-D-chart/

EURUSD keeping an eye out but not trading
https://www.tradingview.com/chart/EURUSD/9W0l7yu2-Not-trading-EURUSD-for-now/

 

Dollar Remains Slightly Lower after U.S. Jobs Report



Investing.com - The dollar remained slightly lower against the other major currencies on Monday after Friday’s U.S. jobs report tempered expectations for a faster rate of rate hikes by the Federal Reserve this year.

The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was at 89.94 by 10:13 AM ET (14:13 GMT), down 0.13% for the day.

The U.S. economy added 313,000 jobs in February, the Labor Department reported Friday, but average hourly earnings rose by just 0.1%.

The strong jobs growth boosted risk appetite, while the slowdown in wage growth dampened expectations for four rate hikes by the Fed this year, a negative for the dollar, which tends to become more attractive to yield-seeking investors when borrowing costs rise.

The euro was little changed, with EUR/USD last at 1.2310 after rising as high as 1.2341 earlier.

Sterling pushed higher against the softer greenback, with USD/GBP climbing 0.27% to 1.3889.

The pound’s gains were held in check amid fears that an upcoming Brexit summit meeting later this month would fail to secure a transition arrangement.

Sterling was higher against the euro, with EUR/GBP down 0.2% to 0.8863.

Against the yen, the dollar was lower, with USD/JPY down 0.24% to 106.54.

Demand for the Japanese currency was boosted amid concerns over a cronyism scandal linked to the country’s prime minister and his wife involving the sale of public land. The safe haven yen tends to rise in times of market uncertainty.

Market Snapshot – Dollar Weakening Continues

The euro rose higher during the course of trading today as the dollar weakness assumed larger proportions during this period and we saw the dollar weaken all across the board. We are likely to see this weakening continue for the rest of the trading session as worries about the tariffs imposed by the US continued to dominate the headlines and weaken the dollar. Not only would these tariffs increase the domestic costs of cars and other items that use these metals, it would also lead to a large possibility of a trade war breaking out between the global economic powers and this is not good for any country for that matter. This has led the stock markets lower and this is likely to keep the dollar weak as well. Just when it looked as though the dollar would be able to make a major bullish run, we are seeing the euro about to close the week above the 1.2240 support region and this should help the bulls regain control.

In the crypto markets, the BTC prices have once again lost touch with the $11000 region and with the weekend closeby we can see the action begin to wind down in a slow and steady manner. The market is open during the weekends but we doubt whether the bulls would have the power to push the prices higher by too much over the weekend and this is likely to lead to consolidation and ranging for much of the weekend. The traders were hopeful that the bulls would be able to establish control atleast over the next few days but that has not happened so far and we believe that the price action is likely to be even more choppy in the coming days as the prices swing on either side of the larger range between the $10000 and the $12000 regions so far.