What are Security Tokens?
There is a new buzzword trending in the cryptocurrency space these days – Security Token Offerings, or STOs as they are popularly called. Unlike the common Initial Coin Offerings or ICOs, STOs are based on tokens that act as “securities.” This essentially brings them under the purview of the existing securities laws and regulations for investor protection.
Experts predict that 2019 will be the year of the STO, when the crypto industry will get a formal regulatory structure, rightfully deserved by it. But first, we need to understand what “security tokens” are.
The Concept of Security Tokens
If we are to ascertain the exact definition of a “token,” it is a digital asset that represents something of value within an ecosystem. This could be voting rights, access to a service or dividend payouts; the list is endless. This asset or utility-representing token is put up for sale to investors via ICOs. Initial Coin Offerings are a type of crowd-funding initiative, where investors put money into a project in return for future advantages on the platform.
The concept of STOs brings significant parity between the two terms – tokens and cryptocurrency coins. Cryptocurrency coins like Bitcoin (BTC) or Ether (ETH) can be mostly used as a transactional medium, even outside their native platforms. On the other hand, a token represents functionalities only within a particular ecosystem, until it gets listed on exchanges.
So, in short, a token could provide multiple ways in which investors benefit monetarily. In the past, ICO owners got into trouble with token offerings that were essentially investment contracts. The US SEC termed these tokens as “securities” in disguise that should actually fall under the purview of securities regulations. Security tokens embrace the idea of being treated like securities, and their offerings should be structured in a manner that is beneficial to both the issuing company and the investor.
The Howey Test
The infamous Howey Test was a result of a 1946 legal battle with the US Supreme Court. Howey, a Florida based real-estate company, was sued by the US SEC, on grounds that their land contracts provided monetary benefits to investors, and, therefore, should be termed as “securities.”
Today, the Howey Test is a benchmark for ascertaining whether a particular transaction is an investment contract or not. When the DAO tokens failed to pass this test in 2016, and were classified as securities by the US SEC, a common framework was put in place, in partnership with FINMA, to judge whether a token was a security token or a utility token. So, a token that passes the Howey Test is deemed a security token, subject to US federal laws.
Broadly speaking, in the Howey Test, for a financial instrument to be classified as securities and fall under the US SEC jurisdiction, it has to fulfill certain conditions, including:
- Investment of money is necessary.
- There has to be profit expectations at the end of the transaction.
- Both these above points have to take place in a common enterprise.
- Profits have to be generated through a third party.
Security token issuers in USA need to comply with specific guidelines for registration, such as:
1. Regulation A+
SEC-approved securities can be offered to non-accredited investors with investment of up to $50 million.
2. Regulation D
A company’s token offering will be exempt from being registered by the US SEC, provided that Form D is submitted by the token creators after the token launch. A company that gets this exemption may offer their securities to investors under Section 506C.
3. Regulation S
This regulation is for token offerings that occur outside the US. The securities regulations of the country in which the sale is taking place will come into play.
The Importance of Security Tokens
Through tokenised securities, companies will no longer try to circumvent regulations, which will help bring down instances of the sale of illegal and unregistered security tokens. This, in turn, will instill investor confidence in the digital asset industry, which has long been riddled with scams and security threats.
Through STOs, companies will be able to structure “programmable ownership,” with all material information programmed within the software, with the option for modification at a later time. This will be a great way to attract institutional investors, who mostly stay away from the crypto space due to vague token economies and real tangible rights. They will now be able to ascertain what their interests will be in an STO company, at any given time.
“The tokenization of the economy, for me, is real. Cryptocurrencies are real but not in the current form.” These words were recently said by JP Morgan’s co-president, Daniel Pinto, who stressed on the importance of regulatory frameworks for crypto assets to flourish. The presence of institutional investors is necessary in the crypto markets, for the digital asset class to be considered a viable part of the global economy.
Apart from bringing credibility back into the industry, security tokens will also improve traditional financial transactions, without the need for middlemen. STO companies will be able to offer their tokens to investors in any country, enhancing free market exposure. This will lead to a significant increase in crypto-asset valuations and enhanced liquidity in the market place. Through the licensed security token trading platforms, investors will find it easier to liquidate their holdings. STOs will provide an opportunity to make the securities market more transparent and transferable.
With links to smart registries, security tokens will lessen a lot of unnecessary documentation and expenses in the public capital markets. Service provider functions, like those provided by law firms, can be automated. This will also reduce legal fees.
Security tokens could rise as an alternative form of blockchain funding. This is good for the financial industry, considering the amount of scrutiny that ICOs are being subjected to at present. A lot of negativity concerning ICOs surfaced in 2018, following the revelation of rampant scams. Security tokens might prove to be a viable alternative.
Prior to the 1970s, trade transactions were handled manually with a broker or counterparty. A very limited form of electronic trading existed till the mid-80s. Around this time, an advanced communication system developed by Reuters, also known as Reuters Dealing, was the primary source of electronic forex trading. This was the direct-dealing system, a closed network, real-time chat system, even before the internet era. The modern form of the electronic system flourished from the early 90s, for the institutional inter-bank market. Buyers and sellers would be matched by these systems, which became the benchmark of currency prices. Although ECN or Electronic Communications Network was on the scene since the late 1960s, currency trading didn’t start until 1999, when MatchbookFX was launched. Electronic Communication Network (ECN) Often called alternative trading systems (ATS), ECN is a computerised network or forum that enables trading of stocks and currencies outside traditional exchanges. The system consolidates price quotes from several market participants and offers traders exclusive and tighter bid/ask spreads that they normally wouldn’t have access to. The network matches limit orders internally and charges a very small transaction fee. ECN forex brokers are non-dealing desk brokers. This means, the orders are not passed on to market makers, but rather directly to high-liquidity providers. How Does ECN Work? Orders are entered by subscribers through a custom computer terminal or protocol. ECN matches sell orders with buy orders of the same price for execution. Unmatched orders are posted on the system, which everyone can view. Generally, the ECN is listed as the party, while the buyers and sellers remain anonymous in the trade execution reports. These networks are provided live streaming quotes from top tier banks across the world. The matching engines or algorithms match orders and perform limit checks, generally in less than 100 milliseconds. Spreads are discretionary, but the competitive environment, enabled by the presence of multiple banks, creates 1-2 pip spreads on all major currency pairs, such as the USD pairs or euro crosses. Consider it as a live exchange that offers the best bid/ask rates from all currency quotes. In case specific order information is unavailable, the system offers prices that reflect the lowest ask and highest bid available in the open market. Since an ECN broker connects traders with other market participants, it cannot enter into trades against the clients. Retail forex brokers are regulated by stringent laws that prohibit them from a conflict of interest with their clients. Benefits of Trading Currency on ECN The biggest advantage of trading with an ECN broker is access to the best prices for trade execution, since these prices are a summary of all the information provided by other traders and institutions. There is no conflict of interest between a broker and a trader, which enables prices to reflect real market conditions. There is also no incentive to adjust the bid/ask rate by brokers for their own advantage. Trading is anonymous and neutral. This is beneficial for traders who are involved in making large transactions. Prices are fair, so even if slippages occur in volatile market conditions, one can still be assured that these prices are purely driven by supply and demand factors. Prices on ECN systems are very sensitive to volatility, which makes it an ideal way to trade for scalpers. High liquidity enables fast trade execution. During periods of high activity in the market, the spreads can get very narrow. All ECN brokers have access to the exact same price feed. Traders can easily connect their expert advisors, trading algorithm models and risk management systems to the live market data feed and price matching engine. The entire trading process remains consistent and reliable, even for back-testing trading models. Investors have the option to trade outside the normal trading hours. This is beneficial to those who cannot actively trade in normal market times, offering a lot of flexibility. Commission costs are fixed, as opposed to market makers, who vary the spreads to make profits. Transaction costs are fully disclosed before trade execution, which promotes transparency. Price history is available to a certain extent, and these are accurate. Traders can use them for analysis of market trends. All in all, ECN provides benefits such as: - Anonymity - Global liquidity access (top banks, hedge funds and other big players) - Live and transparent market data feed (extensive price depth levels) - Immediate trade execution - Tighter spreads Are There Disadvantages in ECN Trading? Trading is cheaper, but the system is expensive. For a retail trader, the system is often beyond reach, due to its inter-banking nature. Trades are executed in large lots and minimum deposit requirements can be high for some. Even though the transaction costs are often higher than non-ECN systems, they are fixed and predictable. Slippages still occur, particularly during session overlaps, due to several factors that affect the price ticks. Many traders report that stop-loss calculations can get challenging on ECN platforms. The presence of variable spreads could affect a trader’s bottom-line and profitability. ECN and Dark Pools – Not the Same It is easy to see them as being alike, but ECN systems are not like dark pools at all. Although the latter is also an alternative trading system (ATS), ECNs display orders in consolidated quote streams. ECN brokers are required to register with the US SEC in the capacity of broker-dealers, and they are members of the FINRA. In the UK markets too, ECN providers have to get registered and authorised by the FCA, before they can offer their services to traders.
If you’ve been trading Forex for a while, you’re probably pretty familiar with the standard Forex trading platform, MetaTrader 4 (MT4). It was released by Metaquotes in 2005 and is by far the most popular Forex trading platform. In fact, Metaquotes has since released its successor, Metatrader 5, but it was not received as well by the Forex trading community. As a result, the majority of brokers still use MetaTrader 4. Although there are some limitations to MT4, this free and simple trading platform is powerful and versatile enough for most Forex traders. This is due, in part, to its thriving community of coders for the many different indicators, scripts, and Expert Advisors, which add so much functionality to the platform. Whether or not it will be enough for you really depends on what type of trading system you are using, and how far you are willing to go for a small advantage. For those of us that are sticking with MT4 for now, the useful hotkeys and shortcuts below are a must. Check Out These Useful Metatrader 4 Hotkeys & Shortcuts! These Are The MT4 Hotkeys That I Use The Most Ctrl+E – enable/disable attached Expert Advisor Ctrl+I – open the “Indicators List” window Ctrl+M – open/close the “Market Watch” window Ctrl+N – open/close the “Navigator” window Ctrl+T – open/close the “Terminal” window Ctrl+Y – show/hide period separators F7 – open the properties window of the Expert Advisor that you have attached to your chart F9 – open the “New Order” window F11 – enable/disable full-screen mode F12 – move the chart ahead by one candlestick/bar Shift+F12 – move the chart back by one candlestick/bar – – zoom the chart out + – zoom the chart in (must use with the Shift key) Numpad 5 – restore automatic chart scale after it’s been changed or return the chart into visible range (if the scale is defined) F5 – switch to the next profile Shift+F5 – switch to the previous profile Delete – delete all selected graphical objects Other Useful MT4 Hotkeys ← – scroll the chart to the left → – scroll the chart to the right ↑ – fast scroll to the left or scroll up (if the scale is defined) ↓ – fast scroll to the right or scroll down (if the scale is defined) Page Up – fast scroll to the left Page Down – fast scroll to the right Home – move the chart to the start (earliest record you have downloaded) End – move the chart to the end (current price) Backspace – delete the last object added to the chart Enter – open/close fast navigation window F1 – open the user guide F2 – open the “History Center” window F3 – open the “Global Variables” window F4 – open MetaEditor F6 – open the “Tester” window (must have an Expert Advisor attached to the chart) F8 – open the chart properties window F10 – open the “Popup Prices” window Alt+1 – display chart as bars Alt+2 – display chart as candlesticks Alt+3 – display chart as a broken line Alt+W – open the chart management window Alt+F4 – close Metatrader 4 Alt+Backspace – undo last deleted object(s) Ctrl+A – revert all indicator window heights to default Ctrl+B – open the “Objects List” window Ctrl+D – open/close the “Data Window” Ctrl+F – enable crosshair Ctrl+G – show/hide grid Ctrl+H – show/hide OHLC line (top left) Ctrl+L – show/hide volumes Ctrl+O – open the “Setup” window Ctrl+P – print the chart Ctrl+R – open/close the “Tester” window Ctrl+W – close the chart window Ctrl+F6 – switch to next chart window Some Helpful MT4 Shortcuts That I Use The new versions of MetaTrader 4 allow you to drag and drop your stop loss and take profit levels. Previously, you had to use an Expert Advisor to add this function. In order to see your stop loss and take profit levels, use Ctrl+O or go to Tools –> Options. Select the Charts tab and check the box that says “Show trade levels”. Now you can see your levels, making it easier to drag them. I also like to check the box directly underneath that says “Use ‘Alt’ key to drag trade levels”. With this box checked, you have to hit the “Alt” key to activate the drag and drop feature in MT4. Note: I use the “Alt” key to drag and drop my levels so that I don’t accidentally move my trade levels while I’m clicking and dragging other objects on my charts. This next shortcut is commonly used, but helpful if you don’t already know it. You can use “Ctrl” to duplicate any object on your chart. Simply double click the object to select it, then hold the “Ctrl” key and drag. This technique is especially useful if you use multiple colors when drawing objects (like trend lines and support/resistance levels). You probably already know this next shortcut, but it is essential. You can click in the price grid (on the right of the chart) and drag down to shrink the scale of the chart. This can be helpful for placing stop losses, take profits, support/resistance levels, etc… that are outside the current automatic range of the chart. To return the chart scale to default, simply click and drag up on the price grid. If you use automatic chart scaling, you can just hit Numpad 5. These are the most useful MetaTrader 4 (MT4) hotkeys and shortcuts that I use on a regular basis, and some others that I’ve used before. If you found this article useful, please share it with other traders, and feel free to suggest any hotkeys or shortcuts that I’ve missed. Good luck and happy trading!
5 Forex Books for Every Currency Investor: A beginner’s best way to start the journey as a trader would be by acquiring a lot of knowledge. And guess what? The prominent method is to read books. The market is full of forex books, but seeing the fast-moving pace of life today, no one can read them all. Thus, we shall help you spend minimum efforts and time on books but still get the most. Here in this article, we would introduce you to a good-read list of forex books. Remember, these books are useful for beginners only. Moreover, every book would get you something new. At last, we would conclude the post. 5 Forex Books For Beginning Forex Traders 1. The Disciplined Trader If you think that attitude has no role play in the trading ground, then here’s an eye-opener for you. This tremendous work by Mark Douglas is one of its kind. Most books on the list are related to theories, research, case studies, tools, strategies, techniques, etc. but this publication emphasizes the importance of being disciplined during emotional stress. He further argues it might be possible that a trader with little knowledge and skills can win, but one with no control over his psychological levels will never be a winner. Moreover, this book would start with telling you that having mental control is more complicated than it sounds, and will give you tips to control the same. One will also be able to track his trade performance and minimize their risk level after reading it. Mark told that this book is a result of all his losses which he had because of his pathetic trading decisions. And, once he lost everything, he documented his transactions and found the ’emotional’ issue. At last, you can have all the best tools for traders in the world, but without the right attitude, you have nothing! 2. Currency Forecasting Everyone knows that price anticipation is the gist of forex trading. Thus, here’s another beautiful book for beginner traders. Currency Forecasting is written by a long term analyst of Merrill Lynch, i.e. Michael Rosenberg. Most traders still prefer this 1995 book because of its simple, brief, and logical language. Michael used his long-time skills in this book and combined macroeconomics and monetary dynamics of international forex trading. It helped in consolidating the fundamental and technical analysis in simple language and therefore, in predicting forex prices. It should be a must on every forex trader’s checklist!!! 3. Japanese Candlestick Chart Technique Candlestick charts hold an exceptional place in the hearts of traders. This popular tool helps traders get more information in small candles. One can see the closing price, opening rate, and market behaviour in a single candle. Thus, you can understand the significance of this tool. This master book by Steve Nison would help you understand the charts easily and how you can combine this tool with other technical analysis indicators in the price pattern. Steve is accredited with launching the candlesticks among the traders, and now it is used by every market trader, whether stocks, forex, CFDs, or commodities. Nison, who was also working in a similar field, made it then famous in the west and have written several other books after the success of this book. 4. Day Trading & Swing Trading the Currency Market Day trading and swing trading the currency trading, technical & fundamental strategies to gain from market moves, is one of the best selling intra-day trading books ever. This masterpiece is written by a well-recognized market analyst, Kathy Lien. You must have seen her on Bloomberg and CNBC as a guest. Moreover, she is also the MD of BK Asset Management Company. One would be able to get the best learning experiences from her from this book. This publication is a perfect balanced approach that uses both fundamental and technical forex approaches. Further, you would get some right hand on fundamental factors that influence forex prices, short and long term both. 5. Trading in the Zone Here is another master publishing by Mark Douglas. Again, the focus is on a trader’s emotional aspects, but it would help you by providing techniques to control your psychological pitfalls. Feelings like fear and greed are common among traders and overcoming them is the first step, according to Douglas. Further, you would also know the ideal psychological features required to be a successful investor and the ways to develop them. Mark, working as a trading coach and consultant for years, introduces the ‘Thinking Strategy’ and the five elements which consistent winners always have in common. He argues that the trade market doesn’t work on what seems right or wrong; instead, it operates within the probability dimensions. Thus, one should think of ‘even’ and ‘odds’. Conclusion – Forex Books Confused which book to start first? Anyone, it doesn’t matter!!! But start technical analysis books. As we said, reading is the first step. However, only reading is not enough. When you are learning from books, start practising alongside too. It would help you practice and learn the things practically also. After all, the real world is significantly different from the textbook world. Moreover, people take trading a bit too seriously. If you spend your time with the right material with dedication, then it is less effort than you think. At last, we would say, read, research, analyze, and strategize. These are the critical elements of being a winning trader!