Green FX is here to stay. Retail brokers follow the banks lead

It is very difficult for any business sector not to bring global politics into its consideration these days.

In Europe, including the United Kingdom which is home to the world’s largest and most important financial markets center, it is almost impossible to go about daily business without being apprehended and appalled by some hair-brained, extreme left notion from the collective governments of the regio

In Britain, it matters not which of the three main parties any member of public votes for, the outcome is that all are the same, differentiated only by the color of their suit, and all are inexorably socialist, inflicting constant lockdowns onto the nation which are decimating its economy and curtailing commercial freedom, forcing the majority of the workforce into unemployment which may well become permanent, and then hitting the nation with absurd green policies set to cost a fortune, when really all people want to do is earn a living which they are not allowed to do.

Germany, a notoriously socialist country, is going down the same route, this time with Deutsche Bank leading one of the most bizarre initiatives, that being to place an emphasis on green derivatives.

Users of deal contingent hedges may soon be able to link the derivatives to ethical targets, as banks consider launching trades with an environmental, social and governance (ESG) component.

“We should be doing them,” says Christopher Wall, global head of foreign exchange structuring at Deutsche Bank. “We will do them. When there’s client demand for a solution then banks will step up to the plate, so I’m already firing emails about it.”

Indeed, as are many interbank FX dealers as their management work tirelessly to try to appease the increasingly socialist policy makers in the Western world’s governments, including the US which is now about to embark on the same journey as parts of Western Europe have done with their lockdown obsessed anti-business wreakers of havoc and their illiberal ideologies which are full of obstacles to the free market and littered with irrelevant and expensive pet projects full of greenwash.

“There is no doubt that sustainable finance and environmental, social and governance (ESG) products are becoming increasingly important to policy-makers and financial market participants all around the world” heralded the International Swaps and Derivatives Association in November last year.

Given the coercion toward ‘green’ policies that is now being driven by central governments across the West, the banks have had to begin to offer what is now known as ESG product ranges.

Whilst this is a clear capitulation by the capital markets industry to the increasingly socialist governments, it does present an opportunity for FX brokers in diversifying their product ranges, which is a long overdue remit.

Keeping pace with geopolitical and technological change along with client demand are vital areas for retail FX brokerages, therefore the ESG products must not be overlooked.

Retail FX brokerage CedarFX has understood this clearly. CedarFX’s pioneering Eco Account is the online broker’s answer to tackling climate change.

Launched under the moniker of Eco Account, traders who opt to use this particular product will be charged a $1 commission fee per lot traded, which will be matched by CedarFX at the end of each month.

The money collected will be used to fund Ecologi’s conservation initiatives such as mangrove planting in Madagascar, reforesting in Changalane, Mozambique, and planting responsibly in Bosawas, Nicaragua. The account also provides traders with a fast and efficient way to tackle the crisis by promoting environmental awareness and encouraging participation in conservation efforts. CedarFX has also helped Ecologi with its Gold Standard certified Carbon Reduction initiatives, successfully offsetting 1.83 tonnes of C02 to date.

Many of the younger audience which brokerages have struggled to attract without a very distinct differentiation in terms of product range, or being able to offer a proprietary trading platform, could well be more interested in trading the capital markets if their appetite for climate change rectification or carbon footprint offset was met by their broker.

Another area in which CedarFX seeks to reach out to a new generation of traders CedarFX in the forex market is through its 0% Commission Account.

The online broker has abolished commission fees allowing traders to succeed without additional costs eating into their profits. Traders can now make use of their entire amount diversifying their portfolios and widening their options. 0 % Commission Account Users can also enjoy no trading restrictions on zero-commission trades.

Both account types can enjoy CedarFX’s super-low spreads and ultra-fast withdrawals, and traders can access over 55 major, minor and exotic Forex currency pairs, CFDs on stocks, energy, and metals as well as 35 digital asset pairs. Additionally, CedarFX clients have access to 24-hour customer care support through live chat, email, or through a call back request.

In September, ISDA hosted a virtual conference on ESG and derivatives, which highlighted the very important role the derivatives market has to play in the transition to a sustainable economy. One can only guess that these individuals are a barrel of laughs at a dinner party.

Actually, you would be spared their presence, as dinner parties are too profligate and not ‘sustainable’ enough for these hemp-wearing, bicycle riding, bean-chomping vegetarians with a penchant for facial topiary.

The reality is that the financial markets business, and in particular the fast-moving electronic trading sector at Tier 1 interbank level and at centralized counterparty level (listed derivatives) is not about green agendas and appeasing left wing governments in irrelevant parts of Europe.

It is about free market capitalism, matching the best prices on major currencies whose moves are determined by the activities of business in their host nations. It is about analyzing the news, and capitalizing on corporate decisions in order to gain a higher price on company stock, and looking at the future value of derivatives in commodities, raw materials and predicting the performance of publicly listed corporations globally.

The ISDA says that so called sustainable finance is set to be at the heart of the recovery from the destruction waged on Europe by lockdown obsessed governments with totalitarian aspirations. On September 16, European Commission president Ursula von der Leyen announced that 30% of the €750 billion recovery fund will be raised through green bonds.

The ISDA states that this will equate to a huge amount of new financing in this area, and both issuers and investors will be looking to the derivatives market to hedge their exposures. Product innovation is already developing rapidly to support the hedging needs of participants in this nascent market.

First and foremost, the derivatives market will be the means by which participants are able to hedge their exposure to these green assets, but its role extends further. Derivatives play an important role in facilitating price discovery and fostering greater market transparency. They contribute to the establishment of a market price and thereby enable better assessments of risk.

Alongside the development of ESG derivatives products, work will be needed to promote standardization across jurisdictions and market segments in order to ensure efficiency while reducing risk and cost and also supporting digitization. The ISDA admits that it has always been strong proponents of standardization in documentation, market practices, operational processes, and wherever else it might make economic sense. This is just as important in a relatively new area like ESG as it is in more established markets.

Pandering to a green agenda at a time when many people in Europe are being prohibited from exercising their right to earn even a basic living appears a total folly, however Deutsche Bank perhaps realizes that the governments, along with QANGOs like the ISDA, are hell-bent on these green projects, therefore will need to offer good quality hedging capability against exposure.

Given that some of the listed options firms are also embracing the ESG ideology, it is worthy of note that one particular company has introduced the creation of a standardised reporting framework for companies, to allow investors to directly compare businesses on their levels of sustainability, and the adoption of a common methodology, which rating agencies can use to assess a businesses ESG rankings.

Optiver CEO Jan Boomaars said “We urge issuers and exchanges to create more harmonization between ESG products and make differences between ESG products clear to the end-investor, so they can make informed decisions about how to incorporate ESG in their investments.”

Those comments were made at a forum hosted by Optiver last week, and moderated by Victor van Hoorn, Executive Director of the European Sustainable Investment Forum.

The panel, which included speakers from the European Commission, European Parliament and the London Stock Exchange, asked questions as to whether the existing capital market structures fit for the green transition, and how can the capital markets play their part in helping to meet the EU’s commitment to becoming climate neutral by 2050.

Alongside the proposals to market ESG investing more efficiently and sustainably in itself, the panel stressed the need for disclosure and in particular the need to make disclosures around ESG issues understandable to retail and private investors

“Retail investors are gradually waking up to these products, we need to support direct retail participation, so (an) emphasis on disclosure will be very important” Said Tatyana Panova, Head of the Capital Markets Union Unit at the European Commission.