IPO watch: Volvo Cars seeks $23bn valuation on public launch

In one of the largest IPOs of 2021, Volvo Cars is going public. Here’s what you need to know about the Gothenburg carmaker’s stock market debut.

Volvo IPO

Volvo Cars hopes to raise $2.9bn in initial public offering

Chinese-owned Volvo Cars will make its public stock market debut on October 28th, 2021.

The company has set its sights on a $23bn valuation when it debuts on the Nasdaq Stockholm stock exchange in ten days.

In its prospectus, Volvo said it would be offering shares priced between 53-68 krona ($6.12-7.86) per share, initially offering $2.9bn worth to investors. Volvo Cars’ offering is made up of 367,647,058–471,698,113 newly issued common class B shares.

The transaction, including expected converted investments by investors AMF and Folksam, was seen resulting in a free float of about 19.5% to 24.0%, Volvo said.

That would give its owners, Geely Motors, a substantial ROI. The Chinese firm picked up Volvo from the ailing Ford back in 2010 for a cool $1.8bn.

Part of Volvo’s potential valuation is the fact it owns 50% of EV spinoff Polestar. Polestar is preparing its own IPO, which is expected to place a $20bn valuation on the premium electric car brand, due to launch in 2022.

Geely and Volvo also jointly own 8.2% of Volvo Trucks.

Volvo enjoys strong brand recognition and sales in key markets, such as China, mainland Europe, the UK, and the US.

The Swedish carmaker sold 770,000 vehicles last year, spearheaded by the popular XC family of SUVs. If it can pull of that $23bn target, Volvo would sit firmly alongside premium contemporaries like Daimler and BMW in terms of market cap, if not cars sold.

BMW shipped 2.3m cars worldwide in 2020. Mercedes-Benz shipped 2.2m.

Volvo’s electric outlook

Raising capital to develop its EV product offer and production capabilities is one of the key reasons behind this IPO. Volvo is aiming for annual car sales of 1.2m per year – an increase of 56% against 2021’s numbers.

„Volvo Cars believes that its unique structure and focused strategy makes it one of the fastest transformers in the global automotive industry, with mid-decade ambitions dedicated to electrification, sustainability and digitisation.“ the Swedish company said in a statement.

As with pretty much all legacy car manufacturers, Volvo is looking to electrify its line up away from the Polestar brand. New electric models from Volve Cars will be badged as such. Think of Polestar as the premium of the premium. Volvo Cars are more in line with midrange BMW models, like the 1, 2 and 3 series, although it does offer models that can compete in the saloon and SUV/Crossover classes.

Could Volvo become one of the top EV stocks to watch?

The float, if successful, will help fund Volvo’s electric ambitions.

By 2030, Volvo aims to have removed internal combustion engines from its range. It expects 50% of total sales to come from electric-powered vehicles by 2025. In an interesting move, the auto manufacturer also expects 50% of its sales to come from online via the Volvo website by this time too rather than bricks-and-mortar dealerships.

“There is no long-term future for cars with an internal combustion engine,” Henrik Green, Volvo Cars’ Chief Technology Officer, said earlier in the year. “We are firmly committed to becoming an electric-only car maker and the transition should happen by 2030.”

September saw global Volvo sales fall 30% year-on-year. Supply chain chaos, chipset shortages, and worker COVID-19 breakouts all impacted manufacturing and delivery at this time. Volvo has said all workers have been given vaccines in its Southeast Asia factories, but it will still be hampered by semiconductor supply constraints.

What are IPOs and how can you trade them?

When a company decides to go public, it may do so by making an Initial Public Offering, or IPO. Here, we take a look at what that means – and how you can start trading on a company going live for the first time.

IPOs

What are IPOs?

Companies often do not start as publicly traded companies. They do not issue stock or may only issue shares to private shareholders.

However, many companies decide to go public. This means their stock will be listed on stock exchanges and be available for public trading. In theory, anyone could be a shareholder by purchasing shares in said company.

These tend to be some of the most exciting events for stock traders and investors. For instance, when Coinbase announced it was going public in February 2021, it created a wave of market interest.

There are a couple of different ways a busines can go public. One of the most popular is by making its Initial Public Offering.

There are a couple of reasons why a company may choose an IPO, including:

  • Raise capital
  • Pay off debts
  • Monetise assets
  • Improve its public profile

Once it goes live, the business’ stock will be available for retail traders and investors to buy and trade.

These tend to be medium-to-large cap companies. For example, when money sending service Wise was worth an estimated $5-9bn ahead of its IPO.

Smaller companies may use other methods to get access to public capital. The London Stock Exchange Alternative Investment Market (AIM), for example, is where small companies that have exhausted their private money, but are not at the level required of an IPO, can still be publicly listed.

How does the IPO process work?

The first part of an IPO is the audit. This is basically a review of all the company’s financial ins and outs.

The company will then have to file a registration statement with the relevant authorities. So, if a business were to launch on the London Stock Exchange, then it need to share its registration statement with the Financial Conduct Authority (FCA).

The stock exchange the company wants to list on will then review the business’ application. If successful, the company will move on and work with an underwriter to determine how many shares it should release to the public. If unsuccessful, it will have to go back, review its application, and try again.

The filing will also be read by traders and investors to get a flavour of a) the company’s financial health b) its IPO plans and c) what to possibly expect when it finally launches.

Generally, a business will work with an investment bank to determine its IPO share price, i.e., the price per share when the stock first goes public. Goldman Sachs was hired to price trading app Robinhood’s IPO, for example.

There is no set timeframe for an IPO. They require many different stakeholders and complex processes to reach fruition.

Trading or investing in an IPO

There are a couple of ways to trade and invest in a stock that’s gone public – even before the process is completed.

Grey markets

At Markets.com, we offer grey markets.

A grey market let’s use offer Contracts for Difference (CFDs) on a stock before it goes live. You can speculate on its price movements and estimated market cap up to the end of the stock’s first trading day.

A grey market CFD’s price will be determined by our pricing team, based on the company’s prior financial performance, its initial public offering filing, and predictions on how we think the stock will perform.

Trading is about speculating on price movements. CFDs allow you to do this without owning the underlying asset. These are leveraged products. That means you gain exposure for a fraction of the total trade’s value. However, profit and loss is gauged by the total size of your position, not your deposit, and can far outweigh your initial deposit. Your risk of loss is higher. Only commit capital if you can afford to take any potential losses.

Please note: a grey market will not be offered as an investment product. Investing is the act of buying shares to hold onto in the hope they gain value. Because the stock hasn’t actually launched yet, you would be unable to buy and hold a grey market CFD.

When the IPO launches

One the IPO goes public, you will be able to buy the stock to add to your investment portfolio. Alternatively, you will now be able to trade on its price movements using spread betting or CFDs in the manner mentioned above. To reiterate, you will not own the asset if you pursue a spread or CFD-trading strategy.

How do IPOs perform after launch?

That depends on a myriad of factors. Sometimes stocks come roaring out the traps. Other times, as was seen with Robinhood with its IPO launch, a company going public can be a bit of a damp squib and fall below market expectations.

The stock’s performance should also be gauged over different timelines.

We’ve split the table below into different stock categories to see how company shares tend to perform in their first day, first week, and first month after their first public offering.

The data represents a global overview for stocks in 2020, rather than IPOs stocks listed on a specific exchange. It also includes a comparison of IPO stocks against main market and AIM stocks.

Stock type Price movement- first day Price movement – first week Price movement – first month
All IPOs 6.6% 9.0% 1.5%
Main market 4.6% 4.4% 0.7%
AIM stocks 9.0% 14.6% 12.4%

 

Where can you find out about upcoming initial public offerings?

Generally, each stock market will have a dedicated calendar or page detailing upcoming debut stock listings. Here are some examples

London Stock Exchange

Nasdaq

New York Stock Exchange

We also inform our clients on upcoming IPOs. You can find more information in our news section.

A word on debut listings and risk

Please note that trading and investing carries with it the risk of capital loss. The value of your investments may go down. If you trade leveraged products like CFDs then you may encounter serious losses.

Do your research prior to committing any capital. Only invest or trade if you can afford to take any potential losses.

What is Forex trading and how can you start?

If you’re a newcomer to the world of forex trading, it might seem a bit intimidating. In this beginner’s guide, we run through the basics so you can start your FX trading journey.

Forex trading?

What is forex?

Forex, also shortened to FX, stands for foreign exchange. In practice, it’s the exchanging and trading of different currencies.

FX is the most popular trading activity in the world. Every day, $6 trillion – more than the GDP of the UK and France put together – exchanges hands.

A number of different types of traders are involved in the FX trader, including banks, companies, individual retail investors, and even governments.

There is no centralised exchange when it comes to Forex. It’s typically done over-the-counter. Essentially, anyone can get involved – but please only commit any capital if you are comfortable taking any losses.

In our case at Markets.com, we offer FX trading via contracts for difference (CFDs). With CFDs, you do not own the underlying asset. These are leveraged products. That means you gain exposure for a fraction of the total trade’s value. However, profit and loss is gauged by the total size of your position, not your deposit, and can far outweigh your initial deposit. Your risk of loss is higher.

What makes FX trading appealing?

There are lots of reasons why foreign exchange is so popular, such as:

  • Market size – roughly $6 trillion changes hands every day!
  • Variety – We offer over 60 different currency pairs to trade at Markets.com
  • Accessibility – Unlike stocks and other assets tied to exchanges, currency can be traded 24/7
  • Leverage – As mentioned above, currency pairing CFDs allow you to open a trade at a fraction of the trade’s total value

There is also a degree of flexibility with forex.

CFDs allow speculation on price movements in both directions. If you think the currency pairing is going to lose value, you will take a short position. If you think it will gain value, you’ll take a long position.

What are currency pairs?

Currency pairs are the financial instrument used in foreign exchange.

It is a quotation for two different currencies. It’s basically the amount you would pay in one currency for another.

Let’s look at an example.

The currency pair is GBP/USD at 1.15.

That means you could exchange 1 GBP for 1.15 USD.

If one of the paired currency’s value changes, then the currency pair’s value will change too.

For example, GBP/USD has started the day at 1.15. By the end of the day, it has risen to 1.16. That is because the strength of pound sterling has risen in value against the US dollar.

If the currency pair starts the day at 1.15, then drops to 1.13, for instance, that means the value of pound sterling has weakened against the US dollar.

At Markets.com, our currency trading offer is split into three categories: Majors, minors, and exotic.

Majors are some of the most popularly traded pairs on the market, coming from the largest global economies. They’re essentially the engines of global commerce and economics. Major currency pairs include:

  • GBP/USD – Pound sterling to US dollar
  • EUR/USD – Euro to US dollar
  • JPY/USD – Japanese yen to US dollar
  • USD/CHF – US dollar to Swiss franc
  • AUD/USD – Australian dollar to US dollar
  • NZD/USD – New Zealand dollar to US dollar
  • CAD/USD – Canadian dollar to US dollar

The minor pairings are still from important economies but do not include the US dollar. These are still popular trading assets. Take a look at some examples below:

  • AUD/CAD – Australian dollar to Canadian dollar
  • CAD/JPY – Canadian dollar to Japanese yen
  • EUR/GBP – Euro to pound sterling
  • USD/DKK – US dollar to Danish kroner

Exotic pairings are pairings featuring potentially more volatile currencies. In the past, such currencies may also have had unique or difficult conversion requirements. Many come from emerging economies.

  • CHF/PLN – Swiss franc to Polish zloty
  • EUR/RUB – Euro to Russian rouble
  • GBP/TYR – Pound sterling to Turkish lira
  • USD/ZAR – US dollar to South African rand

What factors affect the currency market?

Like any financial instrument, currency pairs are affected by numerous external factors. If you’re looking to enter the world of forex trading, be aware of the following:

  • Central bank policy & interest rates – It’s the job of central banks to essentially watch over all aspects of a nation’s monetary policy. That will give it oversight over many things that can affect currency prices. Interest rates are a key part of this. If a central bank increases its overnight rate, then currency traders looking to enjoy higher yields may end up buying more. This can make currency prices rise.
  • Economic releases – Big economic releases, such as monthly, quarterly, and annual GDP growth figures, manufacturing and services PMIs, employment figures, and inflation all have an influence on FX prices.
  • Politics – It goes without saying that political tussles can affect a currency pairing’s valuation. Think how the pound slid dramatically after the Brexit vote, or how the USD wobbled in the wake of the US/China trade war under the Trump administration.
  • Volatility – The above factors will have an impact on price volatility, which can then affect how traders trade. Some may prefer to trade on volatile currency pairs; others may wish to hold off until markets fall back to normal. Be aware that some currency pairings are more volatile than others.

Some currency trading tips for beginners

  • Research – Don’t commit any of your money until you’ve done your research. Study the markets. Take time to head over to our news and analysis section. You’ll find plenty of pieces on what’s moving markets and how major currency pairs are currently fairing. The old adage fail to prepare; prepare to fail runs true here. Make sure you’re informed before placing a trade.
  • Practice – A com demo account lets you practice trades with $10,000 in demo credit to play about with. That way you can get a feel for currency markets, familiarise yourself with our platform, and see how tools can help impact your trades, in a risk-free environment. You won’t be spending any money.
  • Tools – We have a suite of powerful trading tools designed to help you. From various different charts to sentiment indicators, and much more besides, these are all designed to give you a potential trading edge. Click here to learn more about our tools.
  • Know your limits – Only trade if you are comfortable taking losses. Don’t be afraid to cut your losses either if you feel you are losing too much. Do not overextend. At the same time, don’t be tempted to take all of your potential profit out the first time it appears. You can be confident – but only you will know your own limits.

Remember: trading is inherently risky. The value of your trades can down as well as going up. Bear this in mind if you decide to take the forex trading plunge.

Robinhood files for IPO: Just PFOF

  • Regulatory scrutiny may present risk to business model
  • Mega growth in active clients
  • Crypto a growing part of the business

US online trading company Robinhood has finally filed for its long-awaited public listing in what’s sure to be one of the most closely watched IPOs of recent years. The company, which enjoyed rapid growth last year but has been at the centre of a storm over trading outages and restricting access to trades earlier this year when capital limits were reached, is seeking a valuation of around $40bn. The stock is set to list on the Nasdaq under the ticker HOOD.

Regulatory scrutiny

The S1 prospectus dropped just a day after FINRA issued Robinhood with a $70m for “widespread and significant harm” to its customers. The investigation remains ongoing and Robinhood expects more penalties. There are numerous other cases, including class action suits relating to Robinhood restricting access to trading on a number of very volatile stocks at the height of the GameStop frenzy. As I commented on back in January when all this was taking place, I didn’t think Robinhood wanted to stop trading – it was just a question of regulatory capital requirements and Value at Risk models that left the clearing house demanding more cash up front.

Since having to secure $3.5bn from investors PDQ, Robinhood has strengthened the balance sheet considerably and now has about $4.8bn in cash or cash equivalents, plus it has a new $2.2bn revolving credit facility for financing margin trading in the event of another volatile episode.

Meme stocks

“Our vision is for Robinhood to become the most trusted, lowest-cost, and most culturally relevant money app worldwide,” the company said in the SEC filing document. Part of this has involved offering questionable products (like stock options) to relatively unsophisticated traders. (Although the GameStop frenzy proved the Reddit crowd could be very sophisticated indeed, ganging together to concentrate out of the money calls where dealers couldn’t hedge on stocks with lots of short interest, the concentrated buying of the physical to squeeze shorts and create a gamma squeeze on the dealers). The tragic suicide of one customer

Robinhood has ridden – and in many ways helped fuel – a boom in retail trading in recent years, particularly since the pandemic hit. Retail investing now comprises roughly 20% of US equity trading volume, doubling in the decade from 2010 to 2020. “Yet, we believe there is still significant room for growth,” the company asserts. Meme stocks are a big part of the business and I think this presents a risk, albeit Robinhood itself could benefit from becoming the next big meme stock itself – a lot depends on how much reputational damage it suffered this year and how much good faith it retains among the retail crowd. The fact that it is reserving as much as 35% of the shares at IPO for its retail clients could be a master stroke.

Financials

For the year ended December 31, 2020, total revenue grew 245% to $959 million, up from $278 million in 2019. But it’s still not exactly profitable, recording net income of $7 million, compared to a net loss of $107 million in the prior year. Adjusted EBITDA rose to $155 million, compared to negative $74 million.

Fuelled by the meme stock craze, the first three months of 2021 saw total revenue grow 309% to $522 million, up from $128 million in the same period of 2020. However it recorded a net loss of $1.4bn in the quarter due to a $1.5 billion fair value adjustment to its convertible notes and warrant liability.

Incredibly, Robinhood has doubled the number of users since the start of the year, with 31m accounts. Of these, 18m are funded, representing a 151% increase from last year. Fundraising in 2020 indicated a market valuation of around $11bn, but the rapid growth in active accounts and revenues this year has seemingly propelled the company to seek a much larger valuation.

Payment for order flow

Robinhood came under fire in the first quarter of 2021 as meme stock craze exploded. Among the many charges levelled against the platform was the practice of paying for order flow. Robinhood sells market makers like Citadel client trades, who will execute at or better than the current market price. This is what enables commission free trading but has come under scrutiny as could represent a conflict of interest. Nevertheless, Robinhood made 75% of its revenues last year – some $720m – from selling client trades. Of this, about half comes from Citadel Securities (34% of total revenues).

This is perhaps the biggest risk for investors: the SEC has already fined Robinhood $65m for misleading customers over PFOF, as it is called. And chief Gary Gensler has ordered a review of the practice, as well as the ‘gamification’ of investing through apps and incentives. This would tend to put Robinhood in the crosshairs of the SEC just as the former seeks to go public and the latter is likely to get stricter. Timing appears problematic for Robinhood.

If the US regulator were to act on PFOF it could hit the very business model that Robinhood has relied on to secure growth so far. “Because a majority of our revenue is transaction-based, including payment for order flow … reduced spreads in securities pricing, reduced levels of trading activity generally, changes in our business relationships with market makers and any new regulation of, or any bans on, PFOF and similar practices may result in reduced profitability, increased compliance costs and expanded potential for negative publicity,” the filing states (my emphasis).

Crypto trading: blame Elon

Robinhood specialises in stocks and stock options, but cryptocurrency trading is a growing part of the business. From just 4% last year, crypto accounted for 17% of revenues in Q1 2021.

Robinhood notes that 34% of its cryptocurrency transaction-based revenue was attributable to transactions in Dogecoin, as compared to 4% for the three months ended December 31, 2020. For a token set up as a joke, that’s a staggering amount – roughly 5% of all Robinhood revenues in the first quarter of the year.

“A substantial portion of the recent growth in our net revenues earned from cryptocurrency transactions is attributable to transactions in Dogecoin. If demand for transactions in Dogecoin declines and is not replaced by new demand for other cryptocurrencies available for trading on our platform, our business, financial condition and results of operations could be adversely affected,” the S1 states.

I tend to think there is always another Dogecoin round the corner. Robinhood currently supports 7 cryptocurrencies on its platform. That compares with 25 at Markets.com.

The view

Regulatory headwinds appear strong, particularly regarding PFOF, which should see the shares trade at a discount. Crypto is also clearly an area that presents a high level of regulatory uncertainty as well as unreliable flow and trading activity. Reputational risk is also a big factor post-GameStop and in a highly commoditized industry, it’s hard to see where it can really deliver much in the way of margin growth. The business is still not really profitable and the valuation of $40bn+ looks well above peers, even assuming growth continues apace this year.

UK investing: Sectors to watch

While the pandemic has by no means ended, there is hope that the UK economy will reopen fully in the second half of 2021. With that in mind, here are some sectors that have been eyeballed as holding great growth potential from a UK investing standpoint. 

Sectors to watch for UK investing strategies 

Airlines 

The ins and outs of international travel are still being straightened out, but the airline industry and its related infrastructure and suppliers may be about to take to the skies. Of course, this all depends on not just internal policy, but the willingness of other countries to accept tourists, but with travel restrictions loosening, there is high potential in airline stocks. 

In terms of what this means for investors, we can use EasyJet as a case study. The orange discount airline has, like many, had a turbulent time in 2020 and into 2021. However, the stock has provided absolute returns of 22.6% over the past year. The Marketsx in-platform trader trends tool has EasyJet on a 96.9% bullish rating. 

Stocks like Rolls-Royce, one of the airline industry’s key engine suppliers, are also stocks to watch. It currently holds a 99.3% bullish rating on the Marketsx trends tool. 

Renewable energy 

Over $122bn was invested into green energy projects in the UK between 2010-2019. More funding is on the way. The world’s largest offshore windfarm is currently under construction in Dogger Bank off the east coast. Some £12bn has been pledged by the UK government for future renewable projects, but PricewaterhouseCoopers forecasts the government’s 10 point “green energy revolution” plan may cost upwards of £400bn to implement. 

A lot of capital is being poured into clean power generation. Wind is a priority, but so is solar energy, tidal and other forms of renewable energy.  

As well as owning stocks in the likes of SSE, which has committed to triple its green energy output by 2030, investors may look into various funds centred on renewables. For example, the NextEnergy Solar Fund offers a dividend yield of 6.5%, while the Gore Street Energy Fund offers a yield of around 6.7%. 

Oil & gas 

While the future is green, don’t be too quick to write off oil & gas stocks when looking into UK investing and trading strategies. Oil prices are currently trending at some of their highest levels for years. Demand for oil is forecast to soar in the second half of 2021 as the world navigates out of the Covid-19 pandemic. 

With that in mind, oil & gas still has potential for investors. Take BP as an example. Goldman Sachs recently identified the stock as one a potential reopening winner with post-pandemic upsides of a huge 45%. 

Many supermajors are also looking to futureproof themselves with business investment in renewables and attempting to clean up their act. Look at BP. It has 23 GW of clean power projects in the pipeline and has committed to net-zero carbon emissions by 2050, so may morph over time from oil & gas stock to renewable stock. Certainly, one to watch with interest. 

Hospitality 

Hospitality includes live entertainment, pubs, clubs, restaurants and so on. Naturally, due to lockdown, the sector has suffered over the course of the pandemic. But there is light at the end of the tunnel. Pubs and restaurants are now offering seated service inside in addition to al fresco options. There have even been some pilot schemes for live events, not least the 10,000-strong Download music festival. 

With the reopening of the UK economy, although the lifting of full restrictions has been pushed back to July, hospitality stocks could be poised to boom. 

For instance, the Wetherspoons share price gained 45% in the run up to April’s relaxation of dining restrictions. Other pub stocks, like Martson’s have made even greater strides. In Marston’s case, it had made 106% in the six months up to May 2021. 

With the Delta variant spreading, however, the UK may be forced back into lockdowns. So, while hospitality stocks have potential, proceed with caution, although that goes without saying when pursuing UK investing. 

Risks of UK investing 

Whether pursuing business investment, retail trading, or other activities, UK investing comes with risks inherent to all forms of financial speculation. All such activity comes with the risk of capital loss. Always be sure to do your research prior to committing any money and only do so if you are comfortable taking any potential losses.  

Thematic Investing with ETFs

Thematic investing and ETFs go hand in hand. Here’s a quick overview of what both entail so you can get started on a theme-led trading or investing strategy.

A look at ETFs and Thematic Investing

What are ETFs?

ETFs are exchange traded funds, a financial product that combines the properties of a funds and equities.

Each exchange traded fund is composed of different assets grouped together. These might be equities, commodities, bonds, or a mixture of all of them. The assets inside an exchange traded fund track the performance of the fund’s underlying market as closely as possible.

An ETF vs an Index fund

There are some similarities between the pair, but ETFs and index funds do hold some key differences. Here’s a very quick outline of what separates the two.

  • ETFs can be bought and sold at any time, whereas index funds are only available at the price set at the end of the trading day.
  • Exchange traded funds generally require lower minimum investment
  • ETFs are typically more tax efficient

For retail investors and traders, an ETF may be the better option, but this of course all depends on individual goals, personal capital expenditure and so on.

Do ETFs pay dividends?

That depends on the type of ETF. An income fund will distribute any interest and dividends back directly to you, as the name suggests.

An accumulation fund, on the other hand, will not pay a dividend. Instead, it will reinvest any accrued gains back into the fund, raising the value of your investment.

Both are valid options, but again it depends on what you are trying to achieve when investing or trading an ETF.

How does thematic investing apply to exchange traded funds?

The beauty of ETFs is that they are perfectly suited to a thematic investing strategy.

By their very nature, they group together specific assets into one product. They offer exposure to trends, industries, technologies and sectors all in one product – ideal for those who do not want to do they analytical legwork associated with other forms of investing and trading.

One thing in common with thematic ETFs is that they tend to be forward-facing. Many of the available funds out there focus on disruptive technologies and trends.

For instance, cryptocurrency and bitcoin is huge business right now, as one of the most popular trends amongst millennial investors. If this piques your interest, you may want to invest in a crypto-themed ETF.

A space travel-focussed ETF will cover numerous assets around space exploration, i.e. companies that offer commercial space flight, rocket engine manufacturers, raw materials suppliers, and so on.

Cathie Woods’ ARK series of technology-driven ETFs are the perfect example of themed funds. Each is split into different niches and ideas based around disruptive technologies:

  • Innovation
  • Fintech innovation
  • Autonomous technologies & robotics
  • Next generation internet
  • Genomic revolution

So, for example, the fintech innovation fund is based on “innovative and disruptive financial technologies.

“Companies represented within ARKF transaction innovations, blockchain, risk transformation, frictionless funding platforms, customer-facing platforms, and new Intermediaries”.

By packaging assets in the fintech space together into a single tradable asset, investors in that ARK ETF would be gaining exposure to multiple assets and mitigate their single stock risk.

How popular are thematic ETFs?

Very. In Europe alone, thematic ETFs attracted a record €9.5bn in new assets across 2020, bringing the total assets under management (AUM) for thematic funds up to €22.7bn – an all-time high.

In the US, thematic ETFs AUM stands at $183 billion, according to Global X’s Q1 2021 thematic investing report. That represents 2% of the US’ total ETF sector, but, crucially, 7% of revenue. That may look small, but growth has been massive.

Global X reports that US thematic exchange traded funds’ assets under management has risen 430% since Q4 2020. The volume of inflows has tripled since 2019. Aggregate AUM reached $133.1bn at the end of Q1, up 28% from the $104.1bn AUM achieved at the end of Q4 and exceeding the broader US ETF industry’s 7% q/q gain.

There are now 163 thematic exchange traded funds listed on US exchanges – an increase of 13 over Q4 2020. None have been closed either.

In terms of returns, we can look at the performance of some European ETFs to see what makes them a popular choice for retail investors. Some of the funds with the highest ROI include:

  • iShares Global Clean Energy ETF (INRG) – 120%
  • WisdomTree Cloud Computing ETF (WCLD) – 92%
  • VanEck Vectors Video Gaming and eSports ETF (ESPO) – 68%

Risks of thematic investing with ETFs

As with any financial product or asset, the value of an ETF can rise or fall. As such, you can lose money, so only invest or trade if you are comfortable with any potential losses.

There are risks around liquidity too. A surge in investor interest in a specific sector may cause a rally in a fund’s underlying index or component assets. If this is the case, investors may start selling their holdings, and trigger a liquidity shortage. The fund would have to be rebalanced accordingly to protect against this.

As ever, due diligence and research are important here. Make sure you do yours before committing any capital.

Cryptocurrency update: BTC slides as China intensifies mining crackdown

Bad news for Bitcoin. Earlier Chinese efforts to limit crypto mining have turned into a full-scale purge, hitting BTC prices with a significant body blow.

Cryptocurrency update

Bitcoin tumbles as China puts the squeeze on crypto mining

China has intensified its crackdown on cryptocurrency mining operations sending Bitcoin reeling.

As of Monday 21st June, BTC was trading for around $32,000 – some $32,000 lower than the $65,000 highs seen in April. Just last week, Bitcoin had climbed to around $40,000, but China’s efforts to curb mining activity has stunted recovery.

Authorities in China’s key crypto mining provinces are following Inner Mongolia’s lead by banning the energy-hungry practice. China has major climate change goals, so limiting mining for digital tokens from energy consumption chains is part of the strategy to reduce its CO2 emissions.

Every year, crypto mining globally consumers more energy than Sweden.

China is not content with limiting or halting mining operations. In May, the government moved to ban financial institutions and payment companies from providing services related to cryptocurrency transactions. Authorities also warned investors against speculative crypto trading.

The hash rate, the rate at which new Bitcoin tokens are minted, has dropped considerably with these latest measures. Bitcoin tokens are already scarce, it’s partly what gives them value, but authorities moving against miners, and kicking them out of China, is the real issue here.

China’s authoritarian stance is not unexpected – it’s a government that thrives on control of pretty much every industry – but it fits into a wider cautionary attitude displayed by regulatory bodies and governments worldwide.

We’ve heard Governor Bailey of the Bank of England speak out against cryptocurrencies, for example. Regulators in Thailand, India, and Turkey have been mulling over full-on bans too. Retail crypto trading is unavailable for UK customers.

While institutional support from banks and corporations like Tesla continues to mount, it’s being met by stiff resistance from governments.

How can Bitcoin recover? No doubt miners will be setting up shop elsewhere. El Salvador has an ambitious plan to turn itself into Central America’s crypto mining hub, harnessing the geothermic power of volcanos to run its mining operations. Will we see a spike in El Salvador-sourced tokens?

Bitcoin has been struggling to regain its massive April gains across May and June. It looks like its path to recovery just got longer.

Over 90% of UK financial advisors would avoid cryptocurrency

A survey of UK independent financial advisers (IFAs) undertaken by Opinium reveals 93% would never recommend investing in cryptocurrency to their clients.

A further 91% said they would be concerned if they were investing in such assets.

Retail clients are unable to trade digital tokens in the UK anyway, but this is still an interesting development. According to Opinium, crypto’s inherent volatility and close regulatory scrutiny turn IFAs against cryptocurrency investing.

Only a third of those surveyed said they had noticed an increase in interest regarding crypto trading and investing.

A new crypto unicorn emerges

A new unicorn, a tech firm valued at a minimum of $1bn, has emerged in the cryptoverse.

Amber Group (AG), an Asian crypto trading and technology firm, is the latest subject of venture capitalist interest, as they continue to pour capital into the space.

The Group dubs itself as “an integrated crypto financial services firm that offers 24/7 services ranging from market making to asset management and structured products”.

It passed the $1bn mark after a successful investment round raising $100m from China Renaissance, with participation from Tiger Brokers, Tiger Global Management, and other new investors. Its existing investors, such as Pantera Capital, Coinbase Ventures, and Blockchain.com have also joined the round.

Michael Wu, Co-Founder and CEO of Amber Group, says the company now accounts for 2%-3% of total trading volumes in the crypto spot and derivative market. AG’s cumulative trading volumes have doubled from $250bn since the beginning of the year to over $500bn as of June 2021.

„We have been profitable since inception, and with growing revenues across all business lines, we are now annualizing USD 500m in revenues based on January to April 2021 figures,“ Wu said in an announcement.

Wochenausblick: Wird die Bank of England der Fed mit einem falkischen Wechsel folgen?

Die Bank of England gibt uns diese Woche vor dem Hintergrund steigenden Inflationsdrucks ein frisches Update zur Geldmarktpolitik. Werden die ersten Zahlen die Bank ins Zittern versetzen oder ist sie doch härter? Anderswo erwarten uns PMI-Zahlen aus den USA, Großbritannien und der EU, die auf einen sehr guten Mai folgen. OPEC und ihre Verbündeten sind auch beschäftigt, mit dem Beginn einer weiteren Reihe von politikentscheidenden Treffen.

Andrew Bailey und die Bank of England stehen nächste Woche im Rampenlicht. Die britische Zentralbank gibt ihre jüngste geldpolitische Entscheidung bekannt und wird voraussichtlich ihren Kurs beibehalten, obwohl dies vor dem Hintergrund eines schnellen Wirtschaftswachstums und einer steigenden Inflation erfolgt.

Es könnte ein Umdenken im Gange sein. Gouverneur Bailey hat wiederholt in der Vergangenheit angegeben, dass er keine Problem damit habe, die Politik anzuziehen, wenn die Preise dauerhaft über dem Inflationsziel der BoE von 2% liegen. In diesem Fall könnte dies ein Anstieg der Zinsen bedeuten.

Der Leitzins der BoE blieb im vergangenen Jahr im Rahmen der von der Bank erlassenen wirtschaftlichen Notfallmaßnahmen während der Pandemie bei 0,1%.

Die Verbrauchpreisinflation stieg letzte Woche vom Office of National Statistics veröffentlichten Zahlen zufolge im Mai auf das Jahr gerechnet auf 2,1% . Die Inflation Monat-zu-Monat wird bei 0,6% verzeichnet.

Es gibt allerdings keine Anzeichen dafür, dass uns eine Änderung der Zinsen unmittelbar bevorsteht. Hier ist zwar mehr im Spiel, aber ein Großteil des Inflationsdruck geht auf die Wiedereröffnung der britischen Wirtschaft und Basiseffekte aus 2020 zurück. Aber Konsequenz wird hier der Schlüssel sein. Wenn es Monat-zu-Monat zu einem weiteren Anstieg der Inflation kommt, könnte die BoE gezwungen sein, zu reagieren.

Auf der Zahlenseite werden diese Woche die PMI-Daten aus den USA, Großbritannien und der EU veröffentlicht. All diese großen Volkswirtschaften werden versuchen, auf dem beeindruckenden Schwung vom Mai aufzubauen.

So erreichte der US-PMI für das verarbeitende Gewerbe von IHS Markit zum Beispiel im Mai mit einem Wert von 61,5 seinen höchsten Stand seit Oktober 2009. Die Inlandsnachfrage und der Verbrauch kurbelten letzten Monat die US-Produktion an, aber Hersteller warnen vor Problemen in der Lieferkette durch Rohstoff- und Arbeitskräftemangel. Ein geringerer Wert im Juni könnte daher realistisch sein.

Die Expansion des Dienstleistungssektors übertrifft die Produktion. Der PMI für Mai liegt bei 70,1 und übertrifft damit den Wert von April von 64,7. Höheres Verbrauchervertrauen in Kombination mit der beeindruckende Impfleistung der USA erklären das hohe Niveau des Umsatzes der Dienstleistungsbranche.

Ebenso erlebt Großbritannien mit der Lockerung des Lockdowns im Mai ein atemberaubendes Wachstum im Dienstleistungsbereich. Der PMI der Branche erreichte 62,9 – dem höchsten Wert seit Mai 1997. Die Produktion schoss, getrieben von einer Reihe neuer Aufträge, in die Höhe und erreichte letzten Monat 65,6, ein 29-Jahres-Hoch.

Mai war auch für die Geschäfte der Eurozone ein guter Monat. Der zusammengesetzte EU-PMI von IHS Markit erreichte mit einem Wert von 57,1 ein Dreijahreshoch und liegt damit deutlich über dem Wert vom 53,8 von April. Denken Sie daran, dass ein Wachstum von einem Wert von 50 oder höher angezeigt wird. Während das Tempo also nicht so hoch war wie in Großbritannien oder den USA, zeigte die EU im letzten Monat gute Anzeichen für wirtschaftliche Widerstandsfähigkeit. Kann es das im Juni auch tun?

Um bei den Zahlen zu bleiben: der finale Wert des BIP-Wachstums der USA für das erste Quartal wird diese Woche erwartet. Der finale Wert dient als Art Bestätigung, eine Kontrolle der weiteren wirtschaftlichen Gesundheit. Der frühere Anstieg im Mai lag bei 6,4 %, was Anzeichen für eine boomende Wirtschaft zeigt. PMI-Flashpoints unterstützen dies. Auch im zweiten Quartal könnten wir ein zweistelliges BIP-Wachstum erleben.

Abseits von wirtschaftlichen Rohdaten, versammeln sich OPEC und ihre Verbündeten am Donnerstag für eine weitere Reihe Treffen. Steigende Ölpreise werden das Kartell zweifellos in gute Stimmung bringen, aber hier ist Vorsicht geboten. Jeder unerwartete Anstieg der Fördermenge könnte im Gegensatz zum aktuellen stetigen Rücknahme der Fördereinschnitte der OPEC+ zu einem Überangebot führen, trotz der zuversichtlichen Prognosen zur globalen Nachfrageerholung.

OPEC+ entschied sich im April, zwischen Mai und Juli 2,1 Millionen Barrel pro Tag zusätzlich an die Märkte zu bringen. Wir könnten diese Woche das Zusammenkommen eines größeren Plans für eine Rücknahme der Fördereinschnitte für die Zeit nach Juli sehen.

Das Kartell bleibt bei seinem optimistischen Ausblick hinsichtlich der Öl-Nachfrage. Ihr monatlicher Bericht geht davon aus, dass die Nachfrage um 6,6% auf 5,95 Millionen Barrel pro Tag für 2021 steigen würde. Die Vorhersage blieb für den zweiten Monat in Folge unverändert.

Was die OPEC und ihre Verbündeten von hier an unternehmen werden, wird entscheidend sein. Da WTI und Brent jetzigen Zeitpunkt über 72 und 74 USD erreichen, einige der höchsten Preise seit Jahren, sind die Anzeichen für eine verstärkte globale Ölnachfrage vorhanden – aber jedes Überangebot könnte die Waage zurück zu einem Rückgang anstelle eines Preiswachstums führen.

Top Wirtschafts-Daten

Date  Time (GMT+1)  Asset  Event 
Mon 21-Jun  2.30am  AUD  Retail sales m/m 
       
Wed 23-Jun  8.15 am  EUR  French Flash Manufacturing PMI 
  8.15 am  EUR  French Flash Services PMI 
  8.30 am  EUR  German Flash Manufacturing PMI 
  8.30 am  EUR  German Flash Services PMI 
  9.00 am  EUR  Flash Manufacturing PMI 
  9.00 am  EUR  Flash Services PMI 
  9.30 am  GBP  Flash Manufacturing PMI 
  9.30 am  GBP  Flash Services PMI 
  1.30 pm  CAD  Core Retail Sales m/m 
  1.30 pm  CAD  Retail Sales m/m 
  2.45 pm  USD  Flash Manufacturing PMI 
  2.45 pm  USD  Flash Services PMI 
  3.30pm  OIL  US Crude Oil Inventories 
       
Thu 24-Jun  All Day  OIL  OPEC+ Meetings 
  12.00 pm  GBP  MPC Official Bank Rate Vote 
  12.00 pm  GBP  Monetary Policy Statement 
  12.00 pm  GBP  MPC Asset Purchase Facility Votes 
  12.00 pm  GBP  Official Bank Rate 
  1.30pm  USD  Final GDP q/q 
  3.30pm  GAS  US Natural Gas Inventories 

 

Top Geschäftsberichte

Date  Company  Event 
Mon 21-Jun  Naspers  Q4 2021 Earnings 
     
Wed 23-Jun  Markit  Q2 2021 Earnings 
     
Thu 24-Jun  Nike Inc.  Q4 2021 Earnings 
  Accenture plc  Q3 2021 Earnings 
  FedEx Corp.  Q4 2021 Earnings 

Cryptocurrency update: BTC hits accelerator on Telsa u-turn

After hitting the brakes on BTC payments, Tesla appears to have changed its tune, while El Salvador is fully in the cryptocurrency fast lane with a daring new strategy.

Crypto update

Musk’s Tesla Bitcoin handbrake turn

Bitcoin hit the accelerator this morning following yet another market-empowering tweet from Elon Musk.

The Tesla CEO and ardent cryptocurrency supporter has partially u-turned from the automaker’s decision to stop accepting Bitcoin as payment owing to crypto mining’s environmental impact.

Musk said Sunday 13th June that Tesla will resume bitcoin transactions once the electric vehicle maker confirms there is “reasonable” clean energy usage by miners.

In response to a tweet from cryptocurrency news aggregator Coin Telegraph, Musk confirmed his stance, while also addressing questions over Tesla’s own BTC holdings.

It’s not clear how exactly Musk and co. plan to vet crypto miners, or how they would check their green energy credentials. However, this is the first indicator we’ve had that Tesla is shifting its stance following its self-imposed BTC payment ban.

Tesla still owns a substantial number of Bitcoin tokens, valued at anywhere between $1-2bn. In selling a 10% stake in Q1 2021, the carmaker allegedly made more profit from BTC sales than from selling actual cars.

As is commonplace when Musk powers up the Twitter app on his smartphone, this latest tweet has acted as propellant for BTC prices. As of Monday morning, Bitcoin was looking to test the $40,000 level after a few weeks of sideways trading – a 12% leap. We’re still someway off April’s $65,000 record highs, though, and it might take time for the token to reach those levels again.

The environmental cost of cryptocurrency mining has been under intense scrutiny in recent weeks. China has cracked down on mining operations citing massive energy consumption concerns. Iran has banned all such activity until September as blackouts in capital Tehran were triggered by mining operations guzzling up power.

Again, there has been no real indicator as to how Tesla ensures its supply of Bitcoin tokens come from environmentally friendly miners. But green power and clean energy are at the core of Tesla’s philosophy. Ensuring its crypto strategy is in line with basic principles is good for brand image, but it does leave you questioning with a carmaker is dabbling with crypto trading anyway.

That’s legal tender! El Salvador pushes ahead with ambitious BTC plan

El Salvador has become the first country in the world to accept Bitcoin as legal tender.

Under Millennial meme-loving President Nayib Bukele, the Central American state has taken the radical step of turning the world’s most popular crypto into actual, legal currency. It will gain full legal tender status in 90 days’ time.

Merchants were already free to accept payment in BTC at their own discretion, but now they must do so unless they lack the proper technology.

The US dollar will remain El Salvador’s primary currency. Prices for goods and services will be listed in USD rather than BTC for instance. But BTC can now be used for everyday purchases and even for paying taxes.

It’s an interesting move, especially for a digital currency that revolves around decentralised finance. How would paying taxes work exactly – especially when regulators worldwide are keen to crack down on crypto-led money laundering and tax evasion?

What about energy and mining? While the bill that passed BTC into law does not specifically mention mining, President Bukele tweeted a drone-shot video showing a geothermal powerplant in action. Bitcoin by volcano anyone?

The government has set about guaranteeing convertibility of BTC to dollars through a $150 million trust created at the country’s development bank BANDESAL.

Why has El Salvador taken this path? Bukele says the move will help foster financial inclusion, investment, tourism, innovation and economic development.

Bukele is particularly hopeful remittance, i.e. payments sent back home from citizens living overseas, can pick up. Using BTC to pay these would cut out the middleman, and possibly result in billions of extra cash by negating conversion fees.

Others are wary of the decision.

The IMF, with which El Salvador is hashing out a $1bn economic relief deal, states the Central American country’s move “raises a number of macroeconomic, financial and legal issues that require very careful analysis”.

We’ve seen institutional digital currency support rise in recent months – but we’ve also seen numerous regulatory bodies urge caution. An entire country taking the leap to legitimising BTC has legal tender is entirely new ground. Cryptocurrencies, and especially Bitcoin, are inherently volatile. What El Salvador is doing could have considerable blowback.

El Salvador is thus a Central American guinea pig with its legal tender experiment.

Thematic investing: investing in technology

Our next instalment in the thematic investment series looks at which tech stocks to buy. Investing in technology can pay dividends – but it can also prove tricky too. 

Thematic investing: tech stocks 

Investing in technology: what you need to know 

Technology is an all-encompassing term. It covers an enormous range of sectors. Everything from your smartphone to electric vehicles to productivity, and more besides sits within the technology sphere. Even companies like Disney, with its Disney+ streaming service, or Amazon with its Amazon Web Services offer, are considered tech stocks. 

The best tech stocks to buy will be entirely up to you and what your investing or trading goals are. Be aware that, because of the sector’s diversity, there are many different types of company with differing compositions, market caps and characteristics within the technology space. 

Some might be multi-billion-dollar behemoths like the FAANG stocks (Facebook, Apple, Amazon, Netflix and Google). Others might be market disruptors like Uber or Spotify. Some firms will be well established with vast cash reserves. Others might up-and-comers might be burning through capital but with rapid share appreciation to match.  

That said, tech stocks are amongst some of the best performers. Indices dedicated solely to technology and related firms offer some considerable potential returns for instance. The Nasdaq 100, listing the top 100 US tech stocks for example, is up over 43.8% as of May 25th 2021. The Dow Jones US Technology Index is also showing similar numbers, up 47.92% year-to-date. 

Remember the risks when searching for tech stocks to buy 

Technology is all about innovation. It never stands still. Because of that, even the best tech stocks can be a risky investment. Huge capital investment is needed to ensure a company’s solutions and products remain at the head of the pack. A company can disappear completely if a rival develops a product or service consumers and the market prefer. 

Some tech firms’ valuations have been questioned too. We mentioned Uber earlier. That’s a company that has admitted it may never be profitable. Is that worth the risk for investors?  

Then there are general economic patterns to consider. When times are tough, luxury items like brand new smartphones may not sell well. Thus, the manufacturer’s share price may fall, along with companies supply components and raw materials needed to build a new smartphone.  

When times are good, and consumers have more cash to spend, there might be higher demand.  

Inflation woes play a part too. As recently as late May 2021, we’ve seen tech-sell offs generated by fears that inflation may bite into tech manufacturers and providers’ profitability. This was triggered by a spike in bond yields and general uncertainty around the economic picture caused by the global Covid-19 pandemic. 

All investing and trading is risky. Investing in technology can prove doubly so. Only invest or trade if you are comfortable with any potential losses. Do your research and understand how to pick stocks before committing any capital.  

What are some of the best tech stocks to watch? 

Again, what is the best stock will depend entirely on your individual budget and circumstances. Consider a wide range of different sectors and industries covered under the tech umbrella.  

Diversification, i.e., getting exposure to several different industries, stocks, and sectors, is used by investors to mitigate risk. If one stock performs badly, the theory goes, the other stocks or assets in your portfolio can help protect against that by performing well. 

With that in mind, the below may be tech stocks to buy if they meet your individual criteria. 

AMD 

AMD makes semiconductors and micro-components used to build everyday essentials like phones, laptops and so on. Its main product line covers graphics cards, microprocessors and motherboard chipsets.  

As of May 25th, 2021, AMD stock was up just over 47%. It also looks like it has a bright future. Latest quarterly earnings saw AMD revenues expand 93% year-on-year, reaching $3.45 billion. Operating income for the quarter was $662 million while net income was $555 million – a 243% increase from the prior year. 

We mentioned earlier how technology companies must invest heavily to keep up with the pace of innovation. In the case of AMD, its investments are a form of protection. Due to intense demand, chipset raw materials are at a premium right now. To avoid shortages, AMD recently inked a $1.6bn wafer supply deal with GlobalFoundaries.  

GlobalFoundaries will be supply necessary components between 2022 and 2024 under the terms of the deal. AMD is now developing second and third generation Epyc server chips – a product of high interest to AMD customers. 

According to the Analyst Recommendations tool on the Marketsx trading platform AMD is rated as a buy by 52.9% of analysts. 

Apple 

Apple is one of the most recognisable brands on the planet. As tech companies go, they don’t come bigger than the Californian company. Its clean-cut branding combined with a reputation for innovation and useability make its products hot property. Because of that, Apple often makes an appearance amongst the best tech stocks. 

Apple’s latest round of earnings, coming in April 2021, saw the company enjoy yet another blowout quarter. Companywide sales were up 54% y-o-y. iPhone sales shot up 65.5% during this period, spurred on by the launch of the new iPhone 12. Mac and iPad sales outperformed even Apple’s flagship product, notching impressive 70.1% and 79% annualised growth. 

In monetary terms, total revenues were up 53.7%, totalling $89.58 billion. Earnings per share (EPS) beat expectations at $1.40 vs. the estimated $0.99. 

Apple stock is up across the year. It was trading for around $80 in May 2020. Flash forward to May 2021, and AAPL is exchanging hands for about $126. Analyst forecast is bullish with analyst consensus heavily weighted towards buy. 

Xero 

ASX-listed Xero is carving out a position as a global leader in cloud accounting.  

In its 2021 financial year, the Wellington, New Zealand-based software supplier, managed to expand its subscriber base by 20% to 2.74 million worldwide. Stand out geographies included: 

  • 17% growth in UK customers – 720,000 subscribers 
  • 18% growth in US customers – 285,000 subscribers 
  • 40% growth in Rest of the World customers – 175,000 subscribers 

Growth is carefully pared with stock performance. It’s something to consider when investing in technology stocks. Xero’s average annual 25.1%, which ranks better than 85% of the companies in Software industry, according to analysts GuruFocus.  

The 3-year average Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) growth is 86% – better than 97% of software companies profiled by GuruFocus. Taxes, Depreciation, and Amortization 

Xero’s future is entirely focussed on expansion. It regularly tells investors it has a preference to re-invest cash generated to drive long-term shareholder value. But because it reinvests so much, Xero may not have major profitability going forward. Something to consider. 

Investing in technology: reiterating the risks 

When looking at tech stocks to buy or trade, consider the risks. While you can make money, there is a risk of capital loss. Do your research before committing any capital and only invest if you are comfortable with any potential losses. 

 

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