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JannaOneTrick

The Forex Market could be far bigger than you think

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looks like good stuff - although the mathematics is above my head.  Thank you for the explanation.

It has always seemed to me that large amounts of XRP will get trapped in the smart contract and escrow systems.   Not sure if this happens in your explained systems?

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Posted (edited)

@Julian_Williams

Maybe large amounts of XRP would indeed have  to be held in smart contracts, given the fact many international transactions are paid a few months after the invoice has been received by the buyer (60 days payment terms is very popular), or even further like with the example of the Letters of Credit.

That means there has to be the available of supply of XRP ready to be used for later purposes, according to the terms of sales between the parties, and not only on the present moment.

Another thing I can think of is the correspondent banks could potentially hold the XRP themselves, hence becoming liquidity providers.

This way, the inter bank relations would remain. But I have no idea of the likelihood this scenario plays out or not.

Edited by JannaOneTrick

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Posted (edited)
2 hours ago, JannaOneTrick said:

Individual Investors
The volume of forex trades made by retail investors is extremely low compared to financial institutions and companies. However, it is growing rapidly in popularity.

This part surprised me.  I thought that market makers (high-volume traders) made up the majority of the market, not the minority.  Or is that what you're including under: 

2 hours ago, JannaOneTrick said:

Investment Managers and Hedge Funds

Love the post, by the way! :yes3: Lots of detail and 'insider banking' flows with existing (SWIFT) messaging used as an example.

Curious to know your perspective on some of the specifics - i.e., where would Ripple tech replace / fit into those flows, or would it completely dis-intermediate them?

Edited by Hodor

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Posted (edited)
23 minutes ago, Hodor said:

This part surprised me.  I thought that market makers (high-volume traders) made up the majority of the market, not the minority.  Or is that what you're including under: 

Love the post, by the way! :yes3: Lots of detail and 'insider banking' flows with existing (SWIFT) messaging used as an example.

Curious to know your perspective on some of the specifics - i.e., where would Ripple tech replace / fit into those flows, or would it completely dis-intermediate them?

Thank you!

Well market makers is not limited by individual investors or retail. Most FX trading firms are market makers as well as many banks.

What I wanted to emphasize was that banks and central banks represent the majority of the FX volume.

My own perspective is that Ripple wants to help the system rather than entirely revamp it from zero. Although I am quite open minded and I believe Ripple can either fit into the flows, meaning we would keep the inter banking network, or dis-intermediate the system as you said.

This is why I made the assumption the correspondent banks could potentially hold XRP.

17 minutes ago, Benchmark said:

Thanks for sharing. This is a part of global trade that people usually don’t see. 

Thanks for acknowledging, this is exactly what I wanted to highlight to maybe people who are not familiar with it.

I am very much enthusiastic about how Ripple can tremendously help the current system in regards of international trades.

Edited by JannaOneTrick

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15 minutes ago, JannaOneTrick said:

Thank you!

Well market makers is not limited by individual investors or retail. Most FX trading firms are market makers as well as many banks.

What I wanted to emphasize was that banks and central banks represent the majority of the FX volume.

My own perspective is that Ripple wants to help the system rather than entirely revamp it from zero. Although I am quite open minded and I believe Ripple can either fit into the flows, meaning we would keep the inter banking network, or dis-intermediate the system as you said.

This is why I made the assumption the correspondent banks could potentially hold XRP.

Thanks for acknowledging, this is exactly what I wanted to highlight to maybe people who are not familiar with it.

I am very much enthusiastic about how Ripple can tremendously help the current system in regards of international trades.

That is the strength of these Temenos, R3, Ripplenet/ TCS services.  XRapid/Via is presented as an option that can be used when it is appropriate and ignored when other method are more appropriate. 

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1 hour ago, Julian_Williams said:

That is the strength of these Temenos, R3, Ripplenet/ TCS services.  XRapid/Via is presented as an option that can be used when it is appropriate and ignored when other method are more appropriate. 

I believe these will staggeringly help removing friction from the current network. I am unfortunately not knowledgeable enough to speak about those services to provide an opinion with 100% certitude.

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One aspect of "forex" that I've never heard anyone talk about is trading within a specific fiat. I'm not talking about government issued fiat, either. I'm talking about 'corporate currencies' or 'corporate fiat', if you will ... All those gift cards and such that you see at the market. Though (in the U.S.) they are nominally called 'dollars', the fact of the matter is they only exist on the ledgers of their respective corporate books.

Thus, if I have a iTunes gift card, or a Walmart gift card, or an Amazon gift card, then I actually have Red Lobster dollars, Walmart dollars or Amazon dollars. None are interchangeable. Each are on different ledgers. None are legal currency in this country (try to pay ur taxes with 'em). They are corporate issued fiat currencies, not good in any other 'country' than Walmart, Amazon, iTunes, etc. 

Forex is more than between government issued fiat. 

It will between corporate fiat as well. 

This will be big. 

 

 

 

 

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Posted (edited)
1 hour ago, RobertHarpool said:

One aspect of "forex" that I've never heard anyone talk about is trading within a specific fiat. I'm not talking about government issued fiat, either. I'm talking about 'corporate currencies' or 'corporate fiat', if you will ... All those gift cards and such that you see at the market. Though (in the U.S.) they are nominally called 'dollars', the fact of the matter is they only exist on the ledgers of their respective corporate books.

Thus, if I have a iTunes gift card, or a Walmart gift card, or an Amazon gift card, then I actually have Red Lobster dollars, Walmart dollars or Amazon dollars. None are interchangeable. Each are on different ledgers. None are legal currency in this country (try to pay ur taxes with 'em). They are corporate issued fiat currencies, not good in any other 'country' than Walmart, Amazon, iTunes, etc. 

Forex is more than between government issued fiat. 

It will between corporate fiat as well. 

This will be big. 

Agreed, this is a great use case for the rippling functionality!

The only issue I can see is that you would need those corporates to buy into the idea of their gift cards being tradeable. This might be a difficult sell. Corporates profits off of "breakage," which is when people fail to use their gift card balance... so as soon as you make those gift card dollars tradeable, they're more likely to be spent. The person who values them enough to accept them in a trade would also be more likely to use them -- less breakage profit.

Although we might end up in a weird scenario where this encourages market makers to stockpile points in order to provide liquidity into and out of gift cards. The cash/corporate cash exchange rate would be where they make their profits.

Edited by ADingoAteMyXRP

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1 hour ago, ADingoAteMyXRP said:

Although we might end up in a weird scenario where this encourages market makers to stockpile points in order to provide liquidity into and out of gift cards. The cash/corporate cash exchange rate would be where they make their profits.

Change "corp cash" to "digital gaming assets" and IMHO, this is exactly what xSpring just invested $100m to build out the ILSP market maker technology to do.

Once you have solid ILSP tech you can reconfigure it for applications in other markets like Corp cash/credit. 

@JannaOneTrick very excellent post, thank you for taking the time to articulate this. I love it when folks here drop some knowledge. 

One quick challenge to this that I'd like to entertain (just for fun) is... what if, this whole model of handling FX is abandoned in whole or in part?

So, now we can make instant payments with RippleNet, then why use all the LoC and Forward contracts? Because Time elapses between the sale/commitment to transact, and when the goods are delivered triggering the transaction settlement.

Enter "Streaming payments" and imagine if the payment streams from the buyer to the seller (and to the shipping company) in real time as the goods float their way across the ocean...

This does not eliminate the risk. I have a saying, "risk almost never disappears, it only changes form".

So this streaming payments situation would change the FX risk's characteristic, from a "stagnant risk" with the risk only having 2 relevant points in time (tx commitment & settlement)... to a "continuous risk" meaning the FX risk exposure would ebb and flow with the spot market rates during the time the goods are in route.

As you said (i added the word interest) 

12 hours ago, JannaOneTrick said:

This means that the futures price, contrary to what one might think, is not an anticipation of what the spot price will be in the future. However, it is based on an evaluation of the value of currencies, via market Interest rates.

Key point! With streaming payments it would become possible to create FX transactions with a risk exposure more related to the continuously changing spot market rates, rather than interest rates over a static time period.

I dont have an answer in mind, but this arrangement would beg for an answer to the question, "how can you hedge a continuous (^e) risk?"

---

I'd personally be weary making an investment bet while assuming any financial service's business model will remain substantially the same as it has been over the past few decades.

Great post! Fantastic topic! 

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