How Does The Cyprus Bank Bail Out Affect Binary Options?
I’m sure by now you have heard about the Cyprus bank bail out and at least a few of the details. In short, the country’s enormous banking sector is hurting for cash. This is due in part to large bets on Greece, bets that failed to pay off when that nations debt was restructured. Now the Cypriot banking sector is billions of euros in the hole and in need of help. This is not a surprise and not the reason why the markets sold off as hard as they did. What surprised everyone was the nature of the bailout structure. The EU and IMF want Cyprus to put up a substantial portion of the money themselves which is not a bad idea.
The EU can help but it shouldn’t necessarily be on the hook for the whole deal. The problem is that Cyprus doesn’t have the money to solve its problem and doesn’t really have a way to raise it. The country does not sell bonds in great quantities and there is little else to tax there but the banking sector. The banks don’t have money to tax which brings us back to where we started. This is the part where it gets tricky. Cyprus proposed over the weekend to enact a new tax in order to raise the money. This was also not a surprise as we have seen similar things in other ailing EU member nations. What was surprising was the where the tax was to be levied; average depositors. Since there is nothing else to tax the Cyprus governments only recourse is to target the 100’s of billions of euros deposited in its banks. At first reports there was going to be a 9% tax on all bank checking and savings accounts. Since then this has been tempered to a more structured plan that puts less weight on deposits under $100,000 but still affects all account holders, native and foreign. At current reports Cypriot banks to remain closed until Thursday.
How Does Cyprus Affect Binary Options Accounts
This is a problem for Cyprus for a number of reasons. First it means that a lot of their depositors will leave and the economy will shrink rapidly. Most of the Cyprus banking sector is built on providing tax havens for off-shore account holders. Now all of these accounts are subject to the new tax. There are already reports of runs on Cyprus banks and ATM machines out of money. Not to worry binary traders this will not affect you. My source inside 24Option told me that it would not affect binary options accounts. Of course, that statement does not take into consideration those of us who will be trading on this news.
Fear Drives Knee-Jerk Reaction
The fears are primarily concerned over the affect Cyprus will have on the EU. Will a similar tax be levied on other countries? Will this affect other tax havens like Switzerland and Lichtenstein. I think this is highly unlikely. In my opinion these fears will pass. The broader EU has other methods with which to battle it’s problems. This is why Cyprus is calling on it for help. Cyprus can’t afford to alienate its off shore account holders and it can’t afford to alienate the EU. It will have to come up with another solution though and that could come in the form of a bond auction.
The fear will likely subside soon and leave us with the underlying fundamentals of the world economy. Stimulus plans around the globe are gaining traction. Economic data supports growth in the U.S. and there are signs of this in other countries as well. The market sell off caused by the Cyprus bail out is most likely a buying opportunity on the S&P500’s trip to make a new all-time high. Many speculators have been waiting for a dip in the index in order to buy into the latest leg of the rally, this could be it.
Long Term Impact Of Cyprus Bail Out
The bail out will not doubt have long term repercussions for Cyprus and its banks but what does it mean for binary options traders. At this time not much. The dip we saw on the initial news will soon fade. However, if no agreement can be made there is a risk of Cyprus leaving the EU. This could have a wider impact and possibly add momentum to the bear side of this trade. At this time though I think this (a Cyprus exit) is less likely than when we were talking about Greece doing the same thing. But, should it happen, it could impact binary options regulation. Much of the credibility of CySEC regulation comes from the EU ImFIB and other governance’s that regulates financial activity in the European Economic Arena through the EEA passport.