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Tobin Tax Effect on Forex

  • #1
  • First Post: Jan 9, 2012 1:41pm Jan 9, 2012 1:41pm
I've been reading a lot lately about the EU's proposed Tobin Tax on all financial transactions. This would effectively kill short term trading and seriously hamper the FX market.

http://en.wikipedia.org/wiki/Tobin_tax

The tax essentially increases the more frequently you trade. One calculation I read on the German wikipedia was that for a trader placing one trade a day for a year, the tax could be as high as 52%.

Unless the entire world FX market implements the tax, it seems this will only screw europe, because speculators like you and me would simply move to another set of currency or another market altogether.

I'm interested to hear what would you guys do if
A. The EU implements a Tobin Tax
and or
B. The world FX market implements a Tobin Tax.

I think I'd switch to whatever the most liquid market I could find that didn't have the tax. Maybe the US futures market.

Also, although I live in Germany, I wonder if my broker is out of the EU I wouldn't have the pay the tax. Or maybe this is the opportunity for me to move to Switzerland?

And this is really how they expect to win back investor confidence? This will be the death of them, promise.
  • #2
  • Jan 9, 2012 4:49pm Jan 9, 2012 4:49pm
I got one word for you,

Elections.
.
  • #3
  • Jan 9, 2012 5:54pm Jan 9, 2012 5:54pm
People are blaming capitalism for the current situation, but all the regulation and mostly the indecision of the world leaders about what to do, is making things far more worse. I'm not sayin' capitalism is perfect, no system is, but we are creating a complex, unsustainable system that will lead to even more chaos.
  • #4
  • Jan 10, 2012 8:24am Jan 10, 2012 8:24am
Quoting Forex5050
we are creating a complex, unsustainable system that will lead to even more chaos.
Bit late for that - we've already created a complex and unsustainable system. All that's happening now is a great unravelling.

Tobin tax is the biggest political hot potato of them all right now. Not because it'll sort out the crisis (it won't, it'll just give EU some breathing space) but because the UK's membership hangs in the balance. Given the UK veto already, I suspect imposing it on the UK would lead to a debate as to whether or not we stay in the EU. A public referendum would see us leave I reckon, and so maintain trading without Tobin - and so spreads would remain the same.

The bigger question would then be how much could EU forcibly take off city of London. It could only ever be euro-settled transactions so could end up with huge spreads on euro instruments, normal on the others over time.

Worldwide tobin tax is not possible without tax harmonisation worldwide. They can't agree a way forward in Europe, let alone corral the world to all charge tobin so I wouldn't sweat it.
  • #5
  • Jan 10, 2012 8:51am Jan 10, 2012 8:51am
Quoting PipJaeger
I've been reading a lot lately about the EU's proposed Tobin Tax on all financial transactions. This would effectively kill short term trading and seriously hamper the FX market.

http://en.wikipedia.org/wiki/Tobin_tax

The tax essentially increases the more frequently you trade. One calculation I read on the German wikipedia was that for a trader placing one trade a day for a year, the tax could be as high as 52%.

Unless the entire world FX market implements the tax, it seems this will only screw europe, because speculators...
Can you provide a link to this German wiki? I can translate.

The Tobin Tax could be implemented in such a way that it taxes a tiny percentage of the transaction.

It would punish big players, but it would have very little effect on people like you (unless you are moving billions around in a year).

The point is to encourage long term greed (quoting Dylan Ratigan).

Since the 80s, financial markets have slipped back into a chaotic form of volatility where the elderly run the risk of losing their life savings if they invest, and governments continue to inflate it away to stave off massive crashes (brought on by short term speculators).

For me, the first thing we need in global financial markets is transparency. Before Europe or anyone else rushes into the Tobin tax, I think the world can justly demand public exchanges (or at least reporting) on all swap arrangements.

Letting bankers operate (and speculate) in the shadows for too long has had a negative impact on stability.

Time to shine a light on their operations.

**Especially Goldman Sachs, JP Morgan and major American banks.

***Last addition - banking is supposed to be boring. We need to return to boring stable banking.
  • #6
  • Jan 10, 2012 9:30am Jan 10, 2012 9:30am
Quoting Wheels
Can you provide a link to this German wiki? I can translate.

The Tobin Tax could be implemented in such a way that it taxes a tiny percentage of the transaction.

It would punish big players, but it would have very little effect on people like you (unless you are moving billions around in a year).

The point is to encourage long term greed (quoting Dylan Ratigan).

Since the 80s, financial markets have slipped back into a chaotic form of volatility where the elderly run the risk of losing their life savings if they invest, and governments...
+1000!! I agree that banking should be boring (and STABLE!!) - I wish they'd simply reinstate Glass-Steagall to push the bank out of the risky investment biz. This would instantly reinforce the old "hold-em" long term investment strategy for stocks and reduce volitility worldwide. Investment cash worldwide would flood into a more stable US economy and a small transaction tax would put easy billions in the fed coffers.

These are facts already known by since GS WORKED nicely for almost 66 years before the 1999 republican repeal. A gradual return to boring US banking would be a huge plus for the entire world economy. (dont hold your breath since the banksters own Washington)
  • #7
  • Jan 10, 2012 9:43am Jan 10, 2012 9:43am
Quoting Wheels
Since the 80s, financial markets have slipped back into a chaotic form of volatility where the elderly run the risk of losing their life savings if they invest, and governments continue to inflate it away to stave off massive crashes (brought on by short term speculators).
I agree with you about transparency, stability, boringness all the rest, but to think that this volatility will be sorted by a tax is the product of economist brainstorming from their ivory towers - ie the same thing that's caused the mess in the first place.

If VaR models actually worked, we'd have had a recession years ago and would probably be enjoying a boom time around about now. VaR has completely disguised risk and allowed banks & govts to intentionally and clearly in some cases fraudulently to bury risk under multiple hedges.

Truth is, even within the banks, not many of them truly understand it, but noone gave a toss because they could then trade multiple markets all day long and exponentially leverage their capital because they could now offset risk from one market to another. It also provided a complex veil that no regulator could possibly get their head around hiding insolvency to all and sundry.

And it's still going on, tax or no tax. Taxing will not stop massive crashes. It might slow them down, but it sure won't stop them.
  • #8
  • Jan 10, 2012 10:06am Jan 10, 2012 10:06am
Quoting Wheels
The Tobin Tax could be implemented in such a way that it taxes a tiny percentage of the transaction.

It would punish big players, but it would have very little effect on people like you (unless you are moving billions around in a year).

The point is to encourage long term greed (quoting Dylan Ratigan).

Since the 80s, financial markets have slipped back into a chaotic form of volatility where the elderly run the risk of losing their life savings if they invest, and governments continue to inflate it away to stave off massive crashes (brought...
You couldn't be more wrong about this. The costs would trickle down to retail traders. Big banks have a massive amount of people and resources to devote to circumventing and passing the tax on to others.

Speculation covers the majority of the FX market, without us, they will have horrible liquidity.

We are just the next scapegoats in the blame game for the euro crisis, it's anybody but the politicians.

If we want to crack down on big banks shady practices, how about we stop f***ing bailing them out when they fail?

Without worldwide implementation (which will never happen), this tax will just send investors elsewhere. It's time for the politicians to start fessing up that this is their fault, not day traders.

And I think you might have a fundamental misunderstanding of how this tax works, for anyone that trades more than once a week, this will be a MASSIVE tax that will absolutely make retail forex unmanageable.

And if you're looking for the German wikipedia article on Tobin Tax, just click Deutsch on the left of the wikipedia link I posted.
  • #9
  • Jan 10, 2012 10:12am Jan 10, 2012 10:12am
Here is a functional example:
Say the tax is implemented with the proposed .1% one way, .2% round trip tax.

Say you trade on $100 pips. You need to open a 1M position. The tax on this is 1M * .2% = 2k, or 20 pips. Absolutely unmanageable for any kind of short term trading.
  • #10
  • Jan 10, 2012 11:14am Jan 10, 2012 11:14am
I don't proclaim to be an expert on this but I thought the tax doesnt apply to currency transactions; only to equities and bonds.
  • #11
  • Jan 10, 2012 11:24am Jan 10, 2012 11:24am
Quoting PipJaeger
You couldn't be more wrong about this. The costs would trickle down to retail traders. Big banks have a massive amount of people and resources to devote to circumventing and passing the tax on to others.

Speculation covers the majority of the FX market, without us, they will have horrible liquidity.

We are just the next scapegoats in the blame game for the euro crisis, it's anybody but the politicians.

If we want to crack down on big banks shady practices, how about we stop f***ing bailing them out when they fail?

Without worldwide...
This may be unpopular here, but retail OTC traders (including myself) are insignificant in any discussion about the greater stability of the global economy. Cry me a river.

That said, my perspective is that we need transparency before instituting a Tobin tax. I think that we need more information before making this decision.

Regulators and the general public don't have a clear picture of what we're dealing with. No offence, but I don't think you do either. Transparency is the first step.

Do you disagree?
  • #12
  • Jan 10, 2012 12:19pm Jan 10, 2012 12:19pm
Quoting Wheels
This may be unpopular here, but retail OTC traders (including myself) are insignificant in any discussion about the greater stability of the global economy. Cry me a river.

That said, my perspective is that we need transparency before instituting a Tobin tax. I think that we need more information before making this decision.

Regulators and the general public don't have a clear picture of what we're dealing with. No offence, but I don't think you do either. Transparency is the first step.

Do you disagree?
We certainly could take this thread to a completely different political discussion about transparency and to tax or not to tax, or we could stay on topic and talk about the tobin tax specifically and it's effect on us as traders.

This thread was meant to start a discussion about how we forex traders should adapt if this thing does get put into effect.


Honestly, I give a f*** what they do as long as I can continue to trade and make my nut.


When I referenced speculators, that term covers retail (us), banks, hedge funds, etc. It OBVIOUSLY would have a MASSIVE effect on all of these institutions. So YES, speculation makes up most of the forex market.

Now, back to the tobin tax.
  • #13
  • Jan 10, 2012 12:20pm Jan 10, 2012 12:20pm
The USA Version that'll NEVER get past the banking lobbyists without SERIOUS modifications:

"Representatives Peter DeFazio and Ed Perlmutter are floating a bill that would tax stock trades at 0.25 percent, options at the rate of the underlying asset, and futures transactions, swaps and credit default swaps at 0.02 percent. It would exempt the first $100,000 of trades each year."

Doesn't effect FX (yet) but the percentage would have to be vastly smaller with much higher tax-free limits.
  • #14
  • Jan 10, 2012 12:26pm Jan 10, 2012 12:26pm
Quoting PipJaeger
We certainly could hijack this thread to a completely different political discussion about transparency, or we could stay on topic and talk about the tobin tax specifically and it's effect on us as traders.
Your thread, your rules.

The two are related, however.

One can't institute new taxes without having adequate information. We still don't know where some of the MF Global trades went.

Banks are up to their ears in swap arrangements.

I'm happy to learn proposals focus on CDSs and options. Would rather they leave the stock market alone. Obviously, modifications will be made if this ever comes to fruition.
  • #15
  • Jan 10, 2012 12:30pm Jan 10, 2012 12:30pm
Quoting Wheels
Your thread, your rules.

The two are related, however.

One can't institute new taxes without having adequate information. We still don't know where some of the MF Global trades went.

Banks are up to their ears in swap arrangements.

I'm happy to learn proposals focus on CDSs and options. Would rather they leave the stock market alone. Obviously, modifications will be made if this ever comes to fruition.
I don't mean to be rude, I in fact changed the tone of the post right after I posted it.

Honestly, it's their own suicide. I actually partially welcome the tobin tax because it will be the final nail in the 12 year ridiculous experiment called the euro.

The future is uncertain, and we as traders will simply have to remain flexible.
  • #16
  • Edited 3:41pm Jan 10, 2012 12:44pm | Edited 3:41pm
Quoting PipJaeger
I don't mean to be rude, I in fact changed the tone of the post right after I posted it.

Honestly, it's their own suicide. I actually partially welcome the tobin tax because it will be the final nail in the 12 year ridiculous experiment called the euro.

The future is uncertain, and we as traders will simply have to remain flexible.
Not worried about whether you're rude, although I appreciate the gesture to mitigate potential offence taken.

Yes - flexibility will be key.

I don't know what will happen with the Euro if Germany is successful in instituting a Tobin tax, but such a move would require coordination. Not really something that can be achieved in a global economy without cooperation.

Looking at the US though, if public reporting of swaps, and other measures already in play, are successful, regulators might be able to discern whether some form of a Tobin tax would encourage long term greed and minimize short term speculation. The biggest hurdle might be liquidity.

Retail trading would be affected in that price action might change.

This is such a complex issue.

My crystal ball says that restructuring is inevitable and certain countries will need to write down huge sums of debt before this kind of tax can be achieved. Without approaching the issue in a cooperative way, market makers and big players will save their own asses and throw the global economy under the bus.
  • #17
  • Jan 10, 2012 3:39pm Jan 10, 2012 3:39pm
minimum tax for foreign exchange transaction might be 0,01% as german government proposals say, another number was 0,05%

for 1 Lot round turn that might be 2 x 100000 $ x 0.01/100 = 20$ per trade
10 trades per month thats 10x20$ = 200$ = 2400$ per year

for 1 Lot round turn that is 2 x 100000 $ x 0.05/100 = 100$ per trade
10 trades per month thats 10x100$ = 1000$ = 12000$ per year

i hope my numbers are wrong
  • #18
  • Jan 10, 2012 3:46pm Jan 10, 2012 3:46pm
Quoting torkay77
minimum tax for foreign exchange transaction might be 0,01% as german government proposals say, another number was 0,05%

for 1 Lot round turn that might be 2 x 100000 $ x 0.01/100 = 20$ per trade
10 trades per month thats 10x20$ = 200$ = 2400$ per year

for 1 Lot round turn that is 2 x 100000 $ x 0.05/100 = 100$ per trade
10 trades per month thats 10x100$ = 1000$ = 12000$ per year

i hope my numbers are wrong
0.01% = 0.0001 so it would be.... 20 cent per trade instead of $20. Correct?
  • #19
  • Jan 10, 2012 4:01pm Jan 10, 2012 4:01pm
The European Commission in September suggested a tax of 0.1 percent on equity and bond transactions, and 0.01 percent on derivatives, which it said could raise 55 billion euros ($71 billion) a year. European Union finance ministers are due to discuss the levy in March.

http://www.businessweek.com/news/201...ction-tax.html

I have a question. Is spot forex a derivative?
  • #20
  • Jan 10, 2012 4:04pm Jan 10, 2012 4:04pm
20 cent would be nice, i could live with that

i googled tobin tax calculator... nothing to find so far
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