FxPro Discussion

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Old Feb 3, 2015, 4:39pm   #1
 
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FxPro Discussion

Dear Traders,

We are creating this new thread to answer your questions that you might have, and post here important announcements by FxPro. Feel free to get in touch with us here.

Kind regards,

FxPro Team
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Old Feb 9, 2015, 7:48pm   #2
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this "negative balance protection" thing

what about futures (CFDs)?
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Old Feb 10, 2015, 11:55am   #3
 
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this "negative balance protection" thing

what about futures (CFDs)?
Dear Kalott,

Thank you for your question.

The Negative Balance Protection applies to all of the products offered by FxPro.

Kind Regards,

FxPro Team
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Old Feb 10, 2015, 3:30pm   #4
 
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1. I assume client money is separately held in reputable banks, somewhere other than Greece, Nigeria etc. ? If so where ?
2. Is it an ecn system ?
3. Do you do micro-lots ?

I await your answer
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Old Feb 10, 2015, 4:40pm   #5
 
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1. I assume client money is separately held in reputable banks, somewhere other than Greece, Nigeria etc. ? If so where ?
2. Is it an ecn system ?
3. Do you do micro-lots ?

I await your answer
Dear Pat494,

Thank you for your questions. Please see the answers below:

1. The clients' funds are held in segregated accounts from the company's funds in the following banks: RBS (Royal Bank of Scotland), Credit Suisse and Barclays.
2. For more information on our model of execution, please follow this link: http://www.fxpro.co.uk/trading
3. We do provide micro lots.

Shall you have any more questions, please do not hesitate to contact us.

Kind regards,

FxPro Team

Last edited by Sharky; Feb 12, 2015 at 4:07pm. Reason: Added back link
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Old Feb 10, 2015, 5:21pm   #6
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Do FxPro have contingency plans to relocate from Cyprus when Greece leaves the Euro ?
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Old Feb 10, 2015, 5:47pm   #7
 
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Do FxPro have contingency plans to relocate from Cyprus when Greece leaves the Euro ?
Dear Counter_Violent,

Thank you for your questions.

1. FxPro has two entities: regulated by the FCA in the UK (FxPro UK, the headquarters, registration number 509956), and by CySEC in Cyprus (FxPro Financial Services Ltd., licence number 078/07).
2. Cyprus is an independent republic, and whether Greece leaves the European Union or not, it is irrelevant to the country.

I hope the above answered your questions. Shall you have any more questions, please do not hesitate to contact us.

Kind regards,

FxPro Team
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Old Feb 11, 2015, 11:41am   #8
 
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Why Negative Balance Protection is so Important

FxPro Group started this thread Dear Members,

I would like to present to you the thoughts of the Founder and Chairman of FxPro, Mr. Denis Sukhotin, on the importance of Negative Balance Protection.

Why Negative Balance Protection is so Important

The recent CHF debacle has been quite instructive for a number of reasons. We all agree that low volatility is a bad thing in retail forex, but too much of it can be catastrophic. However, itís precisely when the markets stray from that comfortable middle ground that we get a unique insight as to whoís who in this industry. The confusing acronyms and contradictory marketing copy fall away and we see brokers through their actions. This is exactly what happened in January when the SNB removed its 1.20 floor.

Many market-making brokers not only appear to have been unaffected by the unprecedented EUR/CHF move, but also seem to have done quite nicely out of it by passing on huge amounts of negative slippage to their clients, proving once and for all that their interests are diametrically opposed to those of their clients.

But aside from this we also learned that itís not as clear-cut as market makers vs agency brokers. The hot topic since January 15 has been that of negative balance protection, or lack thereof. So, not only do we have a subset of brokers who remain completely insulated from the market by keeping their clientsí orders on their own books and profiting from their losses, we also have agency brokers pursuing their clients for negative balances when the market stress-tests their business model. The result? Thanks to the actions of a number of brokers the entire industry comes out of this black swan event looking bad.

At FxPro negative balance protection has never been something that you just put on your website in order to reassure newcomers. For us itís a guarantee that you as a broker are sufficiently well capitalised and have all the relevant risk management protocols in place to weather any storm. Itís a watermark of professionalism and credibility that must be honoured, no-matter how steep the cost.

When the news of certain brokersí insolvencies was followed by announcements that several had already begun pursuing their clients for negative balances, the scene became reminiscent of the Ďtoo big to failí banks during the 2008 crisis, that bankrupted themselves and then demanded for taxpayers to bail them out. Itís hilarious how we love the free market while weíre benefitting from it, but want a safety net when it turns around and bites us.

Itís absolutely outrageous for brokers that profited from the trading of their clients for so many years, to now resort to hounding them for these negative balances. When your clients routinely blow up their accounts are you expected to refund them? Why, then, are you now attempting to have them cover what are essentially your own losses? If their margin calls are their own responsibility then, surely, you too are responsible for yours.

This ridiculous idea of private profits and public losses is perhaps one of the most venal aspects of our current economic system and it breeds a sense of contempt in the general public, who are usually left to foot the bill. We as an industry could have come out of this event united and honourable, rather than some of us trying to climb back up on the backs of our clients.

The fact remains that if you are offering highly leveraged products that can amplify losses as readily as they do gains, you ought to build some protections in, so that if the market moves against your clients they donít end up losing more than they initially invested, even if youíre not strictly obliged to. Itís a complete no-brainer. By reneging on that commitment, or not offering it in the first place, not only do you lose the confidence of traders, but you also give the industry a bad name.
We as FxPro have made our position clear. Our negative balance protection policy stands. We will continue to ensure that clients do not have to contend with losses that exceed their invested capital.

You see, this is more than just an issue of differing company policies. Itís an essential aspect of the services we offer. When you remove that safeguard or throw it into question you fundamentally alter the relationship that we as brokers have with our clients. We are not debt collectors. The onus is on us to ensure that we can offer trading facilities in a variety of market conditions, without going after our clients when itís us that has to take a loss. If we are unable to do so, then there is obviously a deeper problem at work, and perhaps some of us should consider switching to a different industry.
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Old Feb 11, 2015, 2:36pm   #9
 
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Thank you , Denis.

Can you give some detail of how your company mitigates the negative balance risk etc. So, lets say a currency plunges 10% in a very short time, (all the liquidity is pulled ) what instruments, or mechanisms do you have in place to cover that senario ?

Cheers in advance.
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Old Feb 11, 2015, 4:12pm   #10
 
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Thank you , Denis.

Can you give some detail of how your company mitigates the negative balance risk etc. So, lets say a currency plunges 10% in a very short time, (all the liquidity is pulled ) what instruments, or mechanisms do you have in place to cover that senario ?

Cheers in advance.
Dear Spinola,

Thank you for your question. To best answer your question, please see below the interview that our CEO, Mr. Charalambos Psimolophitis, gave to ForexMagnates earlier on today:

Could you provide a timeline of how the Swiss franc price action unfolded on what the industry now calls Black Thursday?

It all happened so quickly that I donít think it would be a very long timeline at all. At 11:30 on January 15th, the SNB removed its 1.20 floor on EUR/CHF. Around 47 seconds later the pair dipped below 1.20 and was trading just above 1.17. Ten seconds after that it tumbled harder and faster than any major pair in the history of FX. Due to the fact that most positions in the market were long, the artificial floor having represented an easy money trade for so long, a lot of people got burned when it moved the other way.


Where did client stop losses get executed?

As an agency broker all of our flow necessarily went to the banks. All of our clientsí stops were triggered and executed but due to the illiquidity the banks were experiencing they found it increasingly difficult to handle this flow. Our clientsí orders were all executed from 1.19 down to 1. Despite the exceptionally difficult market conditions we managed to get our trades covered at an average price of 1.11. All this at a time when many other brokers were filling their clients at prices below 1.

What caused the big loss at FxPro, what could have been done better?

Our losses were of course entirely down to us being an agency broker. As to what could be done to avoid such events in the future; the big discussion in the wake of Black Thursday has centred on leverage, quite erroneously in my opinion. I personally donít see this as a situation that couldíve been managed any better with lower gearing. For example, even with a book composed solely of 1:100 orders, with 100,000,000 exposure (i.e. 1,000,000 margin) a 30% move wouldíve caused a loss of 29,000,000. With 1:50 leverage the loss wouldíve just been 28,000,000 rather than 29. The only thing that couldíve really been done differently is to force clients to close their positions, which is completely against FxProís philosophy of non-intervention. In future, if forced to choose between interfering in clientsí trades and hybridising the order book (taking on some of the flow internally) Iíd say that we would be more inclined to opt for the second option.

Looking at the book of the EURCHF on the positioning graph on FxProís website, there has been an overwhelmingly one-sided exposure. Do you think that using out of the money options could protect brokers from massive losses at a reasonable price?

Of course hindsight is always 20/20, isnít it? I donít believe itís possible to ever be completely protected from such unforeseen events. I donít see how out of the money options would have been of much use without having a rough time window on when the SNB was planning to remove the floor. Those in the know could certainly have placed some ludicrously profitable Puts. For us it would have been a lucky bet, and weíre not in the business of bets, lucky or otherwise. We were hedged to a point, but as I say, there are no foolproof solutions when it comes to eliminating risk.

What could be the long term implications of the Swiss franc debacle on the industry as a whole?

One of the implications may be that regulators start placing an undue amount of attention on leverage as a way of protecting clients. In my view this would be a mistake as it runs counter to the demands that traders themselves have made on the industry. They vote with their trading account balances and what they seem to be choosing is regulated brokers who offer high leverage but also protect them from negative balances. I canít stress enough that leverage was not the real issue here; even with 1:30 leverage the loss in the previous example wouldíve been 27,000,000 rather than 29. Not to mention the fact that even though we do offer high leverage ratios to our clients, this in no way means that the majority of EUR/CHF positions were utilizing maximum leverage, they simply were not.

One thing I would personally like to see is for regulators to start looking a little closer at the way market makers execute orders, especially during such volatile conditions. According to our calculations there was more than enough time for them to fill their clientsí stops at or around 1.18, which means that a significant amount of unnecessary negative slippage was passed on. If the move had gone the other way would they have passed on the positive slippage? Or would they have just filled orders at the declared price? I think we all know the answer to that question.

Finally, and perhaps most importantly, the events of January 15 have shown us that 100% agency model brokers are exceptionally vulnerable in certain market conditions. The move to agency execution was predominantly an attempt create unimpeachable business models where solidarity with the end client is a given. On Black Thursday the market exacted a huge toll for this luxury. As a result I think some sort of hybrid arrangement, where we can continue to guarantee no conflicts of interest while also mitigating the impact of such outlier events, is ideal.

Is the decentralized way in which the FX market is structured the right way, or do we need a centralized approach? Why?

If youíre talking about taking FX exclusively on-exchange, I think the notion of a centralized global market is a huge contradiction in terms. It would be impossible for FX as it currently functions to be completely centralized. If anything the overarching trend is for increasing decentralization, rather than the other way around. Decentralized systems have repeatedly proven themselves to be more efficient and transparent, as well as anti-fragile. In contrast, overly-centralized systems tend to be opaque, inefficient, and highly vulnerable to attack.

Do you think that client funds reporting mechanisms with the FCA are adequate?
I do think they are adequate, but itís important to stress that company culture is probably the most important factor here. In this respect I think the regulators often find themselves in an uphill struggle with certain companies that are unwilling or unable to change. At FxPro we have strict rules and procedures, for us transparency has always been paramount, so we try to go over and above our regulatory requirements to ensure that clients know they are dealing with a broker they can trust.

How do you feel the industry should tackle any incoming regulatory backlash?

FxPro has always held that the only way forward for the industry is increased transparency, fair trading practices, adequate capitalization, negative balance protection and complete segregation of client funds. With these things in place and the appropriate company culture to support them, we feel regulatory backlashes wouldnít have to occur in the first place.

What losses did FxPro sustain from the event?

Iíve seen wildly differing reports in the media. Iíd like to take this opportunity to state that none have been accurate. The most important thing is that our operations have not been affected in the slightest. We are sufficiently well capitalized to be able to weather such storms and our clients can still enjoy the most professional conditions in the industry. In addition, we have honored our commitment to negative balance protection, fulfilled all of our regulatory requirements, both with CySEC and the FCA, and have rapidly moved to consolidate our position in the market.

Have you changed your risk management policies in the aftermath of the event? How?

A company should never take on more risk than it can afford to. This, of course, hasnít changed, if anything the recent CHF debacle has demonstrated that many brokers were not sufficiently well capitalized and many will now have to rethink if they can compete at this level. At FxPro we have made several changes in the way we monitor currencies, particularly those that are either pegged to EUR or USD.

There is an ongoing debate about prime brokers using pre-trade risk management checks instead of post-trade in order to avoid a repeating of the debacle which caused so many industry wide losses. Do you think that would solve the bulk of the issues?

I think that just as risk management will change in the retail space, it will also change among the prime brokers. Having said that I feel that the only thing we are likely to see is increased margin requirements until a sense of risk-tolerance returns. Itís unlikely that we will see abnormal requirements continue for very long after the underlying market conditions have returned to normal. This is another reason why I think hybrid models will come further into play. In the current climate they make as much sense from a competitive standpoint as they do from one purely concerned with risk management.
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Old Mar 2, 2015, 10:47am   #11
 
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FxPro Group started this thread FxPro Encourages Greater Transparency in the FX Industry, as a Result Increasing Average Daily Trades by 104% YoY

02 March 2015, London. In a bid to encourage greater transparency within the retail FX industry FxPro is pleased to announce its latest slippage statistics for the month of February:

Positive = 53.8%
At Quote = 29.8%
Negative = 16.4%

This is an important statistic for retail clients as it shows what proportion of trades were executed either in their favour or against them. The recent increase in volatility has made slippage all the more important so the greater transparency in respect to these statistics, the better informed a client can be about how fairly they are being treated by their broker. Spot FX is an OTC (Over the Counter) product as opposed to being traded on exchange, therefore clients can experience trades being executed at a different price to the one displayed at the time, which is referred to as slippage.

ďAt FxPro we understand the importance of putting the customer first, which is why we want to be at the forefront of promoting fairness and transparency. Through our automated No Dealing Desk trading environment, backed by a Negative Balance Protection policy, we are proud to be a trusted broker for many clients globally. We encourage all of our peers to do the same.Ē Psimolophitis, FxPro CEO.

FxPro has also seen a significant uplift in trading volumes in February and is announcing the following statistics in conjunction with their slippage numbers:

Average No. Lots Traded Daily
Increase 106% YoY
Increase 11% MoM

Average No. Trades Daily
Increase 104% YoY
Increase 12% MoM

Average Volume Daily
Increase 87% YoY
Increase 13% MoM

(YoY = Feb 2014ĖFeb 2015)
(MoM = Jan 2015ĖFeb 2015)
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Old Mar 2, 2015, 9:16pm   #12
 
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well, i think this deserve some credit on fxpro and their way of doing business.. even if it was hybrid already.. nice spreads and decent execution plus decent trading tools..not easy in the markets now congrats
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Old Mar 15, 2015, 12:59pm   #13
 
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if the broker FxPro not regulated by the JFSA japan , and may have clients in Japan ? wonder I 'm new to the world of forex
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Old Mar 15, 2015, 2:39pm   #14
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[Spot FX is an OTC (Over the Counter) product as opposed to being traded on exchange, therefore clients can experience trades being executed at a different price to the one displayed at the time, which is referred to as slippage.

If the offering is true DMA and independent of it's "Liquidity" provider then the issue of slippage should be same as a "True" exchange! and there would be no need to "Assure" clients of slippage etc
You don;t see large "True" exchanges like CME/ LSE/ NYSE etc doing that!

In fact a large FX broker would have "Liquidity providers ( Other banks and other large players) and also plenty of retail clients on each side won;t it?
In other word it almost becomes an "True Exchange"
SO why being OTC attracts this concerns and is an issue?
What is the truth! is it that many brokers who claim to be DMA ECN etc are not really that?
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Old Mar 16, 2015, 1:55pm   #15
 
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[Spot FX is an OTC (Over the Counter) product as opposed to being traded on exchange, therefore clients can experience trades being executed at a different price to the one displayed at the time, which is referred to as slippage.

If the offering is true DMA and independent of it's "Liquidity" provider then the issue of slippage should be same as a "True" exchange! and there would be no need to "Assure" clients of slippage etc
You don;t see large "True" exchanges like CME/ LSE/ NYSE etc doing that!

In fact a large FX broker would have "Liquidity providers ( Other banks and other large players) and also plenty of retail clients on each side won;t it?
In other word it almost becomes an "True Exchange"
SO why being OTC attracts this concerns and is an issue?
What is the truth! is it that many brokers who claim to be DMA ECN etc are not really that?

Dear Moka2,

Thank you for your comment, you have raised a number of points which I have addressed below and I believe this answers your query.

Market Exchanges such as those you have previously mentioned may not assure clients of the levels of slippage they receive, however Slippage is certainly still experienced and as the clients trading on such exchanges are professional traders we would expect that they are fully aware of the possibility of Slippage, I believe this is in part a reason we do not see them reporting Slippage figures like the above.

Unfortunately within the Retail FX market Slippage is a very contentious issue as many traders suffer negative slippage but rarely see the benefit of positive slippage. That is why FxPro has published the above statistics in order to reassure clients that though they may receive negative slippage there is still a very likely possibility that they will also receive positive slippage on their orders.

Slippage is a very common part of the OTC FX market and will be experienced on every trading venue, this is simply part and parcel of the market. Although an ideal environment may see everyone matched off at their requested price, the market simply does not work this way and under many order types such as Market/Stop Orders clients orders are filled at the first available price, in some instances there may not be a counterparty willing to trade at the requested client price thus resulting in the client receiving slippage when filled at the price of the available counterparty.
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