SuperSnake
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Best Thread FXCM Discussion
- Thread starter Jason Rogers
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Interview on Sports Spread Betting
Hi Im doing a market study on spread betting in sports and I need to interview someone who has placed this kind of bet before.
If you have 10 minutes for a call, I can compensate you with a $150 amazon voucher.
The interview needs to be today, let me know if you are available at [email protected]
thanks!
Hi Im doing a market study on spread betting in sports and I need to interview someone who has placed this kind of bet before.
If you have 10 minutes for a call, I can compensate you with a $150 amazon voucher.
The interview needs to be today, let me know if you are available at [email protected]
thanks!
Jason Rogers
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Volume Indicator Now Available
A busy couple of days for FXCM traders as EUR/USD volume exceeds 5 yards on EUR/USD as you can see in the screenshot below. Please remember that Greek elections take place this Sunday which could cause significant volatility for the Euro.
This real volume indicator along with additional features will be included in the next release of the Trading Station desktop platform. You may have previously received an email about the update a few weeks ago, but it was delayed in order to get more feedback about the new features. The new version of the platform is now available from the website, and the forced update is expected to launch on February 6. If you want to update to the newest version, simply re-install the platform from the installation link on our website http://help.fxcm.com/Software-Download/. Please remember to save any chart or platform layouts before re-installing the platform.
This update includes the real volume indicator displayed above already install, plus additional market behavior indicators including Directional Real Volume, Market Movers Index (real volume / transactions per period), and On Balance Volume to name a few of the new features. Here’s directional real volume for example:
As always, any feedback on the update is appreciated.
Jason
A busy couple of days for FXCM traders as EUR/USD volume exceeds 5 yards on EUR/USD as you can see in the screenshot below. Please remember that Greek elections take place this Sunday which could cause significant volatility for the Euro.
This real volume indicator along with additional features will be included in the next release of the Trading Station desktop platform. You may have previously received an email about the update a few weeks ago, but it was delayed in order to get more feedback about the new features. The new version of the platform is now available from the website, and the forced update is expected to launch on February 6. If you want to update to the newest version, simply re-install the platform from the installation link on our website http://help.fxcm.com/Software-Download/. Please remember to save any chart or platform layouts before re-installing the platform.
This update includes the real volume indicator displayed above already install, plus additional market behavior indicators including Directional Real Volume, Market Movers Index (real volume / transactions per period), and On Balance Volume to name a few of the new features. Here’s directional real volume for example:
As always, any feedback on the update is appreciated.
Jason
tar
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A busy couple of days for FXCM traders as EUR/USD volume exceeds 5 yards on EUR/USD as you can see in the screenshot below. Please remember that Greek elections take place this Sunday which could cause significant volatility for the Euro.
This real volume indicator along with additional features will be included in the next release of the Trading Station desktop platform. You may have previously received an email about the update a few weeks ago, but it was delayed in order to get more feedback about the new features. The new version of the platform is now available from the website, and the forced update is expected to launch on February 6. If you want to update to the newest version, simply re-install the platform from the installation link on our website http://help.fxcm.com/Software-Download/. Please remember to save any chart or platform layouts before re-installing the platform.
This update includes the real volume indicator displayed above already install, plus additional market behavior indicators including Directional Real Volume, Market Movers Index (real volume / transactions per period), and On Balance Volume to name a few of the new features. Here’s directional real volume for example:
As always, any feedback on the update is appreciated.
Jason
Nice
Jack o'Clubs
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They might have declared Force Majeure but I'm pretty certain it wouldn't stick if legally challenged. It's a well defined contract term that specifically covers Acts of God (weather events, lightning strikes, etc), war, terrorism, riots, radiation (yes it's that specific), as reasons why contract terms can't be met. There's no way central bank action and ensuing market chaos qualifies as FM. I checked my broker contract this morning and in its FM clause, it gives examples of what might be considered an FM event as effects a brokerage: eg power cuts that prevent it from maintaining an IT link with the exchange, and even then the power cut must be related to the type of event described above. I'm not a lawyer, but FXCM's use of FM in this instance is no more than kite flying.
(Reposted here at C_V's suggestion, from : http://www.trade2win.com/boards/for...ter-their-clients-following-black-swan-5.html )
(Reposted here at C_V's suggestion, from : http://www.trade2win.com/boards/for...ter-their-clients-following-black-swan-5.html )
tar
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From Fxcm's agreements
Force majeure: Since we do not control signal power, its reception or routing via Internet, configuration of your equipment or reliability of its connections, we shall not be liable for any claims, losses, damages, costs or expenses, including attorney’s fees, caused directly or indirectly, by any breakdown or failure of any transmission or communication system or equipment or computer facility or trading software, whether belonging to us, our Affiliates, you, any market, or any settlement or clearing system when you trade online (via Internet) or for any cause preventing us from performing any or all our obligations, any act of God, war, terrorism, malicious damage, civil commotion, industrial acts, any Exceptional Market Event, or acts and regulations of any governmental or supra national bodies or authorities which in our opinion prevent an orderly market in relation to your Orders (a “Force Majeure Event”). Upon the occurrence of a Force Majeure Event, we shall use commercially reasonable efforts to resume performance and we may give you written notice. Upon occurrence of a Force Majeure Event, all of our obligations under these Terms of Business shall be immediately suspended for the duration of such Force Majeure Event. Additionally, we may take any one or more of the following steps:
(a)
alter normal trading times;
(b)
alter the Margin requirements;
(c)
amend or vary these Terms of Business and any Transaction contemplated by these Terms of Business,
insofar as it is impractical or impossible for us to comply with our obligations;
(d)
close any or all open Transactions, cancel instructions and orders as we deem to be appropriate in the circumstances; and/or
(e)
take or omit to take all such other actions as we deem to be reasonably appropriate in the circumstances having regard to the positions of yours, ours, and other customers.
Force majeure: Since we do not control signal power, its reception or routing via Internet, configuration of your equipment or reliability of its connections, we shall not be liable for any claims, losses, damages, costs or expenses, including attorney’s fees, caused directly or indirectly, by any breakdown or failure of any transmission or communication system or equipment or computer facility or trading software, whether belonging to us, our Affiliates, you, any market, or any settlement or clearing system when you trade online (via Internet) or for any cause preventing us from performing any or all our obligations, any act of God, war, terrorism, malicious damage, civil commotion, industrial acts, any Exceptional Market Event, or acts and regulations of any governmental or supra national bodies or authorities which in our opinion prevent an orderly market in relation to your Orders (a “Force Majeure Event”). Upon the occurrence of a Force Majeure Event, we shall use commercially reasonable efforts to resume performance and we may give you written notice. Upon occurrence of a Force Majeure Event, all of our obligations under these Terms of Business shall be immediately suspended for the duration of such Force Majeure Event. Additionally, we may take any one or more of the following steps:
(a)
alter normal trading times;
(b)
alter the Margin requirements;
(c)
amend or vary these Terms of Business and any Transaction contemplated by these Terms of Business,
insofar as it is impractical or impossible for us to comply with our obligations;
(d)
close any or all open Transactions, cancel instructions and orders as we deem to be appropriate in the circumstances; and/or
(e)
take or omit to take all such other actions as we deem to be reasonably appropriate in the circumstances having regard to the positions of yours, ours, and other customers.
Jack o'Clubs
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Is that FXCM's? (there's no source). The fact they basically write 'and anything else we damned well want to include' into a contract doesn't make it legally enforceable as Force Majeure. I guess that's why you have lawyers and courts. FXCM will argue 'it was included in the contract', the opposing side will argue Force Majeure has a specific meaning and can't just be added to ad hoc. I don't much care either way, it will be interesting to follow how this progresses. Retail FX is a terrible business - its like those FOBT machines in the high street bookies specifically designed to part fools from their money (or to facilitate small scale money laundering). To be clear, I think the brokers do have claims to claw back negative equity (although it may not be commercially expedient to do so), but they can't use Force Majeure to avoid paying out on winning bets. As I'm not a lawyer, and so by definition anything I write on this is only a 'view', this'll be my last post on the subject as I'm clearly annoying you for some reason tar.
tar
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Yes it is , i just found it interesting so i shared .
tripletrade
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As has been stated, this is why there are lawyers. In this instructional video for clients, the FXCM narrator categorically states: "FXCM guarantees a client's trading risk is limited to the equity in their account. This means you will never owe a deficit balance as a result of trading even if a significant amount of leverage is used. This is an important safeguard most forex brokers don't provide." The gist of his statement is clearly evident also in text on the screen.
A lawyer (heck, even clients) could argue that they are, at best, contradicting themselves and at worst misleading clients by going after negative balances since they gave an assurance that clients would "never owe a deficit balance". If they go after negative client balances all traders should reconsider doing business with them. Several brokers such as Dukascopy and FXPro have absolved clients re negative balances caused by the SNB decision and taken the loss. A comparison of broker actions in the aftermath should give traders a reasonable basis to evaluate where they want to put their money.
I have never used FXCM as their spreads were far too wide for my taste. My ECN broker had already reduced margins on EURCHF to 1:10 as precautionary risk management given possible ECB QE. It has not had any problems with the SNB debacle.
A lawyer (heck, even clients) could argue that they are, at best, contradicting themselves and at worst misleading clients by going after negative balances since they gave an assurance that clients would "never owe a deficit balance". If they go after negative client balances all traders should reconsider doing business with them. Several brokers such as Dukascopy and FXPro have absolved clients re negative balances caused by the SNB decision and taken the loss. A comparison of broker actions in the aftermath should give traders a reasonable basis to evaluate where they want to put their money.
I have never used FXCM as their spreads were far too wide for my taste. My ECN broker had already reduced margins on EURCHF to 1:10 as precautionary risk management given possible ECB QE. It has not had any problems with the SNB debacle.
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I finish consider FXCM request. I decide they take me to court for £2000 if want!
I upload file as proof of false advertising if anybody want?
http://wikisend.com/download/177356/FXCM_False_Advertising.zip
Contents
1. video of below page with proof of date (1 min 25 seconds in)
http://www.fxcm.com/uk/resources/video-library/new-to-forex/what-is-leverage/
2. xps of execution risks (Page 4/5 - Margin Calls and Close Outs)
http://www.fxcm.com/uk/legal/trading-execution-risks/
3. xps of faqs - Margin Requirements (Is there a debit balance risk? Can I lose more money than I deposit? section)
http://www.fxcm.com/uk/support/faq/margin-requirements/
4. xps of Safety of Funds (FXCM's policy of No Debit Balances on FX and CFDs section)
http://www.fxcm.com/uk/advantages/safety-of-funds/
5. xps of their own analyst advising of of unexpected 'Force Majeure'
http://www.dailyfx.com/forex/fundam...or-Break-November-30-Referendum-in-Focus.html
Too much for court to uphold I think! Come get some!
I upload file as proof of false advertising if anybody want?
http://wikisend.com/download/177356/FXCM_False_Advertising.zip
Contents
1. video of below page with proof of date (1 min 25 seconds in)
http://www.fxcm.com/uk/resources/video-library/new-to-forex/what-is-leverage/
2. xps of execution risks (Page 4/5 - Margin Calls and Close Outs)
http://www.fxcm.com/uk/legal/trading-execution-risks/
3. xps of faqs - Margin Requirements (Is there a debit balance risk? Can I lose more money than I deposit? section)
http://www.fxcm.com/uk/support/faq/margin-requirements/
4. xps of Safety of Funds (FXCM's policy of No Debit Balances on FX and CFDs section)
http://www.fxcm.com/uk/advantages/safety-of-funds/
5. xps of their own analyst advising of of unexpected 'Force Majeure'
http://www.dailyfx.com/forex/fundam...or-Break-November-30-Referendum-in-Focus.html
Too much for court to uphold I think! Come get some!
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tar
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From FXCM's agreement :"you may not be responsible for debit balances directly resulting from trading activity, except in the case of a force majeure as detailed in Section 26.6; "
Section 26.6 :
http://www.trade2win.com/boards/forex-brokers/88834-fxcm-discussion-79.html#post2479586
FXCM analyst predict 'Force Majeuere', so how is 'Force Majeure'? (See last post)
They should managed own risk,raised leverage so people not lose $100K's,then stick to promise which all over own website.
Instead they deceive people by make false promise, hide some of lines in document which allow them to back out of promise.
It called deceit!
It called untrusty!
It called liers!
If they wiped £2000 debt(and I did start day with +£8000 - Yes,my fault,not complain about that,I stupid!) as promise,respond to emails,not hide behind 'act of God' then I add more funds and start again.
Not now.I dont trust!
Should managed own risk.what sort broker is it?
I like platform,I like analysts,I not complain about rest.
tripletrade
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The fact that some other brokers are forgiving negative client balances makes, ipso facto, the Section 26.6 force majeure clause for FXCM redundant in this situation IMHO. Force majeure is a highly exceptional option: http://en.wikipedia.org/wiki/Force_majeure
By stating this, I do not mean that FXCM may not try to use it or some other legal clause to collect funds. But their lawyers will have a hard time explaining to a court why FXCM can use force majeure to collect when other brokers are not and are in fact doing the opposite by taking on client losses for their own account. Moreover, several brokers were NOT affected so it is not a universal problem for all brokers. Indeed, in my post I pointed out that my own broker avoided the problem by implementing preventive risk management. I therefore very much doubt that FXCM can argue that the SNB action falls within section 26.6 as an act of God, war, riot, etc. However, as I stated, this is why there are lawyers. They can sort it out among themselves.
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tar
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Their agreement clearly states otherwise :
" any Exceptional Market Event, or acts and regulations of any governmental or supra national bodies or authorities which in our opinion prevent an orderly market in relation to your Orders (a “Force Majeure Event”)"
tripletrade
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I agree with you that it does. Also, good point re a riot and suddenly removing a peg. However, the law is a complex beast and even such specific clauses are open to challenge by lawyers who can argue that FXCM had a duty of care re the SNB as other brokers exercised this duty of care to make the loss avoidable. When I owned businesses and did investing I was involved in litigation and learned that what appears as black and white and binding to us as laymen is not necessarily so to lawyers and courts. This is the reason for my (perhaps ad nauseam) emphasis on lawyers battling it out! Time will tell.
Jason Rogers
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Hi Chiang,
Here is the press release we just issued:
FXCM to Forgive Majority of Clients Who Incurred Negative Balances
NEW YORK, Jan. 28, 2015 (GLOBE NEWSWIRE) -- FXCM Inc. (NYSE:FXCM), announced today its decision to forgive approximately 90% of its clients who incurred negative balances in certain jurisdictions, on January 15, 2015 as a result of the Swiss National Bank announcement on that date. FXCM will notify the applicable clients and adjust applicable client account statements in the next 24-48 hours. "FXCM worked diligently to reach this decision and we are extremely appreciative of our clients for their patience and loyalty as we worked through this," said Drew Niv, CEO of FXCM.
The SNB announcement, extreme price movements and the resulting lack of liquidity were exceptional and unprecedented events causing many market participants to incur trading losses. These events were unforeseen and beyond the control of FXCM.
FXCM will also notify certain clients (such as institutional, high net worth, and experienced traders who generally maintain higher account balances) requesting payment of negative balances, pursuant to the terms of the FXCM master trading agreements. This group represents approximately 10% of clients who incurred negative balances which comprises over 60% of the total debit balances owed.
Read the full press release: http://ir.fxcm.com/releasedetail.cfm?ReleaseID=893269
As a publicly traded company, please understand there are some things which I can't discuss until the information is ready for release on a wide basis so thanks for your patience. Those of you with a negative balance should be receiving an email today.
Jason
Jason Rogers
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Hi Everyone,
I wanted to let you know that the minimum margin requirements on FXCM UK and FXCM AU accounts are being lowered from 2% down to 1% allowing you up to 100:1 leverage on most major currencies. You should see this reflected on your platforms later today. Attached are PDFs of these updated margin requirements for FXCM UK and FXCM AU. Minimum margin requirements on FXCM US accounts will remain as shown here: http://bit.ly/1JJsALU
Jason Rogers
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Hi Rourkem,
The margin requirements for FXCM UK and FXCM AU accounts were lowered from 2% down to 1% on the evening of January 28th.
Jason Rogers
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FXCM CEO Drew Niv Discusses Firm's Future after the CHF Crisis
Hi Everyone,
I know there have been a lot of questions over the past couple of weeks some of which I'm unable to answer until they are available for wide release, but our CEO Drew Niv held a Q&A with Forex Magnates that will help answer many of them. I will continue to provide more answers to your questions as I am able to.
- source: forexmagnates.com/exclusive-fxcm-inc-ceo-drew-niv-discusses-firms-future-after-the-chf-crisis/
Hi Everyone,
I know there have been a lot of questions over the past couple of weeks some of which I'm unable to answer until they are available for wide release, but our CEO Drew Niv held a Q&A with Forex Magnates that will help answer many of them. I will continue to provide more answers to your questions as I am able to.
What happened on January 15th after the SNB announcement? What was the immediate impact of the SNB announcement on the company’s systems?
At the time of the SNB announcement over 3,000 FXCM clients held slightly over $1 billion in open positions on EUR/CHF. Those same clients held approximately $80 million of collateral in their accounts. As you know this was the largest move of a major currency since currencies started floating 1971.
The EUR/CHF move was 44 standard deviation moves, while most risk management systems only contemplate 3-6 standard deviations. The moved wiped out those clients’ account equity as well as generated negative equity balances owed to FXCM of over $225 million. We believe that the FXCM system operated properly during this event.
The caveat of our no dealing-desk execution system is that traders are offset one for one with a liquidity provider. When a client entered a EUR/CHF trade with FXCM, FXCM Inc. had an identical trade with our liquidity providers. During the historic move, liquidity became extremely scarce and shallow, which affected execution prices. This liquidity issue resulted in some clients having a negative balance.
While clients could not cover their margin call with us we still had to cover the same margin call with our banks. When a client profits in the trade FXCM gives the profits to the customer, however, when the client is not profitable on that trade FXCM Inc. ends up having to pay the liquidity provider.
FXCM ended with a regulatory capital shortfall. Accordingly, FXCM needed to get a loan to cover this balance, which it did. For anyone that still thinks FXCM is running an FX dealing desk, we have now demonstrated that such is not the case.
Why do you think many people traded EUR/CHF with FXCM?
Because we are a no dealing-desk broker and offset each trade one-for-one with our liquidity providers, and only make money on trades not customer losses. We published a study a few years ago called “traits of successful traders” that looked at FXCM traders over a long period of time and their general behavior to find what was destructive behavior to stay away from and what worked for clients.
The study focuses on what the majority of profitable traders did to increase their odds of success. What the study found was that traders who traded during quiet range-bound market hours like Asian hours OR that traded rang- bound low volatility currency pairs tended to be more profitable.
Obviously many of our competitors who are on the opposite side of their clients’ trades did not find this trade to be helpful to their bottom line, as they lose money when traders profit. We saw many of the dealing desk firms begin to increase overnight rollover cost as well as raise margin requirements to get these trades off their system and that’s why FXCM and other STP brokers had much bigger exposure.
Why did FXCM require an emergency loan with such tough terms?
As a regulated broker we are required to notify our regulators in a timely manner when any event occurs that may be deemed sensitive to clients. When we notified the regulators, they required FXCM Inc.’s regulated entities to supplement their respective net capital on an expedited basis.
We explored multiple debt and equity financing alternatives in an effort to meet the regulator’s deadline. The deal we ended up doing with Leucadia was the only deal that could and would happen in the very short timeframe we were given by the regulators. The CEO and the president of Leucadia were here in the office working on the deal.
It was a tall order for someone outside of the FX industry to come in and write a $300 million dollar check. This was the type of thing only top management could do. But they see the sustainability of FXCM, and that was everyone’s end goal. We really are very thankful to Leucadia. The deal enables us to live and fight another day and gives us time to build shareholder value in the future.
You said you plan to pay back the loan with proceeds from sales of non-core assets so what are non-core assets and will that be enough?
We announced last week that we anticipate that with the proceeds from the sale of some non-core assets and continued earnings we can meet both near and long-term obligations of our financing, while preserving the strength of our franchise. It’s widely known and understood that FXCM’s core business has always been retail FX; It is the majority of FXCM’s revenue.
However, over the past few years, the company has spent over $250 million dollars making strategic acquisitions building up our non-core businesses, mainly the institutional side as we tried to diversify the firm. We are now looking to sell some of those non-core assets; But, we are not in a rush and are looking to get the highest valuations for these assets.
We are considering closing or selling smaller regulated entities that require large sums of capital requirements, but that offer increasingly low return on capital. The latter move allows us to free up significant amounts of cash that is currently trapped. We believe that in the near term we can pay down a majority of the loan. That’s our goal.
What happens after 90 days according to your agreement with Leucadia?
The agreement says we need to pay back $50 million of the loan along with $10 million in fees in 90 days. If we don’t pay that $60 million, we will be assessed an additional $30 million in fees when the loan is due in 2017. So we are going to pay our $60 million and hopefully more in 90 days and then go from there. To be clear, the financing does not force us to do anything at 90 days.
Will you be selling FXCM?
I absolutely do not plan on selling FXCM. Like I said we will be selling non-core assets but no I don’t plan on selling FXCM. That is also why we implemented the shareholder rights plan to prevent a hostile takeover. FXCM has been independent for over 15 years and we intend to stay that way.
Are client funds safe with FXCM?
Yes. As we have said, we believe FXCM’s systems operated properly during this event. I’ll stress it here again, FXCM is not insolvent, has not filed for any form of bankruptcy, and is in compliance with all regulatory capital requirements in the jurisdictions in which it operates. The financing we received from Leucadia has strengthened our balance sheet and gives us the opportunity to grow our core business. With Leucadia, our pockets are even deeper and we aren’t going anywhere. Additionally, all of our regulated entities except the U.S. provide clients with segregated funds. All of our global client base in our regulated entities minus US clients would be protected under a bankruptcy. Our UK regulated entity through the FSCS even offers clients £50,000 per person in protection. Canada has similar insurance for retail traders of up to $1 million CAD.
What are the relationships like with your liquidity providers after this event?
Many of these relationships are long-standing relationships. The entire industry took a hit here. They understand what happened. Most everyone halted trading in EUR/CHF, but half of our liquidity providers kept providing prices in all other pairs the entire time. Half of the LPs did stop pricing FXCM on Friday January 16th, but most have returned. We presently only have two providers that have not yet returned, but we are optimistic that they will soon return. There is still plenty of liquidity on the platform. Most banks and other liquidity providers have been working very closely with the FXCM team.
Where do you see FXCM in six months from now?
We will be well on our way to paying down the loan and continue to grow our core franchise. FXCM still has the best platform for retail traders, we still provide the fairest and more transparent execution in the business and we have a slew of new trading indicators and applications that no one in the space is even considering offering their clients. We’ll still be here; We may just look a little different. Here are a few things we are working to get out in the next six months:
Single Share CFDs – We are going to be offering the top 200 or so most traded US, UK, French and German stocks. We are going to offer these shares on the equivalent of NDD in FX.
Improving CFD execution – Sharpening execution capabilities to match some of the benefits of our FX capabilities for Index and Energy CFDs to remove restrictions on stops and limits, allowing APIs, along with tighter spreads.
Market Depth in FX – clients will be able to see the depth of liquidity which will provide them more transparency with execution quality and allow them to make more informed trading decisions.
Real Volume indicators – clients will have a real volume ticker of all trades done on the FXCM system, which will show clients’ actual order flow; they can see directional volume, so long, short, net or total volume as well as balance on volume per instrument; and finally we have an indicator to show the ratio of real volume divided into transactions per period. These indicators will let clients compare our trading activity against other independent providers who also publish volumes like the CME, and clients will be able to compare execution.
Sentiment Index – We will be providing FXCM’s client sentiment data in real-time as a default on the platform so clients can see where the rest of the clients are.
These software updates and platform features are bringing much more transparency to the retail FX market aimed at improving the client experience in the market.
With your stock price so low, is that an indication of the health of your company?
While it is true that FXCM’s stock price dropped after the events of January 15th, we do not believe that the present stock price is indicative of the health of the company. The stock price does not impact our day to day operations as a company.
With the injection of cash from the Leucadia financing, the core retail business is functioning completely as normal. We have excess regulatory capital in all our regulated entities and never had to pause trading or interrupt client’s trading experience. As we announced in our business update, daily volume on the retail side was on pace to set an all-time company record.
Why didn’t the dealing desk brokers have these types of losses?
A dealing desk broker does not have offsetting trades. If the customer is long a trade the broker is short that trade, so when the customer makes a profit on a trade the broker loses. When the customer loses on the trade then the broker is profitable.
Obviously on January 15th most clients lost money so the dealer was very profitable. Even for clients that blew through their stops and had negative balances with these firms, the dealer doesn’t have a liquidity provider that it owes money to. They can essentially act like the negative balances never happened and enjoy their profits.
What is FXCM changing with regards to their risk management systems?
The primary change we will be making is removing currency pairs from the platform that carry significant risk due to over-active manipulation by their respective government either by a floor, ceiling, peg or band. Given what happened with EUR/CHF the industry is now looking very hard at any potentially similar issues, especially given the increased geopolitical risks in Southern and Eastern Europe.
We will also be raising margin requirements for other pairs as well. Some of these changes will be permanent while others may change as geopolitical risks change. The pairs we are removing from the platform were not material to our volume or our revenue. Some of the currencies we are removing include DKK, SGD, HKD, PLN and CZK.
FXCM made some material changes in margin requirements for clients. Are those changes permanent or temporary in nature?
When you look at some of the changes we made to margin requirements, look at them in three different categories: 1. Some of the changes we made were required by regulators, and therefore we had to comply with these changes. 2. When you look at emerging market currencies, the banks and our liquidity providers were raising margin requirements to eliminate any potential risk of large gaps. 3. Previously liquid Western country currencies, like the DKK or CHF, which now carry risk because they are manipulated currencies, have become less liquid.
Despite what the media thinks about leverage, we know the clients like it and want more, it’s the number 1 or number 2 request our sales staff has been getting the past week. We understand the importance of this to our clients but we just need to be smart about it moving forward.
What is Black Thursday’s long-term impact on the retail foreign exchange industry? In what ways has it changed the direction the industry is going?
Banks are raising their margin requirements, too. A lot of these currencies that carry any type of geopolitical risk with them are going to lose support and liquidity. Investors always had little faith in emerging market currencies but always believed in Western countries’ currencies even if they were manipulated in some way, but that’s gone.
Switzerland is a Western country and if they can pull the shenanigans they did with their currency, what’s to say other western countries won’t do the same? The market is going to be very sceptical as they can only stand to lose; The risk is just too high now. It’s too bad really as these pairs historically had low volatility, were range-bound and were very profitable trades for clients.
At the time of the SNB announcement over 3,000 FXCM clients held slightly over $1 billion in open positions on EUR/CHF. Those same clients held approximately $80 million of collateral in their accounts. As you know this was the largest move of a major currency since currencies started floating 1971.
The EUR/CHF move was 44 standard deviation moves, while most risk management systems only contemplate 3-6 standard deviations. The moved wiped out those clients’ account equity as well as generated negative equity balances owed to FXCM of over $225 million. We believe that the FXCM system operated properly during this event.
The caveat of our no dealing-desk execution system is that traders are offset one for one with a liquidity provider. When a client entered a EUR/CHF trade with FXCM, FXCM Inc. had an identical trade with our liquidity providers. During the historic move, liquidity became extremely scarce and shallow, which affected execution prices. This liquidity issue resulted in some clients having a negative balance.
While clients could not cover their margin call with us we still had to cover the same margin call with our banks. When a client profits in the trade FXCM gives the profits to the customer, however, when the client is not profitable on that trade FXCM Inc. ends up having to pay the liquidity provider.
FXCM ended with a regulatory capital shortfall. Accordingly, FXCM needed to get a loan to cover this balance, which it did. For anyone that still thinks FXCM is running an FX dealing desk, we have now demonstrated that such is not the case.
Why do you think many people traded EUR/CHF with FXCM?
Because we are a no dealing-desk broker and offset each trade one-for-one with our liquidity providers, and only make money on trades not customer losses. We published a study a few years ago called “traits of successful traders” that looked at FXCM traders over a long period of time and their general behavior to find what was destructive behavior to stay away from and what worked for clients.
The study focuses on what the majority of profitable traders did to increase their odds of success. What the study found was that traders who traded during quiet range-bound market hours like Asian hours OR that traded rang- bound low volatility currency pairs tended to be more profitable.
Obviously many of our competitors who are on the opposite side of their clients’ trades did not find this trade to be helpful to their bottom line, as they lose money when traders profit. We saw many of the dealing desk firms begin to increase overnight rollover cost as well as raise margin requirements to get these trades off their system and that’s why FXCM and other STP brokers had much bigger exposure.
Why did FXCM require an emergency loan with such tough terms?
As a regulated broker we are required to notify our regulators in a timely manner when any event occurs that may be deemed sensitive to clients. When we notified the regulators, they required FXCM Inc.’s regulated entities to supplement their respective net capital on an expedited basis.
We explored multiple debt and equity financing alternatives in an effort to meet the regulator’s deadline. The deal we ended up doing with Leucadia was the only deal that could and would happen in the very short timeframe we were given by the regulators. The CEO and the president of Leucadia were here in the office working on the deal.
It was a tall order for someone outside of the FX industry to come in and write a $300 million dollar check. This was the type of thing only top management could do. But they see the sustainability of FXCM, and that was everyone’s end goal. We really are very thankful to Leucadia. The deal enables us to live and fight another day and gives us time to build shareholder value in the future.
You said you plan to pay back the loan with proceeds from sales of non-core assets so what are non-core assets and will that be enough?
We announced last week that we anticipate that with the proceeds from the sale of some non-core assets and continued earnings we can meet both near and long-term obligations of our financing, while preserving the strength of our franchise. It’s widely known and understood that FXCM’s core business has always been retail FX; It is the majority of FXCM’s revenue.
However, over the past few years, the company has spent over $250 million dollars making strategic acquisitions building up our non-core businesses, mainly the institutional side as we tried to diversify the firm. We are now looking to sell some of those non-core assets; But, we are not in a rush and are looking to get the highest valuations for these assets.
We are considering closing or selling smaller regulated entities that require large sums of capital requirements, but that offer increasingly low return on capital. The latter move allows us to free up significant amounts of cash that is currently trapped. We believe that in the near term we can pay down a majority of the loan. That’s our goal.
What happens after 90 days according to your agreement with Leucadia?
The agreement says we need to pay back $50 million of the loan along with $10 million in fees in 90 days. If we don’t pay that $60 million, we will be assessed an additional $30 million in fees when the loan is due in 2017. So we are going to pay our $60 million and hopefully more in 90 days and then go from there. To be clear, the financing does not force us to do anything at 90 days.
Will you be selling FXCM?
I absolutely do not plan on selling FXCM. Like I said we will be selling non-core assets but no I don’t plan on selling FXCM. That is also why we implemented the shareholder rights plan to prevent a hostile takeover. FXCM has been independent for over 15 years and we intend to stay that way.
Are client funds safe with FXCM?
Yes. As we have said, we believe FXCM’s systems operated properly during this event. I’ll stress it here again, FXCM is not insolvent, has not filed for any form of bankruptcy, and is in compliance with all regulatory capital requirements in the jurisdictions in which it operates. The financing we received from Leucadia has strengthened our balance sheet and gives us the opportunity to grow our core business. With Leucadia, our pockets are even deeper and we aren’t going anywhere. Additionally, all of our regulated entities except the U.S. provide clients with segregated funds. All of our global client base in our regulated entities minus US clients would be protected under a bankruptcy. Our UK regulated entity through the FSCS even offers clients £50,000 per person in protection. Canada has similar insurance for retail traders of up to $1 million CAD.
What are the relationships like with your liquidity providers after this event?
Many of these relationships are long-standing relationships. The entire industry took a hit here. They understand what happened. Most everyone halted trading in EUR/CHF, but half of our liquidity providers kept providing prices in all other pairs the entire time. Half of the LPs did stop pricing FXCM on Friday January 16th, but most have returned. We presently only have two providers that have not yet returned, but we are optimistic that they will soon return. There is still plenty of liquidity on the platform. Most banks and other liquidity providers have been working very closely with the FXCM team.
Where do you see FXCM in six months from now?
We will be well on our way to paying down the loan and continue to grow our core franchise. FXCM still has the best platform for retail traders, we still provide the fairest and more transparent execution in the business and we have a slew of new trading indicators and applications that no one in the space is even considering offering their clients. We’ll still be here; We may just look a little different. Here are a few things we are working to get out in the next six months:
Single Share CFDs – We are going to be offering the top 200 or so most traded US, UK, French and German stocks. We are going to offer these shares on the equivalent of NDD in FX.
Improving CFD execution – Sharpening execution capabilities to match some of the benefits of our FX capabilities for Index and Energy CFDs to remove restrictions on stops and limits, allowing APIs, along with tighter spreads.
Market Depth in FX – clients will be able to see the depth of liquidity which will provide them more transparency with execution quality and allow them to make more informed trading decisions.
Real Volume indicators – clients will have a real volume ticker of all trades done on the FXCM system, which will show clients’ actual order flow; they can see directional volume, so long, short, net or total volume as well as balance on volume per instrument; and finally we have an indicator to show the ratio of real volume divided into transactions per period. These indicators will let clients compare our trading activity against other independent providers who also publish volumes like the CME, and clients will be able to compare execution.
Sentiment Index – We will be providing FXCM’s client sentiment data in real-time as a default on the platform so clients can see where the rest of the clients are.
These software updates and platform features are bringing much more transparency to the retail FX market aimed at improving the client experience in the market.
With your stock price so low, is that an indication of the health of your company?
While it is true that FXCM’s stock price dropped after the events of January 15th, we do not believe that the present stock price is indicative of the health of the company. The stock price does not impact our day to day operations as a company.
With the injection of cash from the Leucadia financing, the core retail business is functioning completely as normal. We have excess regulatory capital in all our regulated entities and never had to pause trading or interrupt client’s trading experience. As we announced in our business update, daily volume on the retail side was on pace to set an all-time company record.
Why didn’t the dealing desk brokers have these types of losses?
A dealing desk broker does not have offsetting trades. If the customer is long a trade the broker is short that trade, so when the customer makes a profit on a trade the broker loses. When the customer loses on the trade then the broker is profitable.
Obviously on January 15th most clients lost money so the dealer was very profitable. Even for clients that blew through their stops and had negative balances with these firms, the dealer doesn’t have a liquidity provider that it owes money to. They can essentially act like the negative balances never happened and enjoy their profits.
What is FXCM changing with regards to their risk management systems?
The primary change we will be making is removing currency pairs from the platform that carry significant risk due to over-active manipulation by their respective government either by a floor, ceiling, peg or band. Given what happened with EUR/CHF the industry is now looking very hard at any potentially similar issues, especially given the increased geopolitical risks in Southern and Eastern Europe.
We will also be raising margin requirements for other pairs as well. Some of these changes will be permanent while others may change as geopolitical risks change. The pairs we are removing from the platform were not material to our volume or our revenue. Some of the currencies we are removing include DKK, SGD, HKD, PLN and CZK.
FXCM made some material changes in margin requirements for clients. Are those changes permanent or temporary in nature?
When you look at some of the changes we made to margin requirements, look at them in three different categories: 1. Some of the changes we made were required by regulators, and therefore we had to comply with these changes. 2. When you look at emerging market currencies, the banks and our liquidity providers were raising margin requirements to eliminate any potential risk of large gaps. 3. Previously liquid Western country currencies, like the DKK or CHF, which now carry risk because they are manipulated currencies, have become less liquid.
Despite what the media thinks about leverage, we know the clients like it and want more, it’s the number 1 or number 2 request our sales staff has been getting the past week. We understand the importance of this to our clients but we just need to be smart about it moving forward.
What is Black Thursday’s long-term impact on the retail foreign exchange industry? In what ways has it changed the direction the industry is going?
Banks are raising their margin requirements, too. A lot of these currencies that carry any type of geopolitical risk with them are going to lose support and liquidity. Investors always had little faith in emerging market currencies but always believed in Western countries’ currencies even if they were manipulated in some way, but that’s gone.
Switzerland is a Western country and if they can pull the shenanigans they did with their currency, what’s to say other western countries won’t do the same? The market is going to be very sceptical as they can only stand to lose; The risk is just too high now. It’s too bad really as these pairs historically had low volatility, were range-bound and were very profitable trades for clients.
- source: forexmagnates.com/exclusive-fxcm-inc-ceo-drew-niv-discusses-firms-future-after-the-chf-crisis/
