In August 2011, the NFA fined FXCM $2M for slippage malpractices. FXCM reached settlements with the NFA and the CFTC of $2M and $6M respectively, for practices relating to failure to pass along positive slippage to customers on certain order types prior to August 2010. In conjunction with these settlements, FXCM provided clients with restitution for the total amount of positive slippage, approximately $8M.[15] enjoy
Thanks, I was referring to the 2015 move though. I found some more info. "FXCM Announces Massive $225 Million Client Negative Balance Hit Due to CHF Volatility" "FXCM has released a statement that client negative balances due to the move in the CHF reached $225 million...FXCM is on the hook for $225 million to their liquidity partners, collecting the funds from clients will be difficult." - FXMagnet "FXCM said it will seek repayment from institutional and high-net-worth customers who lost more money than they had in their accounts. Those investors are responsible for about 60 percent of the brokerage’s losses, New York-based FXCM said Wednesday in a statement. Traders who made smaller bets will have their losses forgiven."-Bloomberg For comparison, Oanda forgave ALL accounts not just small ones. "Oanda has quickly stepped up and announced it won’t be chasing down anyone who is in the red." http://news.forexlive.com/!/oanda-wins-points-for-quickly-forgiving-negative-balances-20150116
Hi Zr1Trader, It's important to understand why FXCM and other STP brokers had much bigger exposure to the SNB flash crash last year than dealing desk brokers (AKA market makers). For all forex trades placed by our clients on standard FXCM accounts, 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. Obviously many of our competitors who are on the opposite side of their clients trades did not find the EUR/CHF 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. 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 move 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. For anyone that still thinks FXCM is running an FX dealing desk despite stating that we provide No Dealing Desk (NDD) forex execution to all our standard accounts, we have now demonstrated that such is not the case. Also, despite the events of 15 January 2015, FXCM's capitalization remains at levels similar to before the SNB flash crash. As of August 5, 2016, the minimum regulatory capital requirement for our worldwide operations is $61 million. However, FXCM has regulatory capital of $162 million, a surplus of $101 million. Our clients appreciate this fact, which is why the financial data from the CFTC show traders continue to have more money on deposit with FXCM than any other US-regulated forex broker. Incidentally, for those of you trading with dealing desk brokers, have you ever considered what would have happened on January 15th 2015, if the market had moved 44 standard deviations in favor of your trade (and the trades of everyone else in the same position) and against your broker? Would they have had enough money to pay you and everyone else out on such a massive market move? Would they have wanted to even if they could? On FXCM's NDD model, we don't trade against our clients, so we don't profit from your losses or lose from your profits. Instead we profit from your trading volume. That means we want you to be profitable. Can your broker say the same?
Hi Propwarrior, I am happy to address the regulatory action you mentioned along with any additional questions you may have. FXCM should have passed on positive slippage to our clients from the beginning. For clarification, while this NFA announcement was made in 2011, the time period it relates to occurred between 2006 and 2010. FXCM took major steps to address potential conflicts of interest when we first introduced the No Dealing Desk (NDD) forex execution model in 2006, back when the vast majority of brokers in the industry were still using a dealing desk model. We made this change because we believed then and we still believe now that the NDD model is more fair and transparent in that it offers competitive, market driven prices that are sourced from multiple liquidity providers. In switching to the NDD model, we left behind the fixed-spread dealing desk model which was the norm at the time. This meant that our clients enjoyed benefits that weren't traditionally available to retail forex traders in the past such as the ability to set stops and limits as close as 1 pip from the market price, with no restrictions on setting orders during news events, and no re-quotes. This eliminated a lot of the potential conflicts of that can exist with the dealing desk model, and has helped FXCM grow into an industry leader with $875 billion in retail customer trading volume in the third quarter of 2016. That's not to dismiss what happened from 2006 to 2010, and we apologize for not passing on positive slippage in full to our clients in the past. as part of our settlement with regulators regarding positive slippage, we fully reimbursed current and former clients for any positive slippage they did not receive prior to 2010. As a result of the changes we made to our execution system in 2010, FXCM now passes on all available positive slippage in full to our clients on all orders types including market and limit orders. FXCM is regulated in the US by the CFTC and NFA, the same two bodies that oversee futures trading on the CME. In compliance with rules regarding price slippage and price re-quoting that were finalized in 2012, FXCM US provides daily trade reports to the NFA which monitors and supervises FXCM US's activity including information on the price where all client orders are filled and the corresponding price where those orders are offset with our liquidity providers. All of FXCM's global trading entities including FXCM UK and FXCM Australia execute client rolling spot forex transactions as a riskless principal with FXCM US, so the same execution standards are applied for all of our clients worldwide. The latest execution stats from January 2015 through March 2016 showed the following: 78.71% of all orders had NO SLIPPAGE. 12.77% of all orders received positive slippage. 8.52% of all orders received negative slippage. 50.2% of all limit and limit entry orders received positive slippage. 39.9% of all stop and stop entry orders received negative slippage. By contrast, while there are no re-quotes at FXCM, there are still some brokers today that re-quote their clients. Clients of such brokers receive a re-quote when the market moves in their favor, but don't receive a re-quote when the market moves against them. It's possible that this asymmetrical application of re-quotes could cause clients of such brokers to miss out on potential positive slippage.
As I mentioned earlier, the futures market where all participants can act as a market maker has created an environment where the largest market participants are at a significant data and speed advantage due to the resources being spent on those speed advantages. It occurs in equities and currency futures. Just read Flash Boys. I think there's this allure to exchange trading from a perception that thousands of buyers and sellers match together in this perfectly democratic way: However, this is far from today's reality: Electronic trading moves at ultra-fast speeds measured in nanoseconds where prices can change hundreds of times a second. A market makers algorithm is changing those prices based on market data also being received from the exchange at super fast speeds. Why would the market makers algo need to update hundreds of times per second? To protect itself from other market makers which can take pricing from them. The competition between the top participants creates a predatory environment that quickly punishes mistakes. Therefore a safer route for institutional liquidity providers to take is to quote smaller sizes at wider prices to minimize margin of error of being picked off. FXCM's NDD forex execution helps address those concerns. Since our liquidity providers are only allowed to be price makers, not price takers on our retail client stream, each liquidity provider can provide pricing and liquidity without fear of another liquidity provider picking them off. This creates the environment in which liquidity providers are better able to offer quality pricing and liquidity which in turn benefits the trader, rather than making a market based on speed out of protection from other market making predators.
Remarkable how one-sided the clients' EURCHF bet was, in aggregate. Normally you'd expect, by law of large numbers, that a firm such as FXCM with thousands of customers would have a roughly balanced book in each forex pair -- some clients bullish, some bearish. Presumably in EURCHF there were many unsophisticated clients who hadn't read the Taleb books with respect to never betting on the continuation of a floor or cap. But still I'd have imagined at the firm-wide level FXCM would have avoided such a one-sided exposure.
Hi Deuteronomy 24:7, Our CEO Drew Niv addressed these points in a recent interview with LeapRate: "FXCM has eliminated many of its less liquid currency pairs specifically those that carry a large government 'active management' of some sort of an artificial structure be it a peg or managed float of some kind. We have also reduced leverage for our largest clients and have purposefully turned away business we deem to be too capital intensive. Our current exposure to any market spike is a tiny fraction of what it used to be." In addition, we now have a risk committee whose sole responsibility is to oversee aggregate client positions, alongside market conditions, with the objective of managing the risk of currency exposure. This is the department that is responsible for margin increases around potentially volatile events (the Brexit vote and US elections are recent examples) in an effort to protect both our clients and the firm from extreme changes in currency valuations.
Yes it can, it needs to be remembered that Forex is effectively unregulated. If a broker decides to change the rules that's just the way it is. In theory it should break trust in their company, but these days there's so much dilution and mis-information that knowledge never comes out so they don't care. Currency futures are more reliable as fx instruments. I had a broker, one of the better ones, recently just delete my stop order 30mins are confirmation, obviously while I wasn't watching and obviously the market went through the then non-existent but confirmed stop. It's happening more and more, is it their technology failing, is it being done on purpose to generate profits or aggressively mitigate risk, is it someone posting mis-information to discredit a competitor. It could be any or all, most likely the technology failing. In theory a better broker should not do this, but that's no guarantee any more. You really need multiple risk mitigation strategies. In the OPs case it's best to either take it straight to court trying to force the account to pre-trade (there are international companies that will take this on) or set it up by blaming them while walking away and writing if off. Everything else will be a fight have have to weigh up risk vs effort vs return.
call me old fashioned but if a company gets caughts screwing its customers by the regulator they dont get my business ever. Its served me well over the years.