Dukascopy JForex access cut off for U.S. traders

I'm question the veracity of whether certain fx 'brokers' should be eligible to be considered as such, considering their blatant bucket-shop behavior.

This is a situation of interest to us citizens, as now regulations are in place, to ban US citizens from using retail fx brokers that actually offer decent ECN access (including institutional US-based ECNs, which are even used by non-US retail clients), unless they are institutional ECPs, this should be of considerable interest to all US investors.

 

The real issue is excessive U.S. regulation with inflexible "bans" against usage of respectable and infinitely superior foreign brokerages, such as Dukascopy. Introduction of FIFO restrictions, low leverages and other destructive "protective" measures. This has simply destroyed the usefulness of Forex trading from U.S. brokers, and may have been part of the plan to "throw the baby out with the bathwater".

 

Who cares, focus on making money trading, that's all there is to it.

 

The excerpt only highlights the fact that we have several other revenue sources that along with the 3% contributed by PFOF add up to the roughly 30% figure cited.

For those who are curious, below are the other revenue sources (listed on page 40 of our SEC filing) that account for roughly 70% of our retail trading revenues:

“(i) the number of active accounts and the mix of those accounts — high volume accounts are charged a lower markup; (ii) the volume these accounts trade, which is driven by the amount of funds customers have on deposit, also referred to as customer equity, and the overall volatility of the FX market; (iii) the size of the markup we receive, which is a function of the mix of currency pairs traded, the spread we add to the prices supplied by our FX market makers and the interest differential between major currencies and the markup we receive on interest paid and received on customer positions held overnight”​

In other words, our largest source of revenue is primarily driven by the number of accounts trading with us, the volume they trade, and the markup we add to the prices we receive from our liquidity providers which acts as a commission. The more our clients trade, the more money we make.

Mentioning our SEC filing highlights an important point. Unlike the majority of retail forex brokers and many futures brokers, we are a publicly-traded company listed on the New York Stock Exchange (ticker: FXCM). That means information regarding our financials is publicly available.

The past few years have seen the failure of a number of privately-held brokerages in the US, in the UK, in Australia and in Switzerland. In the most recent example in the US, forex traders who deposited money with the now defunct PFG Best are getting back only 30 cents on the dollar.

Good traders put a lot of thought into the trades they place. The same care is needed when choosing your broker. Return of capital is as important as return on capital, if not more so. Therefore, all traders need to ask their brokers the following questions regarding their financial stability.

1. What are your revenues? (As a follow up question, try asking what percentage of their revenues comes from PFOF.)
2. How profitable is your firm?
3. Do you have a top-tier third party accounting firm auditing your financials?

In this context, FXCM's longevity and continued growth is validation from our clients of the value they see in our spreads and business model which are both competitive and sustainable. That’s why traders have entrusted us with $1.191 billion in client funds.

 

Out of curiosity, where exactly is that 3% number cited anyway?

In any case, whether you nominally call it PFOF, or market-making or ripping spreads off of CFDs in a bucket-shop style, it makes up a considerable portion of your revenue altogether, and it is not disclosed how it impacts your profitability, but there is a high-chance it accounts for a significant portion of your profitability as well. However, in any case, it is a fact that a considerable portion of your revenue comes from slippage at the customer's expense. You are not an ECN, and in any case, you absolutely have 'last-look', to the customer's detriment.

 

I can tell you that Dukascopy is a true ECN, and even micro-lots
trade with amazing precision and no slippage, and very rarely
is there a counter-party rejection. Naturally, if
you "chase price" you may believe there is slippage, but the
market is actually simply running away from you.

I micro scalp, and precision is transparently just incredibly
fair at Dukascopy, which why I mourn its loss. It may be necessary
to explore extreme measures to regain access to this brokerage
through relationships with my less-regulated overseas clients.

HyperScalper

 

If you're a US citizen (even being a foreign resident won't help at this point), they won't take you, many foreign institutions are like this now as a result of FATCA, the only way around it is to obtain another citizenship and renounce us citizenship. That's what makes this issue so serious.

 

Yes, of course I am aware of this, which is what increasingly gives the
remaining Retail Forex brokers in the U.S. the air of "monopolies". But
there are many relationships which can be established if not directly
with Dukascopy who, as we know, cannot accept accounts of individual U.S.
residents. For example, one can have a private contract to trade on behalf
of a non-U.S. entity and receive income on a privately agreed contractual
basis as a result of that service.

But you make an excellent point that U.S. residents' freedom is being
infringed in an unreasonable fashion, to avoid 1) trading with unsound
firms, or 2) overextension of leverage, or 3) other reasons to do with
evasion, laundering or crime. These issues collectively represent
a "nanny state overreach" approach, with no legitimate exceptions,
as a blanket policy by legislation.

I'm not ready to renounce my citizenship just yet

Just my opinion.

 

Perhaps, but with that foreign corporation, you will have to be dependent upon the foreign investor(s) who is(are) the beneficial owner(s).

 

PFOF is not a material source of revenue, so it is not broken down individually in our SEC filings. However, you're welcome to email investorrelations@fxcm.com to confirm the breakdown of revenues and the 3% number, if you wish.

As mentioned previously PFOF accounts for only 3% of revenues. Our largest source of revenue is primarily driven (about 70%) by the number of accounts trading with us, the volume they trade, and the markup we add to the prices we receive from our liquidity providers which acts as a commission. In other words, the more our clients trade, the more money we make.

It's worth noting that in order for a PFOF market maker to receive order flow on our NDD model, they must quote prices at or better than the best bid/offer from all other liquidity providers. Their inclusion on the NDD price feed serves to increase the liquidity available for our clients.

On NDD forex execution, our revenues are based on pip markups off of transactions, in other words commissions, and not client losses. Whether a trader is negatively slipped or positively slipped does not impact our bottom line. Negative slippage is when your order is filled at a worse price than originally specified. Positive slippage is when your order is filled at a better price, otherwise known as a price improvement.

With FXCM’s price improvement technology, all orders can receive positive slippage, or price improvements. This means you can potentially make more money if the market gaps or spikes favorably through your limit price. This is especially true in situations where the market moves fast (during weekend gaps or around news events). We are currently one of the only forex firms to give price improvements on market and limit orders.

Analyzing a total of 43,128,901 forex and metal trades executed by FXCM during the six month period of August 2013 -January 2014, 6,391,641 or 15% of the trades benefitted from price improvements totaling $15,726,247. Of the total number of trades executed, 4,648,672 trades were limit and limit entry orders. Sixty percent of those limit and limit entry orders were positively slipped providing clients $7,296,520 in price improvements. Of the total trades executed in the six month period of August 2013 - January 2014 clients were executed at their requested price 73% of the time with no slippage. Only 12% of orders were slipped negatively.

The term ECN when applied to retail forex is a misnomer. While it has gained currency (pun intended) among retail traders of late, the term should be reserved for the electronic communication networks used by banks and other institutional level market participants to trade among each other, not with retail traders. That's why FXCM uses the term NDD for our forex execution model that offsets retail client orders one-for-one with our 10+ liquidity providers.

"FX ECNs like Currenex, Bloomberg Tradebook (an affiliate of Bloomberg L.P.), 7Hedge FX ECN, Hotspot FX, 360T, FXall & BAXTER Financial Services Ltd with Currency Dealing provide access to an electronic trading network, supplied with streaming quotes from the top tier banks in the world."
source: Electronic communication network (Note: FXCM does offer institutional forex trading solutions through our FXCM Pro division.)​