Saw this on FT's Alphaville blog: http://ftalphaville.ft.com/blog/2010/11/15/405106/inside-an-fx-ipo/#comments Interesting to see audited financial statements from a forex broker. Looks like they make pretty good money. I also chuckled at FXCM's furious backpedaling over their former "bucketshop" status. "Agency is the only way to go..."
Our agency model is fundamental to our core business philosophy because we believe that it aligns our interests with those of our customers, reduces our risks and provides distinct advantages over the principal model used by the majority of retail FX brokers. In the principal model, the retail FX broker sets the price it presents to the customer and may maintain its trading position if it believes the price may move in its favor and against the customer. We believe this creates an inherent conflict between the interests of the customer and those of the principal model broker. Principal model brokersâ revenues typically consist primarily of trading gains or losses, and are more affected by market volatility than those of brokers utilizing the agency model. Conflict of interest ? Basically, in the years before there were NO CONFLICTS OF INTEREST, HUM ? Waiting for the SEC to approve the prospectus and have some fund with FXCM´s shares !
As an asiide, you couldn't have a princioal broker listed on an exchange as the (albeit paper) P&L swings would be too much.