FXCM Raw Spread Pricing


slugFX

Well-Known Member
Did anyone else see that starting this Friday FXCM will be changing to a new pricing model? Their spreads will be the raw spreads that they get from their liquidity providers and they will then charge commission instead as their only form of making money.

I think this is really cool and I am excited about it. It should help us get a little more edge than we used to have and it will be interesting to see if there are more profitable accounts after the change.

Just wanted to open up a thread for discussion on the topic and see what everyone thinks about it.
 

sqa

Village Scribe
So they're opening up a "ECN-like" setup? Interesting. (US Firms can't use the phrase "ECN" by regulation. No joke.)
 

sqa

Village Scribe
Ah, I think I get what's going on: they need something new to bring people in. There aren't as many suckers to hunt the stops of anymore. ;)
 

SLT

Official GDayFX.com Rep
sqa said:
Ah, I think I get what's going on: they need something new to bring people in. There aren't as many suckers to hunt the stops of anymore. ;)
What is ECN?
 

Computater707

Well-Known Member
ECN> "Electronic criminal network" ;)

Just looked at spreads on a few random pairs on FXCM live acct.
Hi Pair GBPNZD=3 GBPAUD=2
AUDJPY=0.6 GBPCHF=1.6
EURGBP 0.7 NZDUSD=0.6
USDCAD=0.6 AUDUSD= 0.4
GBPUSD 0.8 USDJPY 0.5 EURUSD= 0.4

Some times spreads went lower but that seems about normal. Overall spreads are probably about 1/2 to 1/3 what they were before. A lot of the exotics used to be over 5pip spread.
This is great news for 5 pip scalpers!

It is also interesting that EURCHF leverage was lowered at about this time on USA accounts. I don't think I'd every trade it but it is curious.
 

SLT

Official GDayFX.com Rep
I have an existing FXCM account, just received the email saying my account has been upgraded to the new pricing model

0.2 average spread on Fiber there sayin
 

sqa

Village Scribe
Well, their service charge is still about .8 of a pip on the Majors (plus EJ/GJ) and 1.2 on the rest. So, it's not terrible, minus the fact you're still dealing with FXCM.

But it's really a very good deal for Crosses. Especially GJ/EJ.
 

SLT

Official GDayFX.com Rep
This is what they said

Dear Client,

Welcome to FXCM's new Forex Pricing Model.

This email is to confirm that your FXCM account(s): has been upgraded to the new Forex Commission Based Pricing Model under FXCM’s No Dealing Desk with typical average spreads of 0.2 pips on EUR/USD and 0.3 pips on USD/JPY and Commissions as low as $0.04 per 1k lot.1

Your transaction costs may now be up to 50% lower compared to previous typical spreads on some of our most popular currency pairs2. Learn More

Note, i started out with FXCM (still active), since have changed brokers
 

rod178

Well-Known Member
Seems that many Retail Traders finally woke up to their rip off spreads, hence the new lower offers.

At first glance their new offer looked ok, until I read the detail The commission charges are on the high side (well over double what I pay) for all except the AUDUSD. As for the ECN spreads, average at best.

Better value elsewhere, at least they now use lube.
 

sqa

Village Scribe
It's no Pepperstone, but it's actually pretty good for those of us stuck with US brokers. At least for the "main majors" & EJ/GJ. Rest, eh, it's not terrible. Same cost or so as the rest of the brokers, just with commission pricing.
 

SLT

Official GDayFX.com Rep
I am going to see what there spread and commission looks like, using Aussie -
Aussie is the most stable...

Aussie for scalping, Fiber & Cable for one shot kills
Aussie commissions are .04 per lot i think

Rod, you can PM me if you can share who you use as a broker, if not, no love lost
 

sqa

Village Scribe
It's .08 per *trade*. So .8 of a pip in Commission + Spread.

Now, that puts the total cost roughly the same, but a few points:

1) We're likely seeing this because most aren't Market Makers anymore, and even the USA brokers would like foreign customers.
2) Brokers don't get paid until you close the Trade with Spread Pricing. With less new accounts (and a lot of people that hold positions open), it makes sense. Half now, half later. Flattens the revenue stream.
3) Encourages more trading. People won't notice they're burning up their account with Commission fees for a while.

I like this trend. And I'd love a review of the account actually in practice. I may choose to actually trade with FXCM if there is nothing else of a problem involved with it.
 

rod178

Well-Known Member
Do FXCM clients with negative equity balances have a right to refuse to pay?

Not good News for FXCM clients it seems. It will be interesting to see how this plays out

Do FXCM clients with negative equity balances have a right to refuse to pay?
http://leaprate.com/2015/01/do-fxcm-clients-with-negative-equity-balances-have-a-right-to-refuse-to-pay/
By LeapRate Staff on Thursday, 01.22.15
FXCM has stated that its policy is generally not to pursue claims for negative equity against our customers.
refuse to pay
In its press release describing its deal with Leucadia, FXCM Inc (NYSE:FXCM) made it very clear that it plans to ‘go after’ clients which had lost more than their money on deposit in Swiss Franc (or other) trades gone bad, as the Swiss Franc spiked in value 20% almost instantaneously last Thursday.
These aggregate negative client balances, totaling about $225 million at FXCM, are what ultimately forced FXCM to find a financial lifeline in the guise of a $300 million loan from Leucadia National Corp (NYSE:LUK).
FXCM wh logoIn the press release, FXCM states that it will make repayments of the loan each month to Leucadia “from proceeds received during the immediately preceding calendar month from accounts receivable related to the customer debit balances.”
But do those clients have a right to refuse to repay FXCM these negative balances?
In its latest annual Form 10-K filing with the SEC, FXCM states quite clearly that:
our policy is generally not to pursue claims for negative equity against our customers.
(See FXCM’s Form 10-K, page 11)
Clients with negative equity balances, if approached by FXCM, could simply state that they relied on FXCM’s policy and that they therefore reasonably expected that their losses could never exceed the amount of money they had on deposit.
We understand that most retail forex brokers (including for example Gain Capital and its Forex.com unit) are just forgiving the negative client balances of clients who lost more than their deposit balance due to the Swiss Franc spike.
The main reason for doing so is a simple business decision.
If the balances aren’t forgiven, then the trader goes away and likely opens up a new account at a different broker, while the first broker really has little chance of ever getting its money back. But if the (first) broker forgives the balance, then the trader is much more likely to stay, deposit new money, and trade again.
 

sqa

Village Scribe
I can't find it at the moment, but the last time I saw it, FXCM had under 30k accounts. At least among the reportable ones. There are people out there they can get money out of it. Considering the size of the losses, I have a feeling that over 50% of that is a very small number of accounts.

Previous to Swissaggedon, actually getting negative equity would have required a supremely significant gap. In most cases, the negative equity levels were probably for less than $1000 USD each.
 

jack

Administrator
Staff member
I could have sworn that FXCM had negative balance protection (the kind that would always 0-out any negative balance caused by a snap move in the markets.) Or at least they did back when I used their FXCM-Micro division before it was rolled into their main business unit.

In any case... there's no way FXCM will be able to collect on the $225 million.. They might get a small fraction of it back, but unless they're gonna buy out a collections agency and run with it, we're talking about 30 cents on the dollar...

The loan they got also entitles the lender to something like 90% of any sale proceeds should FXCM get bought out..

FXCM might somehow limp on and make loan payments from other revenue sources (thus increasing their overhead and making margins even thinner than before, so it would be harder to be competitive as the broker industry changes,) or they could get bought out... in either case, shareholder equity from before this mess is likely to remain blown to bits..
 

sqa

Village Scribe
Are we sure a huge chunk of that loss wasn't a few Funds that used their Institutional Services? That's really the only way to square that large of a loss. Unless they had something like $5 million in Equity locked up in the Long and it all unwound at .7850, which it hit for a minute (not on most feeds, though). I imagine 50-60 cents on the Dollar is what they can get, but for the sheer volume of accounts toasted, I doubt most of them cost FXCM that much. There must have been a few real whoopers around that took losses.
 

rod178

Well-Known Member
FXCM letter to clients to repay negative balances

http://leaprate.com/2015/01/fxcm-letter-to-clients-to-repay-negative-balances/

FXCM letter to clients to repay negative balances
By LeapRate Staff on Friday, 01.23.15
FXCM has taken another step to erase negative client balances – merging accounts.
fxcmnegativequity
LeapRate Exclusive… LeapRate has received a copy of the letter being circulated by FXCM Inc (NYSE:FXCM) to its clients having negative client balances in their accounts, following large losses by many clients last Thursday on Swiss Franc CHF pairs trading.
The losses left certain FXCM clients with an aggregate of about $225 million of negative equity in their accounts – and left FXCM with a major hole in its regulatory capital requirements, leading to a $300 million bailout of FXCM by Leucadia National Corp (NYSE:LUK).
Interestingly, FXCM tells its clients in the letter that if they hold more than one account with FXCM, any funds from accounts with positive balances will be used to cover the negative balances in another account.
FXCM’s rationale for asking for repayment? The SNB’s surprise move removing the EURCHF 1.20 floor and what followed was a ‘force majeure event’. Force Majeure events usually refer to war, strike, riot, crime, or events described by the legal term ‘Act of God’ such as a natural disaster, or other unforeseeable circumstances.
How a spike in a currency pair accompanied by a temporary loss of liquidity in that pair could be viewed as a ‘Force Majeure’ event – by a Forex broker! – is beyond us.
As we wrote yesterday, we believe that FXCM clients have a legitimate claim to refuse to repay negative balances (or even to have FXCM ‘merge’ their accounts), due to FXCM’s clearly stated policy “not to pursue claims for negative equity against our customers.” Clients with negative equity balances, if approached by FXCM, could simply state that they relied on FXCM’s policy and that they therefore reasonably expected that their losses could never exceed the amount of money they had on deposit.
The text of the letter follows below.
——————-
Dear Client,
IMPORTANT NEWS REGARDING YOUR FXCM TRADING ACCOUNTS
Please be advised that in order to offset negative balances you currently hold in your FXCM account(s), FXCM has transferred funds from your account(s) with a positive balance. The terms of your master trading agreement entered into with FXCM, available online, provide FXCM with these rights.
If after this transfer you still maintain a negative balance on your account, you are requested to remit funds immediately. FXCM accepts deposits by, debit card, bank wire and ACH electronic check. All options can be accessed via our www.myfxcm.com portal.
As you may already be aware, last week, the Swiss National Bank (“SNB”) announced that they will no longer support a self-imposed floor on the EUR/CHF exchange rate. Learn More.
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, constituting force majeure events.
Record of this transaction is available by generating a Combined Account Statement and referencing the description “Offset Transfer from Account to Account for Negative Balance”.
FXCM thanks you for you cooperation and understanding.
If you have any questions, please contact one of our specialists, who are available 24 hours a day, by live chat, by calling 1-888-503-6739, or by e-mail at info@fxcm.com
FXCM hereby reserves all rights and remedies that it may have at law, in equity, under the terms of any contracts with you. Nothing in this notice shall be deemed to constitute a waiver or settlement of any of FXCM’s rights and remedies.
 

sqa

Village Scribe
Policy is one thing; Written & Signed Contracts are another.

All of the US-based Brokerage firm contracts specifically spell out that you are liable for any Debt caused on your account. That they normally don't bother, as it's so small (because it takes a Gap event to really cause it) isn't going to stand up to the contract that was signed. Especially since we still don't know how many accounts actually caused most of that $225 million dollar loss. It can't be more than a few that were the bulk of it.
 

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