FXCM

FXCM Inc.

Type	Public Company
Traded as	NYSE: FXCM
Industry	Financial Services
Founded	1999
Headquarters	New York, United States
Key people	Drew Niv, CEO Co-founder
Services	Financial broker, foreign exchange
Number of employees	844[1]
Subsidiaries	DailyFX
Website	www.fxcm.com

Forex Capital Markets, better known as FXCM, is an online Foreign exchange market broker based in the United States.

The company provides services through its own online trading platforms and through third party platforms such as MetaTrader 4. FXCM allows retail and institutional clients to speculate on global foreign exchange markets in what is known as "margin forex trading". Outside the US, FXCM also provides trading in contract for difference (CFDs) on major indices and commodities such as gold and crude oil.

Following a large increase in the price of Swiss francs on January 15, 2015, the company announced that it may be "in breach of some regulatory capital requirements."^[2] On January 16, FXCM announced that it had secured a $300 million loan with a 10% coupon from Leucadia National Corp in order to meet its capital requirements.^[3] On January 20 further terms of the loan were released, showing that the coupon rate might rise to 17% and that asset sales and other limitations were imposed. Citigroup analysts quoted by Bloomberg said that the terms of the loan “essentially wiped out” the value of FXCM’s stock.^[4][5]

History

Foundation

Forex Capital Markets was founded in 1999 in New York, and was one of the early developers of online forex trading. In January 2003, FXCM entered into a partnership with Refco group, one of the largest US futures brokers at the time. Refco took a 35% stake in FXCM and licensed the FXCM software for use by its own clients. Following the collapse of Refco in October 2005, FXCM became entrenched in the Refco bankruptcy proceedings for a number of years.

In 2003, FXCM expanded overseas when it opened an office in London which became regulated by the UK Financial Services Authority.

In 2008, the self-regulatory organization for the US futures industry, the National Futures Association (NFA), obtained permission from the Commodity Futures Trading Commission (CFTC) to increase the minimum capital requirements, in staged increments, to $20M for "Forex Dealer Members" including FXCM. The increase was in response to the failures of a few forex brokers, and it allowed FXCM to acquire new business from some of its smaller competitors who either ceased all operations or moved out of the US.^[6][7] The same year it continued its overseas expansion and opened offices in France and Australia.

The following year FXCM UK started offering a limited number of CFDs to its non-US based clients, in addition to its currency products. In May 2010, FXCM acquired the UK CFD and spreadbetting provider ODL.^[8]

Initial public offering, law suits, fines and expansion

In December 2010, FXCM went public and began trading on the NYSE, becoming the first forex broker in the US to IPO. The initial public offering price was 14.00 per share.^[9][10] The following year, in February and March 2011, a number of class actions lawsuits were filed against FXCM, alleging fraud and racketeering from deceptive and unfair trade practices, and misleading shareholders during the 2010 IPO.^{[11][12][13][14]}

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]

In October 2011, FXCM completed its acquisition of Japanese FX broker Foreland Forex Co., Ltd. for approximately $17M, net of cash and liquid assets acquired.^[16]

On October 25, 2011, three debtors, Certified, Inc., Global Bullion Trading Group, Inc., and WJS Funding, Inc., filed an adversary complaint in the United States Bankruptcy Court for the Southern District of Florida against Forex Capital Markets LLC, ODL Securities, Inc., and ODL Securities, Ltd. (“Defendants”). The complaint asserts claims under the Federal Bankruptcy Code to recover allegedly preferential and fraudulent transfers to the Defendants, under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C §1961 et seq., as well as the common law. The complaint seeks an unspecified amount of compensatory and punitive damages, interests, and costs.^[17]

In June 2012 FXCM bought a controlling stake in Lucid Markets LLP, a London-based automated trading group focused on currency trading.^[18]

Operations

FXCM has its headquarters in New York and offices in Dallas, San Francisco, Hong Kong, London, Tokyo, Paris, Berlin, Sydney, Dubai, Beirut, Milan, Santiago de Chile, Athens, Jerusalem and Tel Aviv. FXCM also owns the Forex trading news and research web site DailyFX.^[19]

Business model

The FXCM business model allows retail clients to speculate on forex markets with leverage. FXCM promotes a "no dealing desk" business model for its currency products, taking prices from a number of major banks and allowing clients to trade the best price at any given time. This is also known as a direct market access (DMA) model, in contrast to a market maker model more commonly used by forex brokers.

Industry criticism

Critics of the industry claim that few retail traders have the experience to make money trading forex. Drew Niv, chief executive of FXCM, said, "If 15% of day traders are profitable I'd be surprised."^[20] FXCM now claims that the percentage of profitable customers ranged from 21% for those with accounts under $1,000, to 37% for those with accounts between $5,000 and $9,999.^[21]

References

1. "FXCM Inc. Prospectus". FXCM. Retrieved December 11, 2011. (2011)
2. "FXCM Comments on Swiss Franc Movement". GlobeNewswire. CNN. Retrieved 16 January 2015.
3. Stone, Mike; Chavez-Dryfuss, Gertrude; Toonkel, Jessica (16 January 2015). "FX broker FXCM gets rescue from Jefferies parent Leucadia". Reuters. Retrieved 16 January 2015.
4. Faux, Zeke. "FXCM Owners Almost Wiped Out as Bailout Lets Leucadia Force Sale". Bloomberg. Retrieved 20 January 2015.
5. Wall Street Journal Staff (20 January 2015). "FXCM rescue package includes rising interest rate". Staff. Market Watch. Retrieved 20 January 2015.
6. "Net Capital Requirements for Forex Dealer Members". NFA. September 24, 2008. Retrieved July 28, 2010.
7. "NFA proposal could cause significant shakeup among forex brokerages" (PDF). Currency Trader Magazine. August 2007. Retrieved July 28, 2010.
8. Harry Wilson (May 4, 2010). "Forex broker ODL accepts US takeover". telegraph.co.uk (London).
9. Vannucci, Cecile; Spears, Lee (Dec 2, 2010). "FXCM’s IPO Raises $211 Million at Midpoint of Range". Bloomberg. Retrieved Dec 10, 2010.
10. "FXCM's IPO Raises $211 Million at Midpoint of Range". Bloomberg. August 21, 2013.
11. "Morgan Business Trial Group Files Class Action Lawsuit Against Nation's Largest Forex Dealer – FXCM". Feb 10, 2011.
12. "Kahn Swick & Foti, LLC And Former Louisiana Attorney General Announce Investigation Into FXCM, Inc. – FXCM". Feb 16, 2011.
13. "Law Offices of Howard G. Smith Announces Investigation On Behalf of Investors of FXCM Inc.". Feb 17, 2011.
14. "Kahn Swick & Foti, LLC and Former Louisiana Attorney General File Suit Against FXCM Inc.: Remind Investors With Large Financial Interests of Important 5/2/11 Deadline – FXCM". March 3, 2011.
15. "FXCM Press Release". October 3, 2011.
16. "FXCM Press Release". October 13, 2011.
17. "FXCM 10K Statement Q3 2011, Page 25". November 14, 2011.
18. "FXCM Eyes Stake in Infinium". The Wall Street Journal. August 21, 2013.
19. "DailyFX website". Retrieved 2 June 2014.
20. Karmin, Craig; MICHAEL R. SESIT (July 26, 2005). "Currency Markets Draw Speculation, Fraud". The Wall Street Journal (Dow Jones and Company). Retrieved October 31, 2007.
21. Traits of Successful Traders, Page 31. Retrieved February 2, 2012.