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FXCM

Forex Capital Markets (FXCM) is one of the largest "forex dealer member (or financial services firm specializing in retail forex), supplying online trading services for retail and institutional speculators in the foreign exchange market. The company has over 100,000 live accounts trading via its FX Trading Station and over 400 institutional customers from more than 200 countries. Approximately 500 employees, based in offices in New York City, London, Dallas, San Francisco, Hong Kong, and Tokyo provide 24-hour, multi-lingual sales, dealing, administrative, and technical support 7 days a week.

History

In November 2005, Forex Capital Markets (FXCM) became entrenched in the bankruptcy proceedings of Refco, Inc (OTC:RFXCQ). Refco, a big commodities brokerage that collapsed amid an accounting scandal, has been largely purchased by Man Group. At the time Refco owned a 35% share in FXCM. The 35% that belonged to Refco was auctioned off, and now belongs to an investment group that includes Lehman Brothers. FXCM is currently backing a client-led lawsuit against Refco.

FXCM is a registered Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) and is a member of the National Futures Association (NFA). Ownership and regulatory information on FXCM are available at its National Futures Association (NFA) listing

FXCM is also regulated in Canada (BCSC) United Kingdom (FSA), and Hong Kong (SFC)

Services

The company supplies most of its services through two primary websites: FXCM, the company's flagship site; and DailyFX, which is a source for foreign exchange and economic news, as well as information, advice, and resources pertaining to the global currency market. For new traders, FXCM also provides learning resources, through such products as the FX Powercourse and free live webinars The firm's Chief Strategists, Kathy Lien and Boris Schlossberg have been quoted by information providers such as Investopedia.

FXCM New Business Model

FXCM has migrated all their customers away from a dealing desk platform, and they are now offering a No Dealing Desk (NDD) trading platform, passing on orders to nine major banks. The FXCM client can now:

Trade during news or periods of high volatility without requotes
Place entry orders anywhere even within the spread
Scalp the market without dealer intervention or trade restrictions

Old Business Model

Like most market makers, FXCM's revenues come from five main sources:

The Spread - The difference between the spread FXCM quotes to clients and the spread FXCM receives from the banks they offset from. If FXCM is unable to match a buyer and seller internally, FXCM will, after the positions become sufficiently large, offset with larger banks that quote them cheaper spreads.
Internal matching of client trades - If the spread is 3 pips, and FXCM is able to match a buyer and a seller internally, they collect 3 pips.
Interest on client deposits (like most online brokers, such as E*TRADE, these are a dependable and large source of income)
The firm's own speculative positions in the market.
Losses on clients' trades that were never offset.

Not all of the above apply to FXCM's "no-dealing-desk" trading option. In this set-up, trades are routed to other interbank market participants. FXCM then may not derive income from source two through five. This allows clients direct access to bank liquidity. However, all trades are still cleared through a dealing desk of some type as all banks have dealing desks.

Speculative focus

The New York Times quoted Marc Prosser, Chief Marketing Officer at FXCM saying "Don't just call it investing - this is speculation, and people should only be putting up risk capital they can afford to lose.".

Even the U.S. government approved self-regulating body for the foreign exchange market, the National Futures Association, warns traders in a Forex Training presentation of the risk in trading currency. “As stated at the beginning of this program, off-exchange foreign currency trading carries a high level of risk and may not be suitable for all customers. The only funds that should ever be used to speculate in foreign currency trading, or any type of highly speculative investment, are funds that represent risk capital; in other words, funds you can afford to lose without affecting your financial situation. . 100-1 leverage makes this type of trading especially risky.

Retail forex is controversial because the high degree of leverage available in the market leads most retail traders to lose money, and because of the existence of many forex scams. Quoted in the Wall Street Journal regarding retail forex, (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' "