Jan

16

My recollection of the marketing pitches for retail focused FX platforms was that they had some parallels to the bucket shops described by LeFevre, particularly one of them who advertised that one of your account features could be "no margin calls." If a position went against you by a particular threshold, the broker would automatically close it out, so you would have no "surprises."

anonymous writes: 

FXCM stock (a listed US company) is indicated down 75% this morning. They issued a statement that the CHF move "generated negative equity balances owed to FXCM of approximately $225 million."

As of 9/30/14, their stated equity book value was $262.7 million (source: Bloomberg) — so if their book value is real — then this particular problem can be contained.

Interactive Brokers stock is indicated down 10% this morning. They have made no public statements so far. But as we've seen time and again, broker-dealers rely on customer confidence and should a large number of customers start withdrawing collateral, this could spiral. Hence silence isn't golden.

Ed Stewart writes: 

A few things about IBKR.

First, is is a much more highly capitalized than financial statements at first suggest, as only 15% of the company trades on the exchange, the rest is owned by managers and (mostly, if i recall 75%) by CEO Peterffy. As of the last quarterly report, excess regulatory capital stood at 3.25B. S&P credit rating A- Stable, zero long term debt.

Anyone who has traded there is aware that relative to other brokers they are very conservative on margining issues, etc. Also, they don't have the business model of bucketing all of the trades on their FX platform like most retail platforms do. The IB FX ecn mostly allows IB customers to trade with other IB customers and other banks, though they are also a market maker there. In other words it is a much, much stronger business than the crappy retail FX companies.

The other issue that is hitting the company recently (hurt their results last quarter and almost certainly this quarter) Is that they keep their equity in a basket of 16 currencies that they call the GLOBAL, so they are getting hit by the strong dollar.

I could be wrong I think a currency peg blowing up is the kind of thing their risk department and peterffy would identify as a risk and substantially mitigate, especially if they had retail traders trading in masse against the peg the way the other forex platforms had. This is based on my reading most of Peterffy's writing and conference calls over the last few years, I could be dead wrong.

If there is a bad quarter out of this but the damage is not too bad I think it might end up a solid buying opportunity. It was my largest stock holding in tax deferred accounts till yesterday when I dumped most of it.

Garrett Baldwin adds: 

Global Brokers NZ has failed and Alpari U.K. is insolvent.

anonymous writes: 

What am I missing? Why should a retail broker go under because a currency moved? Were they trading against their customers as opposed to just executing orders?

Anatoly Veltman writes: 

If they don't call for margin, they end up owning position. How could they do anything with a position thru the entire initial bidless 20% gap? They obviously did rush to liquidate on the small bounce; and that's how the new low was made (look up intraday chart)
 


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  1. Conrad Ko on January 18, 2015 6:40 am

    Most retail brokers just offset client postions.

    If client A longs CHF/USD, the retail broker can choose not to pay out or cause some technical difficulties. The broker win because of volatility

    If client B short CHF/USD, the reatatil broker will say that the trade were closed after a strong reversal ,which is the bottom(top). So the broker win some money here not lose as the article suggest.

    Why did fxcm lost?
    Because they try to bet themselves
    They have something to hide.
    They did not hedge their un-offset client positions accordingly.

    Remember you dont have to pay clients, since clients can do nothing but sue you. Where you as FXCm can send loan sharks to collect it for you.

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