Why FXCM is dead and GAIN is survived?
- Thread starter tonyzhou
- Start date
http://ir.gladstoneinvestment.com/
http://www.fxcm.com/?engine=goog+va...00000CkgXAAS&gclid=CNr2wtbZwsMCFZSPfgodFzsA8A
That sounds like the same business to you?
http://www.fxcm.com/?engine=goog+va...00000CkgXAAS&gclid=CNr2wtbZwsMCFZSPfgodFzsA8A
That sounds like the same business to you?
Stock at 2.20 what a boon...finally the right people getting burned. But of course no apologies by those who work for FXCM and published reports on this website on the day of the CHF peg removal, the day after, and several days after that "everything is back to normal and normal operations resume". Can we expect them to say such? Of course, after all they are paid liars. How else to look at this from a more positive perspective? I am extremely pleased to know that Drew Niv took a huge hit on this one. One of the shadiest characters in this business to say the least.
GAIN Capital, the forex broker similar to FXCM, is ticker GCAP not GAIN (the latter is a business development company, basically a lender to small or shaky businesses). My understanding was that GAIN Capital had higher margin requirements and hence was better protected from their customers losing more than they had on the CHF move, but in could be wrong about that last part.
FXCM are changing there margin requirement depending on there risk, they've dropped from 200:1 to 100:1 and go down to 50:1 over high risk news events to protect themselves a bit.
I've requested, changing to 50:1 twice over the last week, 1 on chat failed to happen, 1 e-mail got ignored, looks like there staff morale is low or lacking in man power!
I've requested, changing to 50:1 twice over the last week, 1 on chat failed to happen, 1 e-mail got ignored, looks like there staff morale is low or lacking in man power!
The difference is in the business model. Gain runs a dealing desk and FXCM does straight through processing. With the dealing desk, Gain takes the opposite side of your trade. Gain's actual exposure is minimized in the market as far as margin requirements. Gain makes money when a trader loses money. Given the high percentage of losing traders, this isn't a bad business model for Gain.
On the other hand, FXCM sends your trades more directly into market and FXCM gets exposed more to market risks. FXCM doesn't necessarily take the opposite side to a trader's trade.
Now when the EUR/CHF took a dump, things happened so fast that trades weren't able to get closed at stop losses and trader accounts went into negative balances. This translated into trader's owing money to the "market". Since the traders were on FXCM books, FXCM was on the hook for the negative balances. FXCM had a choice of going after individual traders or soaking up the losses. Going after the traders would have been almost impossible in a reasonable amount of time so they soaked up the losses. Contrast this with Gain where they were able to just wipe the books of negative balances since the trades weren't really executed in the market.
Of course this is just a simple answer to a very technical situation. The details are much more complicated but hopefully the gist is correct.
On the other hand, FXCM sends your trades more directly into market and FXCM gets exposed more to market risks. FXCM doesn't necessarily take the opposite side to a trader's trade.
Now when the EUR/CHF took a dump, things happened so fast that trades weren't able to get closed at stop losses and trader accounts went into negative balances. This translated into trader's owing money to the "market". Since the traders were on FXCM books, FXCM was on the hook for the negative balances. FXCM had a choice of going after individual traders or soaking up the losses. Going after the traders would have been almost impossible in a reasonable amount of time so they soaked up the losses. Contrast this with Gain where they were able to just wipe the books of negative balances since the trades weren't really executed in the market.
Of course this is just a simple answer to a very technical situation. The details are much more complicated but hopefully the gist is correct.
From trader's perspective in the aftermath of the debacle, would it be considered appropriate risk management practice to do business with GCAP type brokers (albeit the inherent conflict of interest business models they have)?
The other alternative would be for FXCMers to establish a more robust risk protection mechanism to prevent this from happening again with hedging techniques etc.
The other alternative would be for FXCMers to establish a more robust risk protection mechanism to prevent this from happening again with hedging techniques etc.