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Another Bailout: FXCM To Forgive 90% Of Its Mostly Foreign "Negative Balance" Customers
Two weeks after FXCM was on death's door, and only a last minute vulture investment by Jefferies prevented the company from filing, FXCM has decided that it can't afford to blow up the bulk of its clients who traded the EURCHF on the wrong side, and as the company reported moments ago, will forgive their negative balances. In other words, another bailout for HFTs, and the rich and those habitually addicted to gambling in rigged markets, who just happen to be the lifeblood of companies like FXCM.
From the press release:
FXCM to Forgive Majority of Clients Who Incurred Negative Balances
FXCM Inc.announced today its decision to forgive approximately 90% of its clients who incurred negative balances in certain jurisdictions, on January 15, 2014 as a result of the Swiss National Bank announcement on that date. FXCM will notify the applicable clients and adjust applicable client account statements in the next 24-48 hours.
"FXCM worked diligently to reach this decision and we are extremely appreciative of our clients for their patience and loyalty as we worked through this," said Drew Niv, CEO of FXCM.
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.
FXCM will also notify certain clients (such as institutional, high net worth, and experienced traders who generally maintain higher account balances) requesting payment of negative balances, pursuant to the terms of the FXCM master trading agreements. This group represents approximately 10% of clients who incurred negative balances which comprises over 60% of the total debit balances owed.
Because without whale clients, no exchange can continue to skim off the bid/ask margin while suckering in more "overnight wannabe millionaires" with 200x leverage.
So who are the generous beneficiaries of this Jefferies-funded bailout? For the answer we go to the WSJ:
Retail foreign-exchange broker FXCM Inc. was nearly felled by outsize bets made by foreign customers who aren’t subject to U.S. regulations, according to people familiar with regulators’ review of the firm.
While some U.S. clients lost money when the Swiss National Bank scrapped a cap on the country’s currency, the bulk of the losses were borne by clients at FXCM’s affiliates in London, Singapore and other locations abroad, the regulators said. Those affiliates weren’t subject to leverage caps imposed by U.S. regulators, allowing overseas clients to make bigger bets—and take bigger losses.
As a result, FXCM said its customers owed the firm about $225 million, potentially putting the company in violation of capital requirements and forcing it to take a $300 million rescue from investment firm Leucadia National Corp.
The fallout illustrates both how a firm’s losses abroad can find their way to U.S. shores and that even relatively strict U.S. regulation can’t prevent losses in less-regulated jurisdictions. While regulators don’t believe the firm’s near-collapse posed any broader risks to the financial system, the incident is prompting them to consider whether their capital and leverage requirements are adequate for firms like FXCM, the people familiar with the review said.
In the U.S., the Commodity Futures Trading Commission and the National Futures Association, a self-regulator, currently limit leverage on transactions for retail, or individual, currency investors at 50 to 1. That means an investor can borrow $50 for every dollar put in. This is because currency moves are typically small. Many overseas jurisdictions have much looser limits, particularly in Europe.
It may not be Mrs. Watanabe exactly: meet Monsier Trepreau:
Maxime Trepreau, a 33-year-old engineer from Houilles, France, placed a bet on the euro to rise against the Swiss franc several months ago, after seeing the position recommended by an analyst on Daily FX, an FXCM-owned website. On the morning of Jan. 15, Mr. Trepreau saw the value of his account rapidly declining, despite an automated order he had to exit from the position and keep losses to a minimum if the trade went the wrong way. Currency traders say liquidity evaporated as the euro made a sudden fall, which would make it difficult to execute preset orders.
By the time his order was executed, Mr. Trepreau’s loss of €50,000 (more than $56,000 at today’s rate) had eaten up all of the funds in his FXCM account and left him with a negative balance of €2,000.
Mr. Trepreau says FXCM hasn’t told him whether he is on the hook for that amount. Mr. Trepreau believes he shouldn’t be.
And just like Apple, the bulk of marginal growth when it comes to FX gambling is now in Asia:
In 2014, 41.5% of FXCM’s business by volume came from Asia; followed by 35.9% from Europe, the Middle East and Africa; 13% from the U.S.; and 9.6% from the rest of the world, according to its website.
In shart, thank you Dick Handler: Mrs. Watanabe, and Mr. Trepreau, are most grateful.
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Mulligans.....great idea!
We should have mulligans for everything....why the hell not?
"In shart, thank you Dick Handler"
Best laugh of the day.
Just monitize the debt and spend on bitches.
I guess this puts a price tag on how much they skim from said customers being as they have to be able to make this back in a reasonable period of time (and then some)!
Yikes!
Regards,
Cooter
Just wonderful. The Entitlement Mentality has spread to FX traders. As they are entitled to have their committments (negative balance) forgiven. And this is different from Greece because ........
I smell ISDA.
One of the competitors of FXCM who promised to start consolidation process in the FX industry just appointed ex-GFT executive as new CEO to get things going:
http://www.tickmill.com/company-news/tickmill-appoints-sudhanshu-agarwal...
The FX industry will see the mother of all consolidations happening over the coming 24 months. My bet is that FXCM will not be around when this happens, it is a damaged brand.
"The Entitlement Mentality has spread to FX traders."
It is all driven by intent. Their intent was to make money, so therefore, they should all make money.
Works for Banksters....
I hated Jefferies for years for some other reason unrelated to this, but I honestly can't remember what it was. I was never personally involved with their firm.
In shart.
Indeed.
Best typo ever. Shitgums all around. My treat.
Of course, the bailout will be taxable income to all US taxpayers who receive one. Will each bailee get a 1099 too?
Would that be a solid, gaseous, or liquid bailout?
markets and those who control them have no integrity
if Jeffries bailed out FXCM, isn't it they who are forgiving these negative balances? that doesn't sound like your average vulture to me.
I think they hope to recover some margin calls of the big fish clients.
Like a video game
Reset!
That won't reinforce any reckless behavior. no.
Thank the FSM we live in a world with no consequences...for them at least. Oops, I certainly didn't mean to bet my money that way if I was going to end up with losses!
Whatever happened to no take backsies?
Where were these hucksters when I lost munny in the stock market(s)?
Bailouts for everyone forever.
ZIRP/NIRP too.
Anally rape what's left of the middle class to subsidize the welfare recipients that are the poor & the rich.
0% Corporate tax rates & government (taxpayer) risk free loans to GM,Solyndra-like firms, IBM, Soros & Buffet entities...
Yea, I'm sick of being the one that's expected to work so others can party and get free gifts all day, fuck this.
Obama: A real hero & champion of Middle Class Americans (what are left of them):
http://jackbaruth.com/wp-content/uploads/2015/01/The-Tech-Supper.png
Yep, this will definitely impact supply lines now.
ZIRP / NIRP
All lending controlled by the largest banks so they can choose who grows and who doesn't. Sounds like a planned economy to me?
Smaller and some regional banks are a good bet and it would be great to return to that lending model. HOWEVER, ask anyone who works in a smaller bank. They will tell you that they are held to a much, much higher standard of compliance than larger banks and especially TBTF's.
Might as well do it this way, since they wouldn't be seeing any money anyway. It would probably cost them MORE money fighting attorneys who claim their clients were unsuitable for the amount of risk FXCM offered.
Collecting from CHinese day traders? How about a condo in a ghost city?
When they bailed out the banks during the housing collapse, I don't remember them forgiving the debt of the mortagagees.
That's the difference that "recoverable assets" make.
Yup, that and legal cost triage.
They can't afford to be in arbitration/law suits with half of their customers.
And their advice sucked, which puts them in an unflattering position.
De nada. The next bump in the road will wipe them out.
That would have needed to be $1.5 Tril or more, and they forgave the taxable gain on short sales for the LIAR mortgagees, the arsewhole liar-borrowers don't get my sympathies.
^ This
Chart of the day
http://www.silverdoctors.com/wp-content/uploads/2012/09/minimum-wage-in-...
So winners and losers made out like bandits
I'm thinking that they looked at their client list and, seeing a bunch of Goldbergerfinchensteins on it, decided to capitulate.
And Hitler. Can't forget about Hitler.
Evidently <above> I got junked by Larry Silverstein [and it paid out DOUBLE].
I am going to jump into my margin account today...no need to pay it back if it goes bad now I see......the new economics of this century....the old way was if you lost...you lost...and you paid...not anymore....
That's the fantasy train, over here in the real world it's your money or your life, timex bitches.
Be sure to stay in a US jurisdiction since a 40% move hurts much less when you're only leveraged 50:1. LOL, broke is broke.
GREECE has a negative balance.
Those are just western banks, on the non corrupt side their balance sheets look pretty good by comparason.
Drive by take down in metals happening...https://www.tradingview.com/x/vDmjBJAZ/
WTF!
All reward, and none of the risk.
Yup, a lot of the more popular fx shops did the same it seems. Musn't interrupt the flow of the spice! Besides, I'm sure they did pretty well out of it, many of them make the market, so they are counterparty to the derivative trades that retail traders are taking.
Damn! I never get a fucking do over when a trade goes against me.
Read this paragraph over again. Maybe you can make more sense of it than I can. I've read it five times already:
"FXCM will also notify certain clients (such as institutional, high net worth, and experienced traders who generally maintain higher account balances) requesting payment of negative balances, pursuant to the terms of the FXCM master trading agreements. This group represents approximately 10% of clients who incurred negative balances which comprises over 60% of the total debit balances owed."
It sounds like they're NOT going to write off the margin loans for "insitutional, high net worth, experienced" traders. They're going to write it off for 90% of the ACCOUNTS, but the 10% they're NOT writing off are the "big fish" that represent 60% of the margin loans owed.
So they're only wroting off the margin loans for the "small fish" in this case. Yeah, it's 90% of the accounts, but it's only 40% of the margin loans owed.
That's the way I read it. Let's face it the small fish don't have the means to pay back the kind of losses incured. It's in the firm's best interest not to waste resources chasing them down.
I would think that's about right.
Next quarter they send out a letter to those clients:
Dear valued customer, Would you like to play a game? You did before, so maybe you'd like to play again. Take a shot at getting back to even. As you know, we forgave your margin account losses recently. To give you a shot at recouping your lost principal, please feel free to take out a NEW margin loan with us TODAY! We're cleared you for 1000X leverage on the balance in your account, small though it may now be. Imagine how healthy you could get FAST with that kind of leverage working for you! Watch videos on our website to get exclusive insights from our FX trading pros so you know where to invest and put all that massive leverage to work for you TODAY! Remember, this is investing, not gambling. You'll win if you stay in the game long enough.
That's the way I read it. The question I have though is why? My guess is Jefferies is on the hook for CDS for more than what they are forgiving, Pure speculation of course, but why would they soak up the losses?
Similar to the IRS actions against "certain" UBS account holders.
Some not ALL. Which is how it all works here on Earth. So if you are in ALL and want to be in Some, watch your back.
Buy fxmc & grek $$$$
Is it a loss or is it not?
It depends upon what the meaning of is is.
Isn’t that ….. special!
Unbelievable. We're all equal, just some more equal than others.
1) use an anonymous foreign proxy
2) keep a low margin account balance
3) make huge bets
4) Profit!
Like there ?
http://alpari-forex.com/en/promo_bonus/promo/
Alpari already is gone. With leverage like these, who could have thought
PRINT
No worries the very rich are running scared
https://www.youtube.com/watch?v=Sriuwxwols8&x-yt-ts=1422327029&x-yt-cl=8...
That's fucked up.
And I agree. It would be an outrage for this person to be held fully responsible for his own actions. The nerve.
/sarc
Nice one CD!
DavidC
I'm guessing Mr. Trepreau also believes in unicorns.
Its much harder to commit financial crimes when gold & silver are used for/are the basis of currency/legal tender. And all this time that has been the law of the land (in Constitution), and us dumbfucks have allowed it to be broken and ignored. We (Americans) truely are lazy dumbfucks.
Don't forget stupid voters, we gots plentys of stupid voters too.
Too big to fail!
the stock market is manipulated and swings desperately at the moment. I can almost smell the fear.
I will get my pop corn out.
Seems like the perfect strategy nowadays is to have 2 accounts. Play against each other , but make sure for big big numbers..Keep the profits on winning side and get bailed out on losing side......who said anything about ZEROHEDGE ??????
The back of the beast keeps getting more crowded.
US clients ought to get 1099'd for debt forgiveness. IRS wants their cut.
We're getting close. . . US taxpayers will pay for this 'foregivness' either with their wages or their freedoms.
Dear Clients: we need one of you to be a clueless, whiny, nancy-boy in an article about recent losses. Again, no dignity or maturity can be displayed during the interview.
Mr. Trepreau: look no further.
Outside of FIFO.Most don't take Americans because of oppessive tactics by regulators and Government politicians.Two seperate systems.The American side blew up.A lot of Fx outfits overseas are actually owned by New Yorkers who are very rich billionaires who have had it with over regulation.trading outside FIFO is the only way to go.
There's some pretty vague points in this article. First of all it's not 50:1 in the U.S. anymore. Last week margin requirements were raised to 3% or 33:1 on majors and 5% or 20:1 on minors and chf pairs.
Based on what I'm reading in the article No Debt is correct in his assumption that the 10% of clients FXCM isn't forgiving negative balances on, are the Institutional traders, that comprise 60% of the loses.
All the talk about leverage ratios is very misleading... A traders true leverage is based on the size of his open trades vs the TOTAL margin in his account. Just because a trader opens a trade on $100K contract @ 2% (or $2k @ 50:1) is completely irrelevant to the overall margin in his account. If there's 10x that margin available then the leverage drops by a factor of 10.
Leverage is meaningless to me because I never trade over a certain % of the overall margin available in my accounts. It's called risk management. I'm not sure how FXCM works, but my broker automatically closes out open trades if they drop to 50% of the required margin.
I realize this guy couldn't get a fill on his stop loss, but that is where the broker may have some liability if he had the S/L on the books and they didn't fill it.
Just out of curiosity Yen
are you trading spot or futures ?
Spot. I also trade European style options though.
This seems to be the point of contention. If there was no market how can you get a stop order filled? Unless you found an ecn with stop guarantee, which must be as rare as rocking horse shit.
I've mentioned that I have ECN access, but also have retail accounts. My best guess is that some brokers do "phantom fills" and hedge their books to close those trades against their book.
It's all in the fine print of your broker contract.
I can tell you that my retail broker sent me a blanket letter the next day stating that any negative CHF exposure would be forgiven.
I used common sense over a year ago, and closed my CHF exposure. The R/R didn't justify the possible losses. I knew the SNB had massive foreign reserves built up and needed to vent them.
My guess is they just said,"hey lets drop the peg" then unload our excess reserves on each bounce. Everyone was Swissey(long euro/chf) so the SNB could/can unload those reserves into the massive short covering.
That's probably why so many of the trades couldn't cover on the way down.
Could be. Either way it was a pretty stupid trade to be in, there were plenty of commentators and brokers speculating on the peg removal, even some increased margin requirements towars the end of last year. It wasn't as if the SNB weren't moaning about their expanding balance sheet either.
http://www.dailyfx.com/forex/video/live_events/2015/01/02/Strategy-Video...
I think the link above was the recommendation this followed, but probably did not heed the advice to place the recommended stop loss. That, or he levered up to the maximum European-permitted limit and took on as many lots as possible- basically did everything a currency-trader shouldn't.
Think how big his position was:
For round-numbers sake, the move went from 1.2000 to .8000. 1.2-.8 = .4000 -> .4000 X 1 pip per .0001 move = 4000 pips. If he had one mini-lot position, he would have lost $4000.00. But he lost $56000. Therefore his position was minimum, 56/4 = 1.3 standard lots.
Either this trade became near-perfect illiquidity and he couldn't get out, or he was trading with no stop-loss.
Wow.
Good post, but I've had S/L jumped on Sunday opening gaps. I remember last August or September I was long gbp/aud and the market gapped down(300 pips during interbank trading) New Zealand hadn't opened)
My S/L wasn't filled, and I had a " hissey fit' over it... The gap jumped right over my S/L, and the markets opened .
That's why I almost never carry sizeable trades over the W/E.
Some rich guys with connections just got bailed out. Fed money is free, no matter how the money hose is hidden.
Please read No Debt's comments above. It appears that it's not the rich guys who are getting bailed out.
(Or, this being the ZH comments section, feel free to ignore the details and simply interpret the whole thing so as to confirm your pre-existing convictions.)
I just got turned down by Obamstercare for having pre-existing Convictions.
Someone please explain to me how they can do this? What are the economics? How can they fund this?
A few big guys who "should have known better" and are easier to collect from will be paying while some smaller players who they probably could not collect against anyway will get a reprieve.
Specifically they print the play money for free, give it to their friends to gamble with for free, and to prevent inflation tax everything anybody does, in order to reduce the total amount of currency in circulation. The wealth is transferred toward the printsters, without popping the fiat bubble. Taxes go up to minimize the apparent inflation. However it may appear, taxes are applied just as selectively as fiat gifts, scholarships, promotions and abortions.
If you know who the mark is, you still might be the mark.
"shart"
Damnit it Tyler!
Probably also the lifeblood of ZH.
FXCM just got reverse MF Global'd
Corzined and bailed out to trade another day. Beautiful. Just fucking beautiful.
Always wait a bit before you jump off that building.
Aha...NOW I see how they're going to "fix" things when the stock market finally tanks. They will just 'forgive' the majority of losers losses, and carry on as usual. They'll collect from a few of the bigger guys, who have easy-to-seize assets in amounts that matter. This way they can get those guys to subsidize the losses of everyone else, and thus KEEP THE GAME GOING!
It's brilliant...BRILLIANT I tell you!
This is the future of our markets, all of them. TPTB know damned WELL the end is nigh, they also know that they aren't going to collect from the great unwashed, because they just don't have it. But those unwashed MUST play because there aren't enough rich folks to run such a game.
So, those unwashed will have to be subsidized if they are to stay in the game. Any losses will have to be collected from one of their own, so for every 'crisis' that comes along, they'll have to agree that one of their own takes it in the shorts so the bill can be paid.
They are realizing it really ISN'T in their interests to bleed the sheep dry. So watch for more of these types of schemes to surface when particular markets suffer huge losses...instead of just stripping the bulk of their clients of everything and driving them OUT of the market, they will get their biggest clients to use some of their 'winnings' to cover the tab for the others. This way, instead of having to declare bankruptcy and shut the mother down, they can just switch gears and rev it up again.
You see, the whole conspiracy-theory about how they intend to impoverish us all and live in some golden gated community are just not realistic. They, of all people, realize how precarious their existence would BE if things were actually that bad.
So, in the end, TPTB will end up footing the whole bill for their little Ponzi game. It's Monopoly, and the winner, unwilling to see the game end, will convince the other kids to keep the fun going by getting them to agree to allow him to "finance" their continued play out of his pile of winnings..At that point, the winner knows he really isn't "winning" anything anymore, he just wants to keep all the kids there, playing the game with him.
Our new welfare sugar daddies will be the big banks. All this nonsense we're going through NOW are in fact part of the negotiation over the terms we'll eventually agree on. In the end, should we elect to stay and play, our new overlords will keep us fairly healthy and happy as long as we don't make waves.
And THIS is why it will be so damned hard to rouse people to the facts of their enslavement. Not because they are stupid, but because TPTB AREN'T. They will, in the end, keep people just comfy enough to ensure their continued cooperation. They'll create just enough pain to motivate, but will stop short of total destruction.
Sorry for the rant, I don't know what's WITH me lately. Every little thing gets me going. My ideas and theories on how things will turn out are all over the map, ranging from bloody armed revolution in the streets to a kind of lobotomized acquiescence to the New Reality...So many outcomes are possible it seems...