FXCM has gone through allot since the SNB disaster and their almost certain demise. Somehow FXCM managed to secure a loan and buy itself sometime in the US Market. That was until yesterday when the CFTC landed a death blow to the oldest and most established US FDM.
It is the end of an era as FXCM will close its doors in the US forever. The signal sent from US regulators is clear that too big to fail does not apply when it comes to retail forex brokers. It also begs the question if US regulators even want retail forex at all.
What is most surprising about FXCM downfall is that it had nothing to do with the SNB situation or any other unforeseen market event. It came down to a broker misrepresenting the type of broker they were.
FXCM was Not a True STP Broker
Back in 2009, a movement was taking place for retail brokers to go the STP (Straight Through Processing) or ECN (Electronic Communications Network) route. The belief was and for many still is that if your broker was not the counterparty to your trades you were then dealing with an honest broker. FXCM made a conscious effort to promote themselves as an STP broker. They also decided to set up their own Liquidity Provider and have a majority share in that company. That company (HFT Co) happened to receive most of the order flow.
Don’t Mislead the NFA
Regulators like the NFA are unforgiving when it comes to a broker that misrepresents itself and tries to deceive the public. As in the case of FXCM, the NFA looked at this with greater scrutiny than any other issues the company was facing.
Pressure from a Changing Industry
It is incredible that a giant in the industry felt the need to follow an industry trend. No one would ever fault FXCM for being a counterparty to clients’ trades. It may have been past risk taking practices on FXCM part did not have the best reputation. It could be they felt a need to rebrand themselves. Either way, it is a sad ending to an era in retail forex.