In a time when U.S. Forex traders were already limited in choices of Forex brokers, the swan song of FXCM in the U.S. is about to make it that much harder.
However, if Trump dumps parts of Dodd-Frank, Americans may finally have an open door access to brokers outside its borders.
So why did FXCM get shut down?
I remember around 2009 that FXCM started talking about their “no dealing desk” operation. For those that don’t know, the majority of retail traders use a dealing desk model where your broker takes the other side of your trade and will offset that risk on different tiers (not the purpose of this article but helps inflate the common refrain of the largest market in the world).
Yes, dealing desks were accused of doing slight of hand tricks like re quotes and spiking the market. The truth is…they did exactly that. I had been spiked out of trades in the past mostly due to insane widening of spread costs as my Forex broker had to find ways to mitigate risk during volatile trading periods.
Traders who were simply guessing at their Forex trading strategy probably lost much more than those people who approach trading like a professional.
When FXCM came out with “direct access to the marketplace”, some saw it as a blessing.
Turns out that the blessing was actually a curse and misrepresentation of what they were doing.
between Sept. 4, 2009 though at least 2014, FXCM engaged in false and misleading solicitations of FXCM’s retail customers by concealing its relationship with its most important market maker and by misrepresenting that its ‘No Dealing Desk’ platform had no conflicts of interest with its customers.
The scam rolled out to the retail crowd when FXCM started a company called “Effex” – seriously – so when orders were placed from a trader, they were routed from the banks straight to…..EFFEX. What would happen is Effex would hold the order briefly and compare the two prices – before hold and after hold.
- If the price after the brief hold (so brief you’d never notice it except for the “processing” notification) was in the direction benefiting the trader, the order would be rejected.
- If it was against the trader, accepted and trader gets slipped.
Yes it would be a handful of pips…but a handful times the amount of traders they hooked into their “no dealing desk” operation.
The good thing is in America, they will never get to be involved in trading again in the United States!
The traders that still had funds at FXCM, will be headed over to Gain capital.
I know this is a horrible scam but don’t let it make you think that Forex trading is a scam. It isn’t. Not in the least.
Could FXCM traders know this was happening with their broker? Probably not in full detail….they thought they were trading the actual market…. but they were probably seeing positive traders actually turn into losing trades or simply bad fills.