FXCM will focus on the larger clients that account for the majority of losses following the SNB’s surprise decision earlier this month
FXCM will forgive negative balances for roughly 90% of the clients who have negative balances after losing money when the Swiss National Bank removed the exchange rate cap on the franc and will adjust those client accounts in the next few days. But that doesn’t mean everyone is off the hook, company’s largest clients will still have to cover their bets.
“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 FXCM CEO Drew Niv in a statement.
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FXCM still expects major accounts to pay up
Most online forex accounts are held by relatively small retail investors ($50 is a typical minimum balance to get started), but that doesn’t mean small traders dominate online forex trading. A smaller number of large accounts held by wealthy individuals, institutional investors and experienced traders make up the bulk of actual assets being traded and tend to be a lot more profitable.
FXCM estimates that the 10% of clients whose negative balances it isn’t going to forgive account for 60% of total debit that it is owed from the January 15th EUR/CHF crash. FXCM didn’t give an explanation for its decision, but it may simply be that the per-account cost of collecting a few hundred dollars at a time isn’t worth the expense.
They say you should watch insiders for signs of trouble, but in this case it could be a former insider tipping investors off not to be too hopeful. Former FXCM chief dealer Michael Romersa has been selling off his stock since the end of October, mostly in the tens of thousands per filing, and at prices above $17 per share. But on January 22 he dumped the rest of his stock, 363,000 shares worth, for just $2.708 per share (h/t Andrew Saks-McLeod at LeapRate).
It’s not surprising, or particularly troubling, that a former exec would want to cash out over the course of a year, the pace that Romersa was on. For him to scrap that plan and sell at about 15% of what he had been getting should give investors pause. FXCM has said that the financing it got from Leucadia has stabilized it and put it on track to meet its short and long-term obligations, but clearly it’s not yet out of the woods.