We have received a number of requests to post an in-depth review of Forex broker FXCM recently. Most of these requests are because of IBFX’ decision to sell off its retail MT4 trading accounts from its US and Austrialian firms to FXCM (more details about this here at the Forex industry news site Leaprate).
As in all our Forex broker reviews, we will go through the broker’s structure and background, look at terms, technology and marketing and look at user reviews and feedback and other sources.
Please note that FXCM is a very large firm, with 1000s of clients and a long history in the industry. We will not cover all aspects of the broker, but focus on what is relevant to assess whether it’s honest and reliable or not. We will touch upon trading conditions, but this is not our main focus. This information can be easily obtained from other sources and from the broker’s website. We focus on what is most important (namely are you going to be cheated or not) and cannot be found anywhere else.
FXCM is an American firm, but from what we can understand from our readers requesting this FXCM review, accounts from IBFX will be transferred to FXCM Australia Limited / FXCM AU, the broker’s Australian subsidiary. We will try to cover this aspect also.
Summary Posted:
10th of September 2014
Website:
FXCM Website
Alternative Names:
FXCM Holdings, LLC., Forex Capital Markets, LLC, FXCM LLC, FXCM UK - FOREX CAPITAL MARKETS LIMITED, FXCM AUSTRALIA - FXCM AUSTRALIA LIMITED, FXCM ASIA - FXCM ASIA LIMITED, FXCM JAPAN SEC - FXCM JAPAN SECURITIES CO. LIMITED, FRIEDBERG DIRECT - POWERED BY FXCM TECHNOLOGY, FXCM ISRAEL - FXCM ISRAEL LIMITED, FXCM CHILE - FXCM CHILE SA, FXCM MENA - MASTER CAPITAL GROUP S.A.L
Headquarters:
55 Water St., 50th Floor, New York, NY 10041
Country:
USA
Regulator:
NFA/CFTC (USA), FCA (UK), ASIC (Australia), Japanese FSA, Hong Kong SFC
Founded in:
1999
Platforms:
Trading Station (Web, Desktop, Mobile), MetaTrader 4, Mirror Trader, Zulu Trader, Ninjatrader
Instruments:
50+ Currency Pairs, USD/CNH, CFDs
Website Languages:
English, Chinese, Japanese, German, French, Italian, Spanish, Greek, Russian, Tagalog, Indonesian, Malay, Thai, Vietnamese, Arabic, Hebrew
Account Currencies:
USD
Deposit and Withdrawal Methods:
Credit and Debit Card, Bank Wire, ACH, Paper Check
Accepting US Customers:
Yes
E-mail:
info@fxcm.com
Telephone:
+1 888 50 FOREX (36739)
No Dealing Desk:
Minimum Deposit: $50. Maximum Leverage: 1:200 (US: 1:50). Spreads (EURUSD): 2.5 pips.
Active Trader:
Minimum Deposit: $50. Maximum Leverage: 1:200 (US: 1:50). Spreads (EURUSD): 0.7 pips.
Analysis
Regulation, Background and Structure
FXCM (or Forex Capital Markets, LLC) is one of the biggest brokers in the world, is listed on the New York Stock Exchange and has offices in several countries. The broker was founded in 1999 in New York.
We’re not going into great detail of all aspects of FXCM’s history. Interested readers can have a look at the wikipedia entry about FXCM. We rarely see that a Forex broker has a useful wikipedia page – in many cases the entry is clearly written by the broker PR department and not of any use at all. This is not so with FXCM – the wikipedia page is detailed, but still to-the-point, especially concerning FXCM’s history, and the content is pretty well balanced. Check it out here. We will go through the main points and all which is useful to decide whether the broker is honest and reliable in the FXCM review.
FXCM’s main, US company is regulated by SEC, CFTC and is a member of NFA.
American regulators are among the strictest in the world concerning online Forex trading. The US regulatory setup is complicated and you can read our article about Forex trading regulation in the US for more details.
Apart from its head office in New York, FXCM has offices in United Kingdom, Germany, Australia, France, Italy, Greece, Hong Kong and Japan (see addresses and other information on the broker’s website). The broker has separate branches in Australia, Hong Kong, Japan and the United Kingdom. The one in the UK (Forex Capital Markets Limited) is used for all European Union clients. Each of these branches are regulated by the relevant local regulator. This means that a trader in, for example, the European Union isn’t covered by the American regulator, both in case of a complaint and by the rules the broker has to follow, but by UK and local regulation.
When we checked some of the international versions of FXCM’s site, it wasn’t exactly clear with which branch a trader would open an account. In the section about regulation in the Russian version, for example, FXCM seems to mix up the UK and US firms somewhat and it doesn’t say explicitly which branch a Russian citizen is going to trade with. We do understand that this is probably clear in the client contract and other documents, but we believe this to be important enough to write very clearly. For our readers having accounts moved from IBFX to FXCM AU this is of course clear. Same goes for clients from certain specific jurisdictions: A US resident will trade with the US entity, a European Union resident with the UK firm and so on (and be covered by the corresponding regulator and legal framework).
We have seen several examples of brokers having a well regulated entity, for example in the UK, but using an offshore branch for all non-UK clients. This setup would be fine but for the fact that these brokers don’t tell clients about this (maybe in very small letters in a footnote) and solely market themselves as “UK-regulated” etc. We don’t believe this is the case with FXCM – the broker is definitely not trying to hide anything. To us it seems more like sloppiness. A broker of FXCM’s size should be 100% clear about these issues.
It could be that FXCM apply the same strict rules for all branches and clients (with some exceptions in any case, for example concerning leverage), but we couldn’t really find this anywhere. We invite representatives from FXCM to leave a comment with details on these issues.
Being regulated by just about every one of the strictest regulators in the world has not been too easy for FXCM at all times and the broker has been target of several cases.
The following is from the company’s annual report (page 13 and 14 – headline: “Our failure to comply with regulatory requirements could subject us to sanctions and could have a material adverse effect on our business, financial condition and results of operations and cash flows.”):
The cases raised by NFA (in August 2011) and CTFC (in October 2011) are both concerning FXCM’s execution practices. We will write generally about these issues and use the information relevant for our analysis of FXCM. Detailed comments, by the website Forex Magnates, can be found here and here.
We have earlier posted an article, analysing the investigation by the UK FCA (read it here).
From what we can see, the case in Japan concerns the same execution malpractices as above.
In order to explain what FXCM did wrong, we have to explain a bit about how STP execution works (we’re aware that many of our readers know all about this already, but some probably don’t).
A broker offering STP execution constantly receives prices from one or more liquidity providers and the best price is shown in the trading platform (possibly with an added markup by the broker). When a trader puts in an order to open a trade, the broker sends it to the liquidity provider with the best price at that moment. The liquidity provider then fills the order, a confirmation is sent back to the broker and the trade is open in the trading platform.
To get the same explanation with fine graphics, have a look at the video on this page from FXCM’s website.
This process is very quick, but sometimes, because of market movements, there will be a difference between what the price was when the trader sent the order and the price when the order is received by the liquidity provider. The trade will normally then open with the new price. This new price can be either worse or better for the trader. The price difference is called slippage.
What FXCM did was to only give traders the new price when it was worse than the original order – if the price had moved in the trader’s favour, FXCM would give the trader the price from the original order and pocket the difference. Normally price movements are very small, but with a broker of FXCM’s size, this practice presumably brought the broker millions of extra profits (if we judge by the fines and restitutions imposed in the above-mentioned cases).
We will discuss what these execution malpractices mean to clients of FXCM in our conclusion below.
Like mentioned, IBFX’ client accounts will we transferred to FXCM’s Australian subsidiary, regulated by the Australian Securities and Investment Commission (ASIC). Even though we believe ASIC is less proactive and strict than the regulators in the UK and US (we haven’t heard about ASIC auditing execution practices, for example), it is still a highly regarded regulator and it has pretty solid capital and reporting requirements. We don’t believe it to be probable that FXCM doesn’t follow more or less the same procedures for clients with this branch as with its European and US branches. Furthermore, ASIC seems to have been focusing even more on regulating online FX brokers strictly lately (some details at Leaprate.com).
That FXCM is listed on a stock exchange has some positive implications for our research, namely that it has to make much financial and other information available to the public. FXCM has a section about this financial information on its website. We advise readers who want to know all details about FXCM and its finances to read through the company’s annual report.
We often warn our readers about information posted by a broker (especially if it is unregulated, but regulation is unfortunately no guarantee of honesty and reliability in many cases). This is very different with a listed company – the information is audited by external auditors and the company’s senior management faces serious fines and very possibly jail if there are inconsistencies.
We are not lawyers or auditors at Forex Conclusions, but from what we can judge, FXCM’s financials look solid. Another possibility is to have a look at FXCM’s share price which has been fairly positive lately (with a fall from last year, but that’s a general thing for all Forex brokers due to trading volumes and volatility falling).
FXCM has some of the highest trading volumes of any FX broker. In July 2014 the trading volumes of its retail and institutional divisions were 263 and 262 billion USD respectively (Leaprate.com).
Furthermore, FXCM has been acquiring clients from several US brokers, as these have been downsizing their US businesses, primarily due to a tougher regulatory environment (FXDD in 2014, Alpari in 2013 and very recently IBFX, like mentioned initially in this review).
Terms, Technology and Marketing
FXCM offers a wide choice of trading software: its in-house developed Trading Station (for web, desktop and mobile), MetaTrader 4, Active Trader (also in-house developed as far as we could see) and Mirror Trader, Ninja Trader and ZuluTrade for copy trading and chart analysis. Trading Station is offered not only by FXCM, but also by a number of brokers and banks whitelabelling it from the broker.
The broker has a separate company, the website DailyFX, to offer its clients trading education, analysis, signals and so on.
FXCM’s marketing is balanced and, unlike that of many other online brokerages, doesn’t promise traders easy profits. As our readers will know, at Forex Conclusions we believe that too aggressive marketing can be a sign that something is generally wrong with a broker. This isn’t the case with FXCM. On the other hand FXCM wouldn’t be allowed to use too aggressive marketing – both CFTC/NFA and FCA have quite strict rules concerning this.
FXCM’s CEO, Drew Niv, is even quoted, in an article from Wall Street from 2005 (also quoted in wikipedia), as saying that “If 15% of day traders are profitable I’d be surprised.“. We must say that that is a very honest an statement. We haven’t seen anything as transparent from any broker before!
FXCM emphasizes its No Dealing Desk (NDD) execution, guaranteeing a number of benefits for traders, among others “No trading conflict of interest between broker and trader” (from FXCM’s website here – check out the video of how execution works also, it’s very to-the-point). FXCM doesn’t use the term “Straight Through Processing (STP)” in this section, but we got a confirmation from FXCM support that on NDD accounts, the broker uses STP. The reason we needed to confirm this is that a broker can have NDD execution, but still take the opposite side of trades (and in this case there would still be a conflict of interest).
At Forex Conclusions we always prefer NDD/STP execution, mainly because of this. Too many market-making brokers are actively trading against clients, manipulating prices, giving requotes not associated with the market and so on. This has also – to some extent at least – been the case with FXCM, as mentioned above. We will discuss this issue further in our conclusion.
We would like to add here that using a market-making broker is not necessarily a bad thing and can have a number of advantages, for example the possibility to trade extremely small trade sizes (which is not possible technically with STP) and instant execution. But the main thing here is that the broker should be well regulated, preferably by a regulator which actively audits execution practices (like for example the US and UK regulators do from time to time – we don’t believe any other regulators in the world audits execution – if we’re wrong, please leave a comment).
Apart from a large retail trading business, FXCM is one of the largest providers of institutional Forex trading services in the world (for example providing liquidity and technology to other brokers, funds and other trading institutions). According to its financial statement for 2013, around one fourth of FXCM’s revenue is from this business line. Unlike most brokers, FXCM develops pretty much all technology it uses in-house.
FXCM has furthermore in the past few years acquired or invested in several high-profile technology firms: FX research firm Faros Trading (in November 2013, details at Leaprate.com), Commodity market-maker Infinium (in October 2013, details at Leaprate.com), institutional trading firm Lucid Markets (June 2012, details at Forexmagnates.com).
In its 2013 annual report (introduction by CEO, page 2), FXCM writes following about its institutional business line:
We will discuss what the development in FXCM’s institutional business and its technology resources mean for traders in our conclusion below.
User Reviews and other Sources
We have gone through user reviews about FXCM on the popular Forex forum Forex Peace Army (see FPA’s thread about FXCM here). As far as we know, FPA has been active since 2007 and FXCM is probably the broker with most reviews – around 500 at the time of writing. There are a number of separate threads about FXCM also – do a search on the firm on FPA to read these.
It’s always difficult to use user reviews to make any final conclusions about a broker. Generally speaking, some traders aren’t sufficiently competent and blame the broker for their losses, sometimes broker employees pose as traders on forums and so on. We also believe that unhappy traders have a higher propensity than happy ones to post comments online about a broker. This can give a skewed impression. At Forex Conclusions we try to look at the overall picture and compare it with what we generally see. Furthermore, sometimes accusations and complaints from traders are very well documented and can show much useful about a broker.
Concerning FXCM, we have the impression that in the period approximately between 2007 and 2009 most of traders making comments were unhappy. There are some accusations of stop-loss hunting, platform freezes and extremely wide spreads. These things can be an indication of manipulation by a broker. On the one hand Forex trading wasn’t regulated in the US at that time and we know for a fact that FXCM cheated with slippage, like described above. On the other hand we didn’t see any well documented cases or any “scam confirmations” by the FPA. We didn’t see anyone reporting about substantiated trouble with withdrawals – one thing you almost always see with your average scam broker. We cannot say anything for sure, but it isn’t impossible that FXCM has been manipulating trades to some extent to make additional profit from its clients.
Some of our readers may remember that US-based Forex broker Gain Capital, using the brand forex.com – also one of the biggest brokers in the world, was caught by the NFA for using the terrible Virtual Dealer plugin in 2010 (details on Forex Magnates). The same happened for the broker Ikon GM a bit later (details on Forex Factory). The Virtual Dealer plugin is one of the reasons we don’t like MetaTrader 4 much at Forex Conclusions. Its sole purpose is that a broker can stall clients’ trades to make sure they don’t profit. It can be hard to find out if a broker is using it, but we believe many, many brokers still are. We don’t believe US brokers are anymore. The brokers wouldn’t dare to after NFA/CTFC has been focusing on stopping its use.
We have the impression that traders get less and less dissatisfied as time goes by, judging by comments and complaints on FPA and in 2014 there haven’t really been any. This could coincide with stricter regulation, FXCM enhancing it practices and using a NDD/STP model instead of market-making. But these are our guesses, not solid fact.
We have gone through other Forex review sites, checking user feedback and articles, but we haven’t found anything that changes the picture described in the paragraphs above.
Conclusion
There are many positive things to say about FXCM. The broker is definitely well audited, regulated and financed.
FXCM seems to have have a successful business model, with good prospects for development, especially concerning its institutional and technology business. It is obviously a good thing for clients that a broker’s finances seem to be solid, but FXCM’s non-retail business should also mean that FXCM’s platforms and other technology have high standards. FXCM’s acquisition of client accounts from competitors and stakes in technology firms substantiates this.
Because of FXCM’s listing traders can easily get very detailed information about all aspects of the firm. Furthermore, there is a very high probability that if FXCM is engaged in serious malpractices, its senior management will be held liable. If a broker cheats its clients in 95% of the world’s jurisdictions, authorities will never actually hold anyone responsible, apart from maybe fining the firm. In many cases not even that.
We would have liked FXCM to post more information about its non-US branches and how being a client of these differs from being a client in the US, especially concerning regulatory protection and conditions.
We know for a fact that FXCM has been cheating clients earlier. This tells us something about the broker and its managers attitude, but the positive thing for FXCM about these cases is that close to all Forex brokers in the world have been engaged in comparable practices. And many of them in much more serious price manipulation and outright theft of deposits. And many brokers still are.
We don’t believe that FXCM still has malpractices in place. It would be a marketing disaster to get caught with another case and with FXCM’s regulation there is a good chance that authorities will notice. Furthermore, FXCM should be able to make money honestly.
We must assume that NFA/CFTC has been going through different aspects of FXCM’s execution practices and technologies thoroughly during and after the allegations of applying asymmetrical slippage. This would mean that FXCM hasn’t been cheating clients in other ways, for example using the Virtual Dealer plugin. This is also positive.
The main reason we founded Forex Conclusions in the first place was that we were appalled by Forex brokers cheating clients by manipulating prices, requotes and often directly stealing deposits and profits. Unfortunately, we must admit that finding a broker which has always been honest is difficult.
We don’t recommend against using the services of FXCM and its various international branches and even believe that there are several advantages by using the broker, as described above.
If you have additional information, please comment below.
After working for a couple of Forex brokers, we got tired of seeing traders and investors getting scammed. At Forex Conclusions we review brokers and other financial firms and post warnings when we see anything suspicious. In case you want us to review a specific broker, or need advice in picking a reliable one, let us know. If you want to make sure you avoid scammers in the future, join our weekly newsletter!
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