FX margins continue to decrease in the interbank FX markets as traders search for faster and timely trade execution. Listed spot currency and CFD provider FXCM recently adopted a new direct pricing structure. The firm reported that in September it was slashing its core pricing mechanism to retail investors and offering raw prices with commission charges. The move has worked in the broker’s favor, with the US arm reporting a strong take-up of the revised offering.
FXCM’s new pricing model that supports the broker’s non-dealing desk business model has seen a rise in trading volumes. The broker reported exclusively to Forex Magnates in an emailed interview that trading volumes in its US division rose significantly. The US was the first jurisdiction that implemented the new minimum deposits, and October metrics showed that volumes spiked 51% from figures reported in September.
The firm’s spokesperson commented: “The United States is the first geography to have a full month of operation since clients were transitioned to this model, and the early returns are very promising. US volume grew 51% in October over September volumes. This growth was more than double the 21% growth for FXCM across all geographies.”
The non-dealing desk model acts as a safe haven for financial services providers. The alternative solution is to administer client positions on the firm’s own risk book and act as principal on each trade. However, recent swings in the market have been equally costly to brokers as well as retail clients.
FXCM significantly increased its minimum deposit for clients form $50 to $2000, an opposing trend to recent industry norms. Most financial brokers have been reducing the minimum deposits, thus offering traders open-door access to their trading platforms, pricing and execution.
On the other hand, FXCM’s new model is a practise established brokers take. The costs of on-boarding clients have risen dramatically over the last two years as overall client numbers in the retail FX sector diminish despite overall volumes increasing. “The cost per account has risen 25% since 2012, a few factors have continued but a low volatile market and an upbeat equities market has kept traders on the boundary line when they look at investing in the margin FX markets,” explains Sanjay Mistry of PR Limited, a marketing consultant to FX and technology firms.
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FXCM claims that the new pricing model favours short term or high frequency. The firm states in a comment: “FXCM’s new pricing model allows traders to easily scalp the market, while providing increased execution benefits to stop and limit orders.”
In addition, FXCM is looking to on-board high-net-worth individuals and higher volume traders. With lower margins and an agency model in place, the firm’s earnings per transaction will be different to a dealing-desk provider who absorbs revenue from clients’ losses.
Higher entry levels are common among certain brokers. TradeStation requires traders to start with $2,000 for a forex trading account and $5,500 to open a forex IRA account.
Danish-origin provider Saxo Bank has one of the highest minimum deposits in the retail brokerage sector. For a classic account, clients need to deposit 6,500 British pounds, or $10,200. The values increase according to the account type.
Fellow listed provider GAIN Capital states its minimum deposits on its website: “The minimum initial deposit required is $250. To be able to trade the full range of products offered we recommend a starting balance of at least $2500.”