Lower Margin Requirements with FXCM's New Micro CFDs

Traders looking to enter Contract for difference (CFD) trades with reduced margin requirements can benefit from FXCM’s new micro CFDs. The US-based multi-asset brokerage firm has launched an enhanced version of its CFD product range. The move comes on the back of increased interest among CFD traders for contracts with low margins, commonly available in currencies.

The new product extends the broker’s current CFD offering, in the official press release it states: “FXCM has enhanced its CFDs offering by reducing the tradable size to 1/10th its current value.”

Derivatives traders transacting in spot foreign exchange benefit from flexible margin requirements with some brokers offering up to 0.25% or 0.20%. CFD contracts, based on futures contracts, have typical margin requirements of 1% on indices and commodities, and 5% on equities (actual Leverage varies from broker to broker and contract specifications).

FXCM has expanded its product range to include CFDs in 2010, a natural route taken by several FX only brokerage firms. Drew Niv, CEO of FXCM, commented about the new product launch in a company statement, he said: “FXCM will be working this year to make our CFD offering more unique and competitive and this is one of the first steps."

CFDs were first launched in the UK in the 1990’s as a derivative with similarities to equity swaps, they were later formalized and launched in the retail trading environment with tax benefits. CFDs are common in developed markets as an offshoot of traditional share dealing, traders use CFDs to hedge their exposure in equities by taking advantage of two-way trading possibilities, going long or short. The largest market for CFD trading is the UK with over 30% of total volume on the London Stock Exchange comprising of CFD activity.

The move by FXCM highlights the developments in the CFD industry which is competing with more established products, in addition, it shows how new advancements are a sign of progress in the asset class.

In its annual report filed to the regulator in 2012, FXCM outlines how much CFDs have contributed in its total trading activities: “Our CFD offerings currently include contracts for metals, fixed income, energy and stock indices, and for the year ended December 31, 2012, CFD trading constituted approximately 18.8% of total trading volume.”

FXCM was under the regulatory hammer last week with a harsh penalty issued by the UK's financial watchdog. The Financial Conduct Authority (FCA) fined the broker £4 million for unfair tactics.