November FCM Data Shows FXDD & GFT Fall Below Net Capital Requirements
Yesterday we saw the publishing of the CFTC’s Q4 account profitability report, today we take a look at net deposits from FCMs as of November 30th 2012. In the past we have compared monthly ‘Adjusted Net Capital’ and ‘Retail Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest trading market by volume. According to the Bank of International Settlements (BIS) latest survey, the Forex market now turns over in excess of $5 trillion every day, with the most exchanges occurring between the US Dollar and the Euro (EUR/USD), followed by the US Dollar and the Japanese Yen (USD/JPY), then the US Dollar and Pound Sterling (GBP/USD). Ultimately, it is the very exchanging between currencies which causes a country’s currency to fluctuate in value in relation to another currency – this is known as the exchange rate. With regards to freely floating currencies, this is determined by supply and demand, such as imports and exports, and currency traders, such as banks and hedge funds. Emphasis on Retail Trading for ForexTrading the forex market for the purpose of financial gain was once the exclusive realm of financial institutions.But thanks to the invention of the internet and advances in financial technology from the 1990’s, almost anyone can now start trading this huge market. All one needs is a computer, an internet connection, and an account with a forex broker. Of course, before one starts to trade currencies, a certain level of knowledge and practice is essential. Once can gain some practice using demonstration accounts, i.e. place trades using demo money, before moving on to some real trading after attaining confidence. The main two fields of trading are known as technical analysis and fundamental analysis. Technical analysis refers to using mathematical tools and certain patterns to help decide whether to buy or sell a currency pair, and fundamental analysis refers to gauging the national and international events which may potentially affect a country’s currency value. Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest trading market by volume. According to the Bank of International Settlements (BIS) latest survey, the Forex market now turns over in excess of $5 trillion every day, with the most exchanges occurring between the US Dollar and the Euro (EUR/USD), followed by the US Dollar and the Japanese Yen (USD/JPY), then the US Dollar and Pound Sterling (GBP/USD). Ultimately, it is the very exchanging between currencies which causes a country’s currency to fluctuate in value in relation to another currency – this is known as the exchange rate. With regards to freely floating currencies, this is determined by supply and demand, such as imports and exports, and currency traders, such as banks and hedge funds. Emphasis on Retail Trading for ForexTrading the forex market for the purpose of financial gain was once the exclusive realm of financial institutions.But thanks to the invention of the internet and advances in financial technology from the 1990’s, almost anyone can now start trading this huge market. All one needs is a computer, an internet connection, and an account with a forex broker. Of course, before one starts to trade currencies, a certain level of knowledge and practice is essential. Once can gain some practice using demonstration accounts, i.e. place trades using demo money, before moving on to some real trading after attaining confidence. The main two fields of trading are known as technical analysis and fundamental analysis. Technical analysis refers to using mathematical tools and certain patterns to help decide whether to buy or sell a currency pair, and fundamental analysis refers to gauging the national and international events which may potentially affect a country’s currency value. Read this Term Funds’ figures and ignored the ‘Excess Net Capital’ number as firms were adequately capitalized (at least in their reports –ie. PFG Best), and there was rarely much of a surprise. However, for this time around we have replaced the month over month ‘Net Capital’ number with the ‘Excess Net Capital’ figure.
As can be seen below, both FXDD and GFT fell below their Excess Net Capital requirements at the end of November. The drop in FXDD was previously documented in the NFA’s memorandum they issued to the broker which had been disputed by FXDD. However, the GFT net capital drop is a huge surprise and apparently this was the point of contention between the CFTC/NFA and the broker. Based on numerous sources, we wrote in the past that the NFA had embarked on enforcing ignored accounting principles in regards to the pooling of funds from foreign subsidiaries. As can be seen below, the new accounting calculations had severe effects on both GFT and FXDD. It’s worth noting that among large brokers, with the exception of Oanda, firms experienced a drop in their ‘Adjusted Net Capital’.
In addition to the drop in Net Capital, during November US brokers also saw a huge fall in Retail Forex Funds. Account funds dropped over $75 million to $742,103,740 from $817,134,898, with FXCM responsible for 2/3 of the decline. Other than FXCM, the other notable drop in funds occurred from GFT. Overall, the drop in total retail account funds follows the negative trend in the US where the Forex industry has been contracting due to an exit of brokers, the MF Global and PFG scandal, a renewed interest in equity trading among retail customers, as well as fewer foreign clients due to the lack of CFDs and high Margin Requirements Margin Requirements A margin requirement is defined as the minimum equity sum that investors must keep in their margin account preceding a trading transaction. Margin requirements may be referred to as maintenance margin, minimum maintenance, or maintenance requirement. This is a requirement for broker trading in any asset class.In terms of equities, the New York Stock Exchange (NYSE) and Financial Industry Regulatory Authority (FINRA) have a fixed margin requirement of 25% of the sum value of the securities present in a margin account. While 25% is the minimum industry requirement, trading brokerages sometimes require between 30% to 40% of the total securities value as a margin requirement as a way to reduce the risk of an investor potentially defaulting on the loan. Why Are Margin Requirements Important?Ex:) A trader possesses a margin account equity sum of $5,000, which means the trader must maintain at least $1,250 in their margin account. Should the trader’s equity appreciate up to $7,500, then the trader’s margin requirements increase from $1,250 to $1,875. However, should a trader’s equity account fall below margin requirements set forth by a broker, that trader will receive what is known as a margin call, which is a request to deposit more or sell of pre-existing assets to fulfill margin requirements. Margin requirements exist and are heavily regulated by the FINRA, NYSE, and the Federal Reserve Board due to the potential of margin trading able to incur astronomical gains along with immense losses. Disturbances in the securities and global financial market are possible as a result of catastrophic losses through margin trading.This is why margin trading is firmly regulated and the reason behind some brokerages raising their minimum margin requirements. A margin requirement is defined as the minimum equity sum that investors must keep in their margin account preceding a trading transaction. Margin requirements may be referred to as maintenance margin, minimum maintenance, or maintenance requirement. This is a requirement for broker trading in any asset class.In terms of equities, the New York Stock Exchange (NYSE) and Financial Industry Regulatory Authority (FINRA) have a fixed margin requirement of 25% of the sum value of the securities present in a margin account. While 25% is the minimum industry requirement, trading brokerages sometimes require between 30% to 40% of the total securities value as a margin requirement as a way to reduce the risk of an investor potentially defaulting on the loan. Why Are Margin Requirements Important?Ex:) A trader possesses a margin account equity sum of $5,000, which means the trader must maintain at least $1,250 in their margin account. Should the trader’s equity appreciate up to $7,500, then the trader’s margin requirements increase from $1,250 to $1,875. However, should a trader’s equity account fall below margin requirements set forth by a broker, that trader will receive what is known as a margin call, which is a request to deposit more or sell of pre-existing assets to fulfill margin requirements. Margin requirements exist and are heavily regulated by the FINRA, NYSE, and the Federal Reserve Board due to the potential of margin trading able to incur astronomical gains along with immense losses. Disturbances in the securities and global financial market are possible as a result of catastrophic losses through margin trading.This is why margin trading is firmly regulated and the reason behind some brokerages raising their minimum margin requirements. Read this Term.
Yesterday we saw the publishing of the CFTC’s Q4 account profitability report, today we take a look at net deposits from FCMs as of November 30th 2012. In the past we have compared monthly ‘Adjusted Net Capital’ and ‘Retail Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest trading market by volume. According to the Bank of International Settlements (BIS) latest survey, the Forex market now turns over in excess of $5 trillion every day, with the most exchanges occurring between the US Dollar and the Euro (EUR/USD), followed by the US Dollar and the Japanese Yen (USD/JPY), then the US Dollar and Pound Sterling (GBP/USD). Ultimately, it is the very exchanging between currencies which causes a country’s currency to fluctuate in value in relation to another currency – this is known as the exchange rate. With regards to freely floating currencies, this is determined by supply and demand, such as imports and exports, and currency traders, such as banks and hedge funds. Emphasis on Retail Trading for ForexTrading the forex market for the purpose of financial gain was once the exclusive realm of financial institutions.But thanks to the invention of the internet and advances in financial technology from the 1990’s, almost anyone can now start trading this huge market. All one needs is a computer, an internet connection, and an account with a forex broker. Of course, before one starts to trade currencies, a certain level of knowledge and practice is essential. Once can gain some practice using demonstration accounts, i.e. place trades using demo money, before moving on to some real trading after attaining confidence. The main two fields of trading are known as technical analysis and fundamental analysis. Technical analysis refers to using mathematical tools and certain patterns to help decide whether to buy or sell a currency pair, and fundamental analysis refers to gauging the national and international events which may potentially affect a country’s currency value. Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest trading market by volume. According to the Bank of International Settlements (BIS) latest survey, the Forex market now turns over in excess of $5 trillion every day, with the most exchanges occurring between the US Dollar and the Euro (EUR/USD), followed by the US Dollar and the Japanese Yen (USD/JPY), then the US Dollar and Pound Sterling (GBP/USD). Ultimately, it is the very exchanging between currencies which causes a country’s currency to fluctuate in value in relation to another currency – this is known as the exchange rate. With regards to freely floating currencies, this is determined by supply and demand, such as imports and exports, and currency traders, such as banks and hedge funds. Emphasis on Retail Trading for ForexTrading the forex market for the purpose of financial gain was once the exclusive realm of financial institutions.But thanks to the invention of the internet and advances in financial technology from the 1990’s, almost anyone can now start trading this huge market. All one needs is a computer, an internet connection, and an account with a forex broker. Of course, before one starts to trade currencies, a certain level of knowledge and practice is essential. Once can gain some practice using demonstration accounts, i.e. place trades using demo money, before moving on to some real trading after attaining confidence. The main two fields of trading are known as technical analysis and fundamental analysis. Technical analysis refers to using mathematical tools and certain patterns to help decide whether to buy or sell a currency pair, and fundamental analysis refers to gauging the national and international events which may potentially affect a country’s currency value. Read this Term Funds’ figures and ignored the ‘Excess Net Capital’ number as firms were adequately capitalized (at least in their reports –ie. PFG Best), and there was rarely much of a surprise. However, for this time around we have replaced the month over month ‘Net Capital’ number with the ‘Excess Net Capital’ figure.
As can be seen below, both FXDD and GFT fell below their Excess Net Capital requirements at the end of November. The drop in FXDD was previously documented in the NFA’s memorandum they issued to the broker which had been disputed by FXDD. However, the GFT net capital drop is a huge surprise and apparently this was the point of contention between the CFTC/NFA and the broker. Based on numerous sources, we wrote in the past that the NFA had embarked on enforcing ignored accounting principles in regards to the pooling of funds from foreign subsidiaries. As can be seen below, the new accounting calculations had severe effects on both GFT and FXDD. It’s worth noting that among large brokers, with the exception of Oanda, firms experienced a drop in their ‘Adjusted Net Capital’.
In addition to the drop in Net Capital, during November US brokers also saw a huge fall in Retail Forex Funds. Account funds dropped over $75 million to $742,103,740 from $817,134,898, with FXCM responsible for 2/3 of the decline. Other than FXCM, the other notable drop in funds occurred from GFT. Overall, the drop in total retail account funds follows the negative trend in the US where the Forex industry has been contracting due to an exit of brokers, the MF Global and PFG scandal, a renewed interest in equity trading among retail customers, as well as fewer foreign clients due to the lack of CFDs and high Margin Requirements Margin Requirements A margin requirement is defined as the minimum equity sum that investors must keep in their margin account preceding a trading transaction. Margin requirements may be referred to as maintenance margin, minimum maintenance, or maintenance requirement. This is a requirement for broker trading in any asset class.In terms of equities, the New York Stock Exchange (NYSE) and Financial Industry Regulatory Authority (FINRA) have a fixed margin requirement of 25% of the sum value of the securities present in a margin account. While 25% is the minimum industry requirement, trading brokerages sometimes require between 30% to 40% of the total securities value as a margin requirement as a way to reduce the risk of an investor potentially defaulting on the loan. Why Are Margin Requirements Important?Ex:) A trader possesses a margin account equity sum of $5,000, which means the trader must maintain at least $1,250 in their margin account. Should the trader’s equity appreciate up to $7,500, then the trader’s margin requirements increase from $1,250 to $1,875. However, should a trader’s equity account fall below margin requirements set forth by a broker, that trader will receive what is known as a margin call, which is a request to deposit more or sell of pre-existing assets to fulfill margin requirements. Margin requirements exist and are heavily regulated by the FINRA, NYSE, and the Federal Reserve Board due to the potential of margin trading able to incur astronomical gains along with immense losses. Disturbances in the securities and global financial market are possible as a result of catastrophic losses through margin trading.This is why margin trading is firmly regulated and the reason behind some brokerages raising their minimum margin requirements. A margin requirement is defined as the minimum equity sum that investors must keep in their margin account preceding a trading transaction. Margin requirements may be referred to as maintenance margin, minimum maintenance, or maintenance requirement. This is a requirement for broker trading in any asset class.In terms of equities, the New York Stock Exchange (NYSE) and Financial Industry Regulatory Authority (FINRA) have a fixed margin requirement of 25% of the sum value of the securities present in a margin account. While 25% is the minimum industry requirement, trading brokerages sometimes require between 30% to 40% of the total securities value as a margin requirement as a way to reduce the risk of an investor potentially defaulting on the loan. Why Are Margin Requirements Important?Ex:) A trader possesses a margin account equity sum of $5,000, which means the trader must maintain at least $1,250 in their margin account. Should the trader’s equity appreciate up to $7,500, then the trader’s margin requirements increase from $1,250 to $1,875. However, should a trader’s equity account fall below margin requirements set forth by a broker, that trader will receive what is known as a margin call, which is a request to deposit more or sell of pre-existing assets to fulfill margin requirements. Margin requirements exist and are heavily regulated by the FINRA, NYSE, and the Federal Reserve Board due to the potential of margin trading able to incur astronomical gains along with immense losses. Disturbances in the securities and global financial market are possible as a result of catastrophic losses through margin trading.This is why margin trading is firmly regulated and the reason behind some brokerages raising their minimum margin requirements. Read this Term.