Certain Forex brokers going after traders to repay ‘negative client balances’ – LeapRate Exclusive


LeapRate Exclusive… LeapRate has learned that some retail forex brokers are now going about the (very difficult) process of trying to get their clients to repay negative client balances.

A lot of retail forex traders (which were short the Swiss Franc) lost on paper more than their money on deposit. A lot more. For example, a trader which had $1,000 on deposit with a broker and used it to back a 100x leverage trade long EURCHF would have lost about $20,000 as the EURCHF rate dropped by 20% virtually instantaneously.

But the broker only had $1,000 of the trader’s money on deposit. That would leave another $19,000 which the trader technically owes to the broker.

These ‘negative client balances’ were the cause of problems at brokers such as FXCM and Alpari UK. The brokers had to pay those traders which were on the right side of the market and made money, but could not collect from the other traders on the wrong side of the market who lost money. FXCM’s negative client balances reached $225 million by the end of the day Thursday, leading to the bailout of the company via a $300 million loan from Leucadia.

Some brokers have a forgiveness of negative client balances policy. They tell clients that they can never lose more than what they have on deposit.

But not others.

Gain Capital GCAP Forex.com volume metricsLeapRate has learned that Gain Capital Holdings Inc (NYSE:GCAP) and its Forex.com retail unit have begin sending out emails (see example below) to clients with negative equity balances, informing them of their obligation to make good on what they owe.

FXCM Inc (NYSE:FXCM) indicated in its detailing of the Leucadia loan that the agreement with Leucadia ‘requires monthly payments of the term loan from proceeds received… from accounts receivable related to the customer debit balances’.

Clearly, FXCM is also planning on going after those clients who, on paper, owe them money.

We believe that it will be very difficult for any broker to get their (former?) clients to make good on these negative client balances. Certainly there will be some collections. But we doubt that a meaningful percentage of the negative balances will be recovered. And it will be a long and potentially expensive process for brokers to go after the many smaller clients who, technically, owe them money.

We believe that the brokers will be more interested in getting those traders to just deposit more money and begin trading again, eventually agreeing to forgive the owing balances.

This also means that a lot of traders will be changing brokers. If you owe your broker money and don’t want to pay, you’ll simply open an account at a rival broker.

The following is an email received by a Gain Capital Forex.com client:

Thank you for your email.

I did answer your question in the previous email reply that I sent to you. Due to the unexpected announcement by the Swiss National Bank on the 15th, there was an extreme level of volatility and low liquidity that was experienced throughout the forex industry. This is an inherent risk in trading in the forex market as major economic announcements can cause extreme volatility leading to huge losses. All clients are fully responsible for settling any deficit balances in your trading account. We do not have a no negative account balance policy so you are fully responsible for the deficit in your account; therefore we will not credit your account.

If you have any other questions please email us again or call 1-877-FOREXGO.

Regards,
…..
Client Services Team
FOREX.com

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  • David

    Glad I am with OANDA they forgave my $112,000 negative balance…no Joke!

    • Glad that worked out David. I doubt that they’re doing it just to be nice though. Its (in my view) simply a smart business decision. They know that they’re unlikely to be able to collect, and that if they don’t forgive it that you’ll go away. This way, you’re more likely to deposit more money and begin trading again. Forex brokers pay a lot of money to acquire clients, the last thing they want to do is see you go away.

      • David

        Well it worked…..

      • mikeman

        Well Interactive brokers has sent me two emails wanting me to pay the 700k negative balance. I have hired an attorney.

  • Jeremy

    Not OANDA! What an amazing company. No requires and they forgave negative account balances.

  • Client

    Out of curiosity, how does a broker decide what amount of negative balance to waive for each client? Is it depending on if they are agency model or MM model?

  • Andrew Saks McLeod

    I think that certain decisions will be taken to forgive negative balances under circumstances in which the potential ‘noise’ with regard to risk management procedures that allowed such negatives to happen in the first place could attract unwanted attention from the regulators. I still believe that the regulators all over the world are going to go full steam ahead on this and check the records of most companies, and then it will possibly go two ways: In the US the NFA/CFTC will administer fines even if clients were not exposed, purely because companies could have exposed clients, whereas in the rest of the world they may make new regulations which are more comprehensive in terms of risk management. By covering nominal negative balances, companies write off the amount that it costs to cover the balances, but they retain good clients, maintain good will and engender trust, as well as keep the regulatory wolf from the door – the last thing any broker wants is a disgruntled client with a big loss rounding up several customers and presenting a class action law suit on risk management grounds…. It is clear that we are going to see a reshaping, with leverage, margin, capital requirements, risk management tools all likely to undergo yet another regulatory overhaul as a result of Thursday’s event.

  • Rogue Wave

    You’re missing the main story here. Anyone who made money on any spike on any currency cross for an entire day is owed money by the brokers as all trades stand on ECNs for the entire day. It was no error of any kind, and it is booked on all non-CHF pairs at all the brokers you mention.

    Brokers on instruction of banks don’t want profits paid out hence adjusted their trades on their instruction half a day later, which finally became a criminal offence for sentencing to jail in UK last month.

    Conversely, anyone who got stopped out by wide bid or asks on any currency cross for an entire day owes money to the broker, and if you are one of them make sure it is seen out there.

    What you are witnessing here is selective choice of who won and lost by the banks so brokers take most amount of money on their behalf. Trades are adjusted to benefit the banks not the client.

    Guys who won on Alpari UK will not have their profits back, while guys who lost at FXCM will have those same levels booked in stops. And vice versa.

    Do not be fooled, that’s what the regulators will looking into and they will have to go through each winning and losing trade. They will need your records. Publish your stops and winnings out there on all currency crosses, not just CHF related, they are there on all currency pairs (ie. EUR/NOK, AUD/USD, etc, etc). That’s exactly the card brokers are hiding on behalf of banks and publishing all sorts of excuses:

    Example: Poor liquidity caused your stop, and poor liquidity took someone profits. Cannot be both.

    Example: Technical error caused profits on your trades, no technical error caused your losses/stops. Cannot be both.

    If that information is spread across brokers levels can be hidden forever. Very, very, simple.

    The problem is all ECNs have those trades booked and they all stand. If you had a quote and trade, it cannot be cancelled by the bank or regulation whilst it went to an ECN. They have an obligation to give you the best quote and execution by law.

  • Paul

    GFT UK is also going after negative balances. They are market makers, so what we lose as retail clients, they gain. They do not even think to put negative balances to zero.

  • Andrew

    Do you know if CMC is going after negative balances? as market makers, they shall not!

  • MaxT

    Everyone should be complaining to the FCA if you strongly believe you have been taken for a big ride by your spreadbetting company. Groups I’ve found are below…you are not alone

    cmcsnb@taking-steps.com (CMC)

    swissqig@hotmail.com (Swissquote)

    qeurchf@gmail.com (Swissquote)

    saxosgchf@gmail.com (Saxo Singapore)

    saxobankcheatedusersgroup@gmail.com (Saxo)

    igeurchfloss@yahoo.com (IG Index / IG Markets)

    takeoff06@googlemail.com (Interactive Brokers)

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Certain Forex brokers going after traders to repay 'negative client balances' - LeapRate Exclusive

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