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Screenshot of a breaking news alert e-mail from Q2 2017
LeapRate Exclusive… LeapRate has learned that leading global retail forex broker FXCM (NYSE:FXCM) has recently ended its relationship with all affiliates, thereby ending its affiliate program. A letter in that regard was sent out last week to (former) FXCM affiliates – see below.
The reasons for discontinuing work with affiliates seems to be a combination of financial – that is, they were becoming less important overall for FXCM, especially with FXCM’s newly installed raw-spreads-plus-commission pricing model – and regulatory, with more scrutiny put by regulators on clients and volumes which come from affiliates.
For those who follow FXCM’s results closely, the ending of its Affiliate program should not be too much of a surprise. In its Q2 report FXCM pointed out that it saw a 28% decrease in ‘indirect volumes’ versus last year, much of that being the winding down of its affiliate program. (Note that FXCM’s IB and white label businesses remain very much active, more on that later).
And keep in mind that while FXCM has been phasing out affiliates they are absolutely kicking on all cylinders volume-wise – FXCM just reported consecutive months of record retail and institutional volumes, with September’s $414 billion of retail volumes being surpassed by October’s $509 billion – making FXCM the first ever retail forex broker outside Japan to break the magic half-a-trillion mark.
The following is an example of a letter which was distributed to FXCM affiliates:
To be clear, FXCM’s Affiliate program is separate from its introducing broker (IB) program, which remains intact, although with certain modifications, with FXCM placing higher standards on IBs and making them conform to its transparency standards. FXCM also has a large network of white label firms using its software and liquidity services.
The difference between IBs and Affiliates is subtle, but important. Affiliates are typically websites or emailers which place tracking links on their pages to direct traffic to specific brokers. The broker will then pay the Affiliate a fee, which can vary from a per-click fee (CPC) or a fixed one-time client acquisition fee (CPA) to a variable percentage of spread revenues (or ‘RevShare’) earned over time from that client. The Affiliate will usually not know which clients were referred, and might have no direct contact with the client.
IBs, on the other hand, are more hands-on in their real or online dealing with a client. IBs often sign up clients directly on their own websites, passing the client on to the referring broker, and then also earning either a fixed or variable fee from the broker.
However you define it, these ‘indirect’ trading volumes coming from various ‘introducers’ are fairly important for most retail forex brokers, and can account in some cases for more than half of a broker’s clients and trading volume. But in FXCM’s case, given their established position in the industry globally they are becoming less dependent on third party volumes, while still performing at record volume levels.
And being able to grow their volumes without paying much in terms of acquisition fees or Revshare means higher margins for FXCM.