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Screenshot of a breaking news alert e-mail from Q2 2017
Retail forex broker FXCM Inc (NASDAQ:FXCM) has made a filing with the US Securities and Exchange Commission (SEC), providing more details on what it received for selling its US Forex clients to rival Gain Capital Holdings Inc (NYSE:GCAP).
As we reported earlier this week, FXCM was forced into a quick fire-sale of its US operations after the company and its CEO Drew Niv and co-founder William Ahdout were banned from US Forex market, following settlement of allegations that FXCM defrauded its customers over the course of several years as to the nature of its market making activities.
And as we reported earlier, Gain Capital did not have to pay anything up front to FXCM.
So what did, or what will, FXCM receive?
According to the filing, the deal was done on a ‘CPA’ (cost-per-acquisition) basis, depending on how many FXCM clients actually sign up and trade with Gain Capital and its Forex.com unit during the first 153 days following account transfer.
Specifically, FXCM will be paid a maximum of $500 for each transferred client account. For transferred clients which execute at least one new trade during the first 76 calendars days after transfer, Gain will pay FXCM the full $500. For transferred clients which do not trade during the first 76 days, but make at least one trade during the following 77 days, FXCM will be paid $250.
So how much might all that add up to?
Some quick back-of-the-envelope math…
FXCM reports having about 175,000 ‘active’ clients worldwide, although that includes any client who has executed a trade in the past year. And based on our earlier report that FXCM’s US clients represent about $53 billion in monthly volume or roughly 20% of FXCM’s overall retail forex volume, that would mean that there are about 35,000 potential US clients to transfer.
Best case scenario – ALL those clients move to and trade with Forex.com, earning FXCM a $500 CPA per client (if they all trade during the first 76 days), for a grand total of $17.5 million.
However that is unlikely to happen. Many of the 35,000 ‘active’ US clients have not been active in the past few months.
Not all of them will move to Forex.com.
And not all of them will trade, at least not during the first 76 or following 77 day ‘windows’.
While this is admittedly a ‘back-of-the-envelope’ estimation, our best guess is that FXCM will be lucky to see one-quarter of that ‘best case scenario’ amount, or something in the $4.4 million range.
The main benefit to FXCM of letting its US clients go, however, is freeing up the more than $50 million in regulatory capital which was effectively tied up thanks to stringent US regulations for retail brokers. That amount, more than the eventual sale proceeds, will be put to use by FXCM in paying down a good chunk of FXCM’s high-interest loan from Leucadia National Corp (NYSE:LUK). That loan balance stood at about $150 million at year-end.