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Gain Capital will pay the FXCM broker even 750 USD per customer

Gain Capital will pay the FXCM broker even 750 USD per customer

created Paweł Mosionek10 February 2017

Three days ago, we informed you about a loud event on the American Forex broker market. The largest retail player, FXCM, said goodbye to the license, and thus the company's CEO was banned from holding an identical or similar position for life (read: FXCM banned in the US and fined 7 million USD). This is not the end. There was also a financial penalty of USD 7 million. So there were no illusions - FXCM, which was already in a difficult situation after the memorable Black Thursday of January 15, is disappearing from the US market. But the questions started to multiply: will the British branch of FXCM UK face a similar fate as with current clients, will traders backfire… So what has happened in recent days?

  1. FXCM announced the release of 150 employees.
  2. FXCM shares fell from 6.83 USD to 3.00 USD, i.e. 56% to this day. In post-session notation (so-called after-market) they lose more 10% and their price is 2.70 USD.
  3. There was an agreement with Gain Capital regarding the takeover of clients.
Drew Niv, CEO of FXCM

Drew Niv, CEO of FXCM

FXCM has a database 175 "active" customers globally. For comparison, the largest Polish broker - XTB - can boast a group of no more than 50 clients from all over the world. This difference shows the scale of the event we are dealing with. The report says US customers are generating approximately 53 billion USD turnover per month, which gives about 20% of the total earned with the broker. Based on these data, it can be estimated that he has accounts at FXCM about 35 000 people.

Gain Capital enters the game as the second largest player in the US market, with the intention of taking over US FXCM clients. The term "active client" is understood to mean a trader who has concluded at least one transaction in the last year. This may significantly distort the real result of the accounts from which the new buyer will de facto draw profits. Therefore, in order not to overpay, the transaction will be settled in the CPA model (the so-called cost-per-acquisition), in other words, Gain Capital will pay only for the customer who will eventually transfer his account and execute at least one transaction during the first 76 days from the funds transfer. The price was set at $ 500 per customer. In addition, they will pay another $ 250when the customer makes a second transaction during the next 77 days. It is a kind of form of protection and the removal of inactive traders.

In the best case (for FXCM), you can quickly calculate that the entire transaction will be for an amount over 26 million USD (35 thousand clients x 750 USD). But this is just a theory. It is estimated that it will amount to at least 4 times smaller, which would be enough to pay the fines imposed. The main benefit of this transaction, however, will be the release of approximately US $ X million per million of regulatory capitalwhich is blocked due to the requirements of the American financial supervision in favor of transactions carried out by FXCM clients. This should save the company from swift bankruptcy, as it still has a high-interest loan to Leucadia National Corp., worth $ 150 million at the end of last year.

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About the Author
Paweł Mosionek
An active trader on the Forex market since 2006. Editor of the Forex Nawigator portal and editor-in-chief and co-creator of the website. Speaker at the "Focus on Forex" conference at the Warsaw School of Economics, "NetVision" at the Gdańsk University of Technology and "Financial Intelligence" at the University of Gdańsk. Twice winner of "Junior Trader" - investment game for students organized by DM XTB. Addicted to travel, motorbikes and parachuting.