Another One Bites the Dust

FX Solutions, the U.S. affiliate of City Index Group, recently announced that it’ll be ditching its U.S. retail services to focus on expanding operations in Europe, the Middle East, and Asia.

FX Solutions’ U.S. client base has been acquired by Gain Capital. Note that only U.S. clients will be transferred to Gain Capital’s Forex.com platform at the end of trading on March 1, 2013. Non-U.S. clients will not be affected.

Why the change?

FX Solutions’ decision was a purely business one. According to Martin Belsham, the Chief Executive of City Index, the broker doesn’t make much money from its U.S. retail operations. It was also having a hard time keeping up with the large capital requirement set by the National Futures Association (NFA).

Belsham said that he would like to use the capital tied up in the U.S., which he described as “an insignificant part” of the business, for more profitable ventures.

He estimates that ending U.S. operations will free up about $30 million, money that can be used to pursue business in high-growth regions, such as Europe, the Middle East, and Asia. FX Solutions has already seen some success in these markets, which are less mature and also less regulated than the U.S.

Not the first to drop U.S. operations

What’s worrying is that it seems as though this is becoming a trend in the U.S. retail scene. FX Solutions isn’t the first broker to exit the U.S. retail market; it followed in the footsteps of GFT, whose client base was also picked up by Gain towards the end of 2012. And let’s not forget, Forex Club and Advanced Markets also dropped their U.S. retail brokerage services last year.

Seeing another big retail player let go of its U.S. operations certainly raises a couple of questions. Is the U.S. retail forex market already saturated? Can it still grow? More importantly, is the NFA choking the industry rather than promoting growth with its strict regulations?

As the NFA enforces stricter rules, brokers have had to reduce the amount of leverage offered to clients while dealing with larger capital requirements. Not only does this make it more difficult for existing brokers to conduct business, but it also raises the barriers to entry for new players.

If you really think about it, at the end of the day, it’s traders who are at a loss. As I’ve said many times before, having less broker options reduces competition in the retail scene, which in turn results in a smaller range and variety of services available to traders, and possibly a change in the cost to execute trades for retail clients.