This past weekend, GFT surprised the markets with news that it will be shutting down its retail forex trading operations in the U.S. Since 7:00 pm EST last Sunday, GFT’s U.S. retail customers have no longer been able to put on new orders and are currently only allowed to close out their existing open positions. All remaining clients will now have their accounts transferred to one of GFT’s institutional partners.
The truth is, signs of GFT downsizing its retail client operations materialized months earlier, when it started laying off some employees and executive directors. However, no one really expected that it would completely close shop.
According to GFT management, the company decided that it would be better off focusing on its institutional clients.
In a way, this makes a lot of business sense, as the institutional forex market makes up more than 90% of the entire global foreign exchange market. Furthermore, with the U.S. retail market currently experiencing low growth, lower client deposits, and lower volume, GFT is merely following the footsteps of other brokers who have downsized or closed their retail brokerage divisions.
But is there more to GFT’s decision than meets the eye? After all, GFT isn’t the first retail broker to drop its retail brokerage services in recent months. Other firms (such as Forex Club and Advanced Markets) have either complemented their retail forex services with institutional trading or dropped their retail forex operations entirely.
I can’t help but wonder if the NFA’s new restrictions are pushing brokers out of the retail scene. It certainly hasn’t made things any easier for them.
By raising the minimum capital requirement for forex brokers to $20 million and capping leverage at 50:1 for major pairs, the NFA has basically made it extremely difficult for brokers with transactions of less than $50 billion a month to make money in the U.S.
Running a brokerage in the U.S. just isn’t as easy as it once was. With new rules (such as the daily filing of customer fund reports) increasing the cost and trouble of doing business in the U.S., firms are finding less and less incentive to operate in the country.
Now, how does this affect retail traders like you and I?
In a nutshell, it’s bad news, buddy!
The NFA had good intentions when it created new rules and regulations to protect U.S. retail traders, but it looks like its actions may have done more harm than good. It seems that it has indirectly forced some brokers to stop operations or seek business elsewhere, which has reduced competition in the U.S. retail scene. In turn, this has resulted in fewer broker options for retail traders, which effectively decreases the range and variety of services available to them.
But you wanna know the scariest part? GFT might not even be the last retail broker to ditch the U.S.! This year alone, we saw the number of CFTC-registered U.S. retail forex brokers drop from 16 to 13. This could very well be the start of the great U.S. exit, folks!