Retail Brokers: Who’s Growing and Who’s Not?

I did a little recon work for you guys over the weekend to find out which forex brokers are growing and which ones aren’t. But I didn’t need to practice my stealth skills to get this info… I just took a look at the CFTC’s latest report!

Below, you’ll find financial data for the month of August for retail foreign exchange dealers (RFED) that are registered with the CFTC.

Total Amount of Retail Forex Obligation
(Source: http://www.cftc.gov/)

Total Amount of Retail Forex Obligation
(Source: http://www.cftc.gov/)

Some of the terms above may be new to you, so allow me to explain. According to the CFTC,

“A firm’s net capital requirement is the greater of:

  • FCM minimum dollar amount ($1,000,000); or
  • risk based capital requirement, the sum of 8% of total customer risk maintenance margin and 8% of total non-customer risk maintenance margin; or
  • the amount of capital required by a registered futures association (currently NFA is the only such association); or
  • for securities brokers and dealers, the amount of net capital required by Rule 15c3-1(a) of the Securities and Exchange Commission; or
  • minimum dollar amount for FCM’s offering or engaged in retail forex transactions and RFEDs ($20,000,000); or
  • minimum dollar amount for FCM’s offering or engaged in retail forex transactions and RFEDs ($20,000,000) plus five percent of the FCM’s or RFED’s total retail forex obligation in excess of $10,000,000.

Excess net capital is adjusted net capital, less the firm’s net capital requirement.

Total Amount of Retail Forex Obligation represents the total amount of funds at an RFED that would be obtained by combining all money, securities and property deposited by a retail forex customer into a retail forex account or accounts, adjusted for the realized and unrealized net profit or loss.”

In layman’s terms, a firm’s net capital requirement is the minimum amount of capital that the broker must hold, while excess net capital refers to adjusted net capital minus net capital requirement.

Total Amount of Retail Forex Obligation, on the other hand, just refers to how much money the broker is holding for its clients.

A quick glance at the figures shows that August was a good month for the retail forex industry.

It’s particularly comforting to see that excess net capital is on the rise because it tells us that retail forex brokers are well-capitalized, which decreases the chances of them leaving their clients high and dry.

Meanwhile, total deposits were up by 14.37% from July and 15.98% from June. For the most part, it’s suspected the pick-up in deposits was brought about by post-summer volatility as traders came back from their vacations.

It’s not all good in the hood though. A closer look at the numbers reveals that not all brokers posted gains during the month. In fact, only 6 of the 16 brokers registered with the CFTC saw client deposits increase from July to August. The remainder saw very little to no changes in August.

The bulk of the growth was generated by two of the most renowned brokers in the industry. FXCM, the biggest broker in the FX hood, led the pack with a 45.33% growth in deposits from July and 55.82% increase from June. It was then followed by GFT, who grew over 14% in August from July, a tad higher than the growth it posted from June.

I can’t help but wonder why deposits were concentrated in just two brokers. Are traders flocking to them and depositing more money because of superior services and offerings? Or is it the result of aggressive marketing?

I’ll have to make use of my ninja skills to delve deeper into the subject and find out. But whatever the reason is, the report should still be good news to the Average Trading Joe. It shows that the retail forex industry is still growing, and as we all know, more trading activity can lead to higher liquidity in the markets.