The 2011/12/19 at 06:08
Pélagie Harbour and Mathieu Neu
A graduate from Université Mc Gill in Montréal (Canada) and the holder of a Masters in Management and Finance from the ESCP Europe, Iliès Larbi began his career with FXCM in San Francisco in September 2007 as a sales associate. but since has moved his way up the ranks and has been the Managing Director of FXCM France since January 2009.
Can you give us a brief description of FXCM?
Iliès Larbi: “FXCM Inc. (NYSE: FXCM) is a global online provider of foreign exchange (forex) trading and related services to retail and institutional customers world-wide. At the heart of FXCM's client offering is No Dealing Desk forex trading. Clients benefit from FXCM’s large network of forex liquidity providers enabling FXCM to offer competitive spreads on major currency pairs. Clients have the advantage of mobile trading, one-click order execution and trading from real-time charts. FXCM Franc also offers CFD products with no re-quote trading and allows clients to trade oil, gold, silver and stock indices along with forex on one platform. In addition, FXCM offers educational courses on forex trading and provides free news and market research through DailyFX.fr. The company was founded thirteen years ago in New York by Drew Niv and his partners, who soon opened other offices in the United States (Dallas, San Francisco) then across the world: Tokyo, London, Berlin, Milan, Paris, Athens, Hong Kong and Sydney. Since December 2010, FXCNis a publicly traded company and is listed on the NYSE.”
What is FXCM’s core speciality?
I.L.: “FXCM is one of the pioneers of bringing currency trading to the retail masses, an industry once only accessable to banks and institutions. With the internet boom of the late 90’s FXCM developed an online trading platform for the Forex (currency market). The beginning of the next millennium represented an extraordinary opportunity for hundreds of thousands of individuals who were now able to trade online on this market. FXCM is a currency specialist but also offers CFD (Contracts for Difference on stock markets such as the CFD, CAC 40 for example) and raw materials (gold, oil and silver).”
Who are your customers?
I.L.: “The retail currency trading sector l makes up almost 90% of our customer base. We provide all individuals with a wide range of services, resources and online training. We are available on phone, via the forum our site dailyfx.fr, and generally have an open door policy, meaning customers can come and seek advice without having to arrange a meeting. We support both beginners and experts in the field. In respect of large accounts (institutional, banks, investment funds…), we have a department specially dedicated to them.”
What is your comparative advantage?
I.L.: “Our main comparative advantage bears on our system for executing orders, the No Dealing Desk. FXCM's No Dealing Desk Forex Execution aims to provide transparent and fair execution. Every trade is executed back to back with one of multiple liquidity providers, which compete to provide FXCM with bid and ask prices. The best spreads available to FXCM are streamed to you with a small markup. It is important to understand that the Forex is a market based on mutual agreement. It is not therefore centralised like many others. From one broker to the next, at the same moment, prices may differ, and individuals will naturally want to know which broker will give them the most competitive price which is best suited to the market. And this is where our execution method makes the difference: we have over a dozen liquidity providers that provide us with their price at any given time. Our execution system scans all these prices and selects the best buy and sell prices. The order is executed directly with the bank that offers the most competitive price, anonymously to avoid any conflict of interest. We are a "pure" broker - in other words we remunerate solely on part of the spread (the more transactions there are, the more revenue we will generate) but never on customers’ losses, unlike many other brokers.” We are the only company in France to provide Forex execution via a No Dealing Desk.”
But how can individuals differentiate a pure broker from a market maker broker?
I.L.: “To simplify access to fx trading for the retail audience, many brokers will propose artificially fixed spreads, which is an aberration in itself. Spreads vary constantly depending on liquidity available on the market and transaction flows. If your spreads are fixed, you are trading with a Market Maker. Secondly, these brokers will apply stop restrictions to “stop” orders. For example, the broker may not allow you to place your stop order at less than ten points away from the market. Brokers impose such restrictions on traders to make sure they have sufficient time to hedge themselves and to avoid clients that scalp the market. If you are trading with a true No Dealing Desk execution, no restriction on stop orders will exist; Orders can be placed 1 pip away from the market or even inside the spread. Scalpers are welcome. In summary, two criterias allow you to know whether you are dealing with a broker who may have an interest in your losses: fixed spreads and restrictions on stops. The Forex market is exciting and increasingly popular, but it remains poorly understood by much of the public, and often even by certain professionals in the field.”
What else should an investor look at, prior to committing to a broker?
I.L.: “Choosing a broker that is supervised and regulated in your country of residence is crucial. You should always make sure your broker as well as the staff that will be providing you support are physically present in France (and not just a po-box), thus holding the required licenses to operate. Verifying that your funds can be deposited in a bank account locally is an important aspect to consider as well. You should only trust official authorities such as the AMF (Autorité des Marchés Financiers) and the ACP (Autorité du Contrôle Prudentiel) in terms of regulation. Do not hesitate to call them to make sure the broker you are leaning towards is regulated and present locally. As a second step, it will be important to choose your broker according to the instruments you favour trading and specialize in. For example, single share traders should favour on-exchange trading or CFDs through DMA order execution (Direct Market Access) for optimum price transparency. On the other hand, Forex Traders should avoid trading CFDs on FX (as price and execution transparency lack greatly), but rather favour No Dealing Desk Spot FX instruments. Choose your broker according to what you trade and specialize in. Be as picky as professional traders are, and trade like experts do. You can have several brokers, the best in each category! You also need to be very vigilant when it comes to offers that seem too good to be true: Cash bonuses, trade risk-free, guaranteed stop orders, trading indices such as the CAC40 24h/day etc... Traders have to maintain realistic expectations. For instance, price guarantees (on stops for example) do not exist on the institutional side, why would they be possible on the retail side? ... Unless you are trading with a broker that controls and sets the prices that you see on your platform while being able to see the price at which you placed your “guaranteed” stop. Sounds more like a “guaranteed” loss since the broker profits from your losses...and that is not even considering the extra cost you will have to pay for placing such an order... In respect to the CAC40, the futures contract is traded on-exchange on the MONEP from 8 AM to 22h Paris time, and despite this, you will find brokers claiming correlations between the CAC and other indices, in order to allow trading it even at midnight. Because CFDs on the CAC Index use the futures or cash as the underlying, such an offer makes no sense, and there is a catch. At those times the broker will use his own assumptions to determine where the CAC prices are since the exchange is closed and will create his own market for his clients. Given that the underlying is closed, spreads expand and it is not uncommon to see levels of client’s stop levels reached and triggered at those times. Remember that in such a case, a triggered stop is a loss for you, the trader, but a potential profit for the broker as he is the counterparty to the trade. If a broker controls the prices at which you can get in or out of a trade, while being able to see your stop orders, any type of enticing offer is easy to put together. Especially if the client’s losses are potential profits for the broker - you just have to understand the mechanism.”
So are you calling for better regulation of the Forex Market?
I.L.: “You need to remember that the Forex is the market for individuals that has grown the most in the last three or four years. This can be explained by its numerous benefits: it’s an ultra-liquid that you may enter or leave in a split second; it’s therefore a market which is cheap to trade on and is open 24 hours a day. The leverage effect (ratio between the capital that the investor controls on the market and the capital he has invested) may be used, but take care: at FXCM we recommend a leverage effect of at most 5 or 10, even if the law lets you go up to 200! Because the higher the leverage effect is, the greater the risks and also the losses. In the United States, the NFA and CFTC have reduced leverage effects from 200 to 50 at most; unfortunately we have not seen such measures in Europe.”
What are your upcoming development projects?
I.L.: “The French subsidiary has experienced exponential growth since opening - we are thus staying the course while constantly considering the development of new products and tne partnerships. We have numerous projects under way for France - 2012 looks to be a very promising year.”