Following a period of controversy and confusion triggered by the Swiss Franc debacle last January, FXCM UK has taken the bold step of clarifying that only the first $50,000 of any negative balance incurred by a client will be written off, starting at an unspecified future date believed to be soon. Amounts in excess of $50,000 that are incurred will be placed beyond negative balance protection and within the remit of debt legally owed by the client to FXCM UK.
The small print of the new master agreement covering negative balance protection will actually be even stricter, as it will state that "?Subject to certain exceptions, FXCM will waive the first US $50,000 of a client's total negative balance (determined by aggregating all of the client's negative balances across all accounts held by the FXCM group, incurred over a 24 hour period of time). This policy will apply to negative balances incurred during all market conditions, including exceptional market movements"¦. Specific Exceptions: Each client's master trading agreement will detail all of the specific exceptions to the Negative Balance Policy."
This suggests that clients need to carefully check their position and the exact wording of any master agreement they are completing with FXCM UK in order to determine their position regarding negative balance protection. However it seems very clear that the intention is only to limit any individual write-off to $50,000 per client.
This marks a significant change from FXCM UK's previous position, which was stated clearly on their website: clients could not incur a negative balance. However, it is worth noting that the vast majority of retail clients, if they take care to limit their true leverage, will find it hard to create a liability in excess of $50,000 even in very wild market conditions.
It is well known that FXCM have been making a number of changes to shore up their market position and attractiveness to investors, as well taking steps to reduce their market risk. This change falls squarely within this campaign.
The announcement makes no change to other arms of FXCM. Most of FXCM's clients globally were always exposed legally to the risk of negative balances without protection, in line with the practice prevailing within the industry.