LeapRate Exclusive… LeapRate has learned that retail forex broker Gain Capital Holdings Inc (NYSE:GCAP) and its Forex.com unit have sent messages to clients (see example below) that they will not be required to repay negative client balances in their accounts.
That marks a quick reversal for Forex.com. On Tuesday we reported that Forex.com (as well as some other forex brokers) were going after traders to repay negative client balances owed to the company from losses incurred on Swiss Franc trades last Thursday.
What exactly is a ‘negative client balance’?
A lot of retail forex traders (which were short the Swiss Franc) lost on paper more than their money on deposit last Thursday. A lot more. For example, a trader which had $1,000 on deposit with a broker and used it to back a 100x leverage trade long EURCHF would have lost about $20,000 as the EURCHF rate dropped by 20% virtually instantaneously. But the broker only had $1,000 of the trader’s money on deposit. That would leave a $19,000 ‘negative client balance’ which the trader technically owes to the broker.
The reason for the change of heart at Forex.com?
In our view, a simple (and smart) business decision.
If the balances aren’t forgiven, then the trader goes away and likely opens up a new account at a different broker, while the first broker really has little chance of ever getting its money back. But if the (first) broker forgives the balance, then the trader is much more likely to stay, deposit new money, and trade again.
The following is an example of a message sent today to Gain Capital clients having negative equity balances in their accounts:
In light of last Thursday’s extraordinary market events, we are forgiving all negative balances incurred by FOREX.com retail clients on January 15, 2015 where permitted by regulation. As a result of this decision, your account will be credited €xxxxx.xx. We expect this credit to be completed and posted to your trading account by 5pm ET on Thursday, January 22, 2015.
Your continued trust and loyalty drive every decision we make. We will continue to challenge ourselves to provide you with the best tools and resources to help you succeed in the markets, along with the level of service and support you expect from a global market leader.
Thank you for trading with us.
FOREX.com