FOREX Brokers and The Credit Crunch

Hello Everyone,

As everyone knows by now, the subprime mortage crisis is the main cause behind the credit crunch the markets are facing now. Banks around the world are not trusting each other enough to lend each other and the overnight lending rates have shot up which called for the direct intervention of central banks worldwide.

My question is, how would the credit crunch affect the FOREX brokerage firms? Espeicall that almost all of them do not have any credit ratings.

I don't know the business model of a forex broker but I think that some of them are market makers and in order for them to act in that role they need liquidity which I assume is provided by banks in a lending basis.

I asked that to my broker and here is the awnser:



"In order to route your customer orders to top tier banks, we are provided lines of credit through prime brokers. However, the lines of credit are not directly associated with borrowing or lending costs, but rather are there in order to offset customer trades with top tier banks. Indeed, we have more than enough in lines of credit to pass through customer liabilities (orders) to top tier banks.


As a company, we hold little to no debt, so the increased borrowing costs from the credit markets have little affect on our business. Please read more below on the financial condition of our company. How many other forex dealers can you find that publicly provide their balance sheets to clients?


Forex Capital Markets LLC (FXCM) is regulated as a Forex Dealer Member by the National Futures Association. According to a document released by the NFA, FXCM is the FDM referenced holding in excess of $215 million in customer funds out of a total of over $770 million held by Forex Dealer Members, making Forex Capital Markets LLC the Largest Forex Dealer Member. (We hold 1 out of every 3 dollars held by Forex Dealers)"


Ajusted Net Capital is 5 times bigger the required by NFA.


TOTAL LIABILITIES AND FXCM CAPITAL 385,831,784









I guess we shouldn't worry if we select the best.

But hey, in this forum everybody complains about FXCM despite everybody knows that they are the safest broker to trust our money.

Go figure what this ppl have in mind.

Here is a reply from a friend of mine who is an independent trader and whom I really trust in the FX business:

Thamir, generally they should not be affected assuming they are one of the top 5 that have capital in excess of 20M- you can look at the NFA site to see who that is. Remember that FX firm do not hold any credit risk - just market risk if they are market making - we no longer even do that as pass our order flow to interbank. Still its is always wise to diversify and have your capital split among 2 or 3 dealers so that you are not vulnerable to one point of failure.